When a Michael Mauboussin essay like this drops, I sing the Hallelujah Chorus so loud my neighbors complain.
If you aren't reading this post soon what the hell will you be reading?
The value of a business is the sum of the value of existing and future customers. Bottoms up!
If you aren't reading this post soon what the hell will you be reading?
The value of a business is the sum of the value of existing and future customers. Bottoms up!
https://twitter.com/mjmauboussin/status/1395055291029458949
2/ "Customers, revenues, and costs are the core drivers in the CBCV model. It is essential to consider how they interact when assessing how various assumptions affect value. Specifically, there are trade-offs between the drivers."
The interaction of factors makes the game fun!
The interaction of factors makes the game fun!
3/ "For example, a price increase grows cash flow but raises the churn rate. A price drop shrinks cash flow
but lowers the churn rate. A focus on new customer acquisition increases the number of customers but raises
acquisition costs."
Understanding the interaction is an art.
but lowers the churn rate. A focus on new customer acquisition increases the number of customers but raises
acquisition costs."
Understanding the interaction is an art.
4/ "The key to sorting through these possibilities is to do sensitivity analysis and to run scenarios."
By running many experiments using data science a manager can develop a "feel" for the CBCV, which is a lot like flying an airplane. Both analog and digital clues are inputs.
By running many experiments using data science a manager can develop a "feel" for the CBCV, which is a lot like flying an airplane. Both analog and digital clues are inputs.
5/ People who run a P&L are ~ micro economists and their lens is often the value of each of their customers. When I look at a business my source of variant perception is often CBCV. The bottoms up analysis not reconciling with a top down analysis can generate investable insight.
6/ An example of CBCV revealing investable insight is subscription SaaS, where the bottoms up analysis reveals top down GAAP accounting generates a broken model of value creation due to investments in intangibles and up front subscriber acquisition costs incurred by the business.
7/ What you are looking for often is a business with GAAP earnings not reflecting what John Malone calls "value creation and levered cash-flow growth."
"You must learn things others don’t, see things differently or do a better job of analyzing them – ideally all three.” H. Marks
"You must learn things others don’t, see things differently or do a better job of analyzing them – ideally all three.” H. Marks
• • •
Missing some Tweet in this thread? You can try to
force a refresh
