I was very pleased to find that when getting into the business world, that numerical methods for financial data and venture profitability are the same as those for simulating flows of material through the ocean environment and living or mechanical things.
It should be no surprise that tools the early cyberneticists developed for neurological and physiological research made its way into the nebulous Operations Research.
The SaaS business model makes a lot of sense to me, because it’s about efficiency and focus. Ultimately, it’s about optimizing unit economics over time, which is why VC loves SaaS.
One type of SaaS is the managed market, where the service provider acts as intermediary between buyer and seller, taking a profit from either or both sides. The middle person, the vectorial class.
You might offer one or more services, but each line of business should be profitable, eventually. The higher the quality of service and the more risk assumed by the vector, the greater the share of the transaction. Sometimes 40%. The risk is greatest when the products are luxury/niche, or expire.
Whole “solutions” are compelling, but consider that these bundle your strengths with your weaknesses, and ask a higher price for the mixed basket. There ought to be no such thing as a cost center.
I needed recently to understand the managed market model, and do sensitivity analysis on the profitability of specific lines of business. Interesting enough to make a toy model out of.
The ontology is pretty simple. The topology is a little more complex.
You have a
producer group. The business dedicates some
funnel to onboard members. Then a
vector matches supply and demand between groups.
You can substitute names appropriate to your vertical.
Whatever you’re selling flows from
consumer, and through
vector. Some amount may become
waste on the
consumer side or when returned to
Money flows from the
consumer to the
funnel feeds the
growth. That might mean a very low maintenance
funnel, or a monster deal flow.
In other words,
vector growth should be monotonic, while
funnel might scale to zero. That’s why sales work on commission, I think? Network effects become dominant.
These agents can be fully simulated with a few variables:
flux, the amount and direction of product moved
capacity, the amount that can be held at one time
growth, organic account growth
cost, one time of acquiring new account
life, span of account, used to calculate churn, et cetera
fees, flat cost to customer, preferably zero
Time-sensitive products and services are defined with:
price, unit price
life, how long product retains value
take, share of transaction that goes to service provider
The resulting transactions are the record of flows between agents.
(Work in progress…)