Case Studies

“The Strategy Simulator™] model made our business strategies come into focus. Testing each scenario was a little like being able to see into the future—we could determine exactly how each of our choices, and all of the potential changes in the market, would affect us in the immediate future and in the long term.”--Dean Porter, CEO

How a VC saved $15 million

During the Internet boom a prominent Menlo Park venture capital firm approached VMN principals to create a strategy simulation model of one of their portfolio companies. The VC had invested $500,000 in it and were poised to fund a $15 million rollout. Indeed, the company seemed ideally positioned to perform well: A seasoned management team had proprietary technology, rapidly growing revenues and a large market to pursue.

Within ten days the model was complete and we approached the president to discuss a strategic issue that had emerged. The model identified a lack of operating leverage as revenues increased. In other words, the currently thin profit margins could not be expected to expand appreciably with added volume. Bottom line, unless this problem was fixed, the projected profit did not justify the risk.

We then worked closely with management to help strategize ways to boost the company’s operating and financial leverage. The model was used to quantifiably test each suggested solution. Finally convinced that the problem unavoidable, we met with the VC and everyone agreed to shut it down. Most often the Strategy Simulator™ finds ways to substantially increase a company’s success. In this case it saved a VC $15 million.