Living Business Models compared to spreadsheet models
The spreadsheet is still the most common tool for doing quantitative modelling in business today. While we agree that it is a very useful tool for many purposes, we also believe that spreadsheets are slow to build, hard to explain to others, and highly prone to significant calculation errors. Living Business Models could be built using spreadsheets, but we believe that there is a far more effective software out there: Sysdea. Sysdea is a modern cloud-based modelling software developed by Strategy Dynamics ltd., and based on the System Dynamics methodology. The key difference between spreadsheets and system dynamics modelling software such as Sysdea is that Sysdea allows you to have a more aggregated view of your model, which allows you to see the relationships between the variables, rather than having to infer them from unintuitive and hard-to-trace cell references.
Let's demonstrate this with an example. Below we see a simple calculation from an actual financial model used by an entrepreneur we are currently working with. This financial model seeks to forecast how the entrepreneur's business, an online language learning platform, will develop over the 52 weeks of 2017 (note that the inputs to the original model have been changed).
Now compare the spreadsheet format with the same model built in Sysdea:
Each of the variables that we see in this model is just like a column in a spreadsheet:
So, as we see, Sysdea models allow us to see our model from a higher level of aggregation. Rather than seeing all of the numbers at once, one sees the names of each variable, and arrows that show the relationships between these variables (in terms of which variables are inputs into other variables). This point is summed up nicely by the infographics below, taken from this article.
Another big advantage of Sysdea over spreadsheet software is that Sysdea uses variable names when writing formulas (e.g. Organic growth (per week) = Students*organic growth rate). This formula only has to be written once, and will be automatically repeated for each time unit (which in this model is each week). In spreadsheets, on the other hand, formulas are written using unintuitive cell references (e.g. cell E17 = E16+(F16+H16)-(E16*J16)) and relationships have to be inferred from this. This is not only a much slower way to write a formula, it is also far more prone to errors, and far harder for others to understand (how many times have you find yourself glancing across columns and down rows in order to trace back cell references?).
As mentioned in the infographic, although the numbers are kept in the background in Sysdea, they can be called upon with the click of a button. They can also be inferred from the graphs, which offer information much more effectively than cells upon cells of numbers: in the same way that a picture is worth a thousand words, a graph is often worth a thousands cells!
There are many more important differences between LBMs and spreadsheet models, but for now we will leave you to digest what we've just discussed. If you wish to start building your own models using this software, then you can try Sysdea for free here, and use the free tutorial available. And if you want us to help you build a tailor made LBM for your own startup or new business initiative, then you can book a demo here, or go straight to taking our questionnaire here.