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How to Assess the Health of a Fast-Growing, Money-Losing Business
Customer-Based Corporate Valuation can analyze the paths to profitability for unprofitable businesses
Losing money has never been more fashionable. Many recent IPOs like Allbirds, Rent the Runway, and Warby Parker are growing quickly, but losing money. Customer-based corporate valuation (CBCV) is a tool for triaging unprofitable business models and assessing paths to profitability. It does this bottoms-up by analyzing customer behavior and unit economics.
If a cohort analysis and a DCF had a baby, it would be CBCV. The model’s champion is Daniel McCarthy, an entrepreneur and Assistant Professor of Marketing at Emory’s Goizueta School of Business. Below is a non-technical primer ( here’s a technical one). Even if you never touch financial models, a basic understanding of CBCV offers insights for business analysis.
CBCV 101
CBCV starts from first principles: all revenue comes from customers. Using customers as the unit of measurement, it distills revenue into its constituent components, modeling each separately. The goal is predicting customer behavior. In particular, the number of customers acquired and the average revenue per customer. To do this, CBCV answers five questions:
