Five innovations have changed the startup world: 1. Applying the scientific method to startups through experiments and iteration to learn about customers and business models. 2. Developing business models using the Business Model Canvas to validate assumptions with facts from experiments. 3. Conducting Customer Discovery to understand customer problems rather than focus on technology solutions. 4. Using the Lean Startup methodology to build minimum viable products to test learning hypotheses rather than fully developed products. 5. Defining metrics like the AARRR framework to measure acquisition, activation, retention, revenue, and referrals to guide business model optimization.

1. Startups 2013
how five innovations have changed
the startup world, forever
Keith McGreggor
Director of VentureLab @

3. 1980 1990 2000 2010
Southern
Bell
Lockheed
Apple
Coca Cola
Yahoo
G
eorgiaTech
BS M
S PhD
M
ichele
Andrew
Sarah
school
life
work
startups
M
ilton
AIAtlanta
Pixel Resources
BeInfinite
Ansel
N
etroadshow
M
ediaTools
TheConceptory
G
uardedN
et
21e Reflex
Security
Backnoise
Iterated
System
s
N
SF

5. America’s Best Engineering Graduate Schools 2012
1. ! Massachusetts Institute of Technology
2. ! Stanford University
3. ! University of California — Berkeley
4. ! Georgia Institute of Technology
5. ! California Institute of Technology (CalTech)
6. ! University of Illinois — Urbana-Champaign
7.! Carnegie Mellon University
8.! University of Michigan — Ann Arbor
9.! University of Texas — Austin
10.! Cornell University!
Eighth
Year!

9. 7/14/09 Enterprise Innovation Institute
GT Research Distribution
Over half a billion dollars total R&D on campus for FY2009!
12
College of
Engineering
GTRI
College of
Sciences
Research Centers
College of
Computing
Other
> $500,000,000 / year
EACH YEAR AT

10. research is the transformation
of money into knowledge

11. EACH YEAR AT
annual invention disclosures 400
unencumbered inventions 250
startup ideas 25
license ideas 200
early ideas 25
VentureLab

12. at least one new invention
every day

13. innovation is the transformation
of knowledge into money

14. Decisions
LICENSE
Inform Office of Technology
Licensing
START-UP
Assign to Catalyst
LIFESTYLE COMPANY
Advice team on viable
commercialization strategies.
SCIENCE PROJECT
Put technology on hold
Contact professor every
six months for an update
Research
{
80%
10%
10%

15. inventions reviewed 250+
new projects 35+
ongoing projects 83
new companies created 30
external investment in new and
existing VL companies in 2012
$185M
total of angel & VC
investments in VL companies
$700M+
2012

17. 1 Rice Alliance for Technology and Entrepreneurship Rice University United States
2 VentureLab Georgia Tech United States
3 UB Technology Incubator State University of New York, Buffalo United States
4 NDRC LaunchPad Trinity College Dublin Ireland
5 SETsquared Universities of Bath... United Kingdom
6 Innovation Centre University of the Sunshine Coast Australia
7 Tech 20/20 University of Tennessee United States
8 ATP Innovations University of Sydney Australia
9 STING KTH Royal Institute of Technology Sweden
10 NCTU Innovation Incubation Center National Chiao Tung University Taiwan
11 Youngstown Business Incubator Youngstown State University United States
12 I3P Politecnico di Torino Italy
13 Vermont Center for Emerging Technologies University of Vermont United States
14 Jon Brumley Texas Venture Labs University of Texas at Austin United States
15 Startup Sauna Aalto University Finland
16 InNOLEvation Accelerator Florida State University United States
17 TEC University of Alberta Canada
18 ASU Venture Catalyst Arizona State University United States
19 Oxford Entrepreneurs Incubation Centre Oxford University United Kingdom
&
#1 Engineering/Science Incubator
#1 Early Stage Incubator

18. How?

19. about startups ...

20. 1996 1998 2000 2002 2004 2006 2008 2010 2012
NASDAQ
1000
2000
3000
4000
5000

21. $1,000,000,000,000

22. we know something now that
we didn’t know before
...

23. we know something now that
we didn’t know before
we know how to build
startups

24. we know something now that
we didn’t know before
we know how to build
startups
engineer

25. five innovations

27. what is a company?

28. A organization which sells a
product or service in exchange for
revenue and profit

29. A bit of history...

30. Dutch West India Company 1620

31. 1856 - First Org Chart

32. 1908

33. Tools for the 20th Century
“Century of the Corporation”

34. ... but what about startups?

35. Startups are a Smaller Version
of a Large Company

36. Startups are a Smaller Version
of a Large Company

37. Startups are something else.

38. five innovations
what is a startup?

39. A startup is a temporary
organization designed to search for
a repeatable and scalable
business model.
innovation

40. Startups Search
Companies Execute

41. Business Model
Product/Service
Startups
Companies

42. Old School of Startups
(before 2010) ...

43. All I Need to Do is Execute the Plan

44. All I Need to Do is Make the Forecast

45. What we know now
(and have known all along)...

46. Business Plans
are
FICTION

47. "Everybody has
a plan until they
get punched in
the mouth."

48. Five year forecast?
MAGICAL
THINKING

49. Crystal ball...
2007 2013

50. Previous
5-Year Plans

51. Business
Model
Business
Plan>

52. five innovations
what is a business
model?

53. Business Model Generation
segments
value
prop.
revenue streams
customersofferinfrastructure
cost structure
activities
partners
resources
relationships
channels
financial
innovation

54. the Canvas
segments
value
prop.
revenue streams
customersofferinfrastructure
cost structure
activities
partners
resources
relationships
channels
financial

55. still fiction...
segments
value
prop.
revenue streams
customersofferinfrastructure
cost structure
activities
partners
resources
relationships
channels
financial
?
? ?
?
?
?
?
?
?
?
?
?
?
?
?
?

56. ... and we want facts!
segments
value
prop.
revenue streams
customersofferinfrastructure
cost structure
activities
partners
resources
relationships
channels
financial
✔
✔ ✔
?
✔
✔
?
✔
✔
✔
✔
✔
?
✔
?
✔

57. How?

58. pick one...
segments
value
prop.
revenue streams
customersofferinfrastructure
cost structure
activities
partners
resources
relationships
channels
financial
?
? ?
?
?
?
?
?
?
?
?
?
?
?
?
?

59. design experiment ...
segments
value
prop.
revenue streams
customersoffer
relationships
channels
financial
?
? ?
?
?
?
?
?
?
?
?
A controlled experiment
generally compares the results
obtained from an experimental
sample against a control
sample, which is practically
identical to the experimental
sample except for the one
aspect whose effect is being
tested (the independent
variable).

60. run it in the world ...
segments
value
prop.
revenue streams
customersoffer
relationships
channels
financial
?
? ?
?
?
?
?
?
?
?
?
A controlled
experiment
generally
compares the
results obtained
from an

61. ... and iterate!
segments
value
prop.
revenue streams
customersoffer
relationships
channels
financial
✔
? ?
?
?
?
?
?
?
?
?
A controlled
experiment
generally
compares the
results obtained
from an

62. five innovations
the scientific method
applies to business

63. ©2006
innovation

64. 64
the key idea
There are
NO FACTS
in the building!

65. 65
the big secret
Conduct
100+
Interviews

66. 66
A man
who carries
a cat by the
tail learns
something he
can learn in
no other way.

67. Why do Startups fail?

68. Startups
don’t fail
because they
fail to make
something...

69. Startups don’t fail
because they
fail to make
something.
Startups fail
because they
fail to make
something
someone
wants to buy
from them.

70. segments
value
prop.
revenue streams
customersofferinfrastructure
cost structure
activities
partners
resources
relationships
channels
financial
Business Model

71. segments
value
prop.
revenue streams
customersofferinfrastructure
cost structure
activities
partners
resources
relationships
channels
financial
Product / Market Fit

72. “If you build it, he will come...”

73. Tools for managing
Engineering Risk
Tools for managing
Customer Risk
?
Waterfall Development
Porter’s Five Forces
SWOT Analysis
Project Management
Baseline Risk Assessment
Stress Testing
Concentration Methodology
Quantitative Risk Management
...

74. five innovations
how to reduce
customer risk

75. Customer Discovery
innovation

76. Customer Discovery
Startups
Search
Companies
Execute

77. Customer Discovery
Understand the Problem
then
Develop the Solution

78. I find out what
the world needs.
Then I go ahead
and try to invent it.
- Thomas Edison

79. Customers want
your technology.
MYTH

80. Customers don’t care
about (your) technology.
TRUTH
Customers just want their
problem solved.

81. Customer Discovery
key idea
Customer POV

82. Customer Discovery
WHO CARES?
WHY will they BUY?

84. segments
value
prop.
revenue streams
customersofferinfrastructure
cost structure
activities
partners
resources
relationships
channels
financial
Product / Market Fit

85. How do you know you have
product / market fit?

86. METRICS

87. METRICS
Vanity

88. METRICS
Vanity

89. five innovations
build to measure
measure to learn
learn to build

90. Lean Startup Methodology
innovation

91. Agile Development

92. MVPMinimum Viable Product

93. LOW
FIDELITY
HIGH
FIDELITY
Minimum Viable Product
MVP
Built to LEARN
Not to SELL

94. Moneyball!
METRICS
Actionable

95. the Pipeline
$$$

96. METRICS
AARRR

97. acquisition activation retention revenue
referral

98. 98
SaaS Example

99. $500 / user / month
$$$

100. 100
Paid Demand @ $1500 / 1k Clicks
Organic Traffic @ $0.00
Google Adwords
= $1.50 per Visitor
= $0.00 per Visitor

101. 101
Paid Demand = $1.50 / Visitor
Organic Traffic = $0.00 / Visitor
50%
50%

102. 102
Cost per Visitor = $0.75

103. 103
Cost per Visitor = $0.75
Visitor to Raw Lead
3%

104. 104
Cost per Visitor = $0.75
Visitor to Raw Lead
3%
Raw to Qualified Lead
20%

105. 105
Cost per Visitor = $0.75
Visitor to Raw Lead
3%
Raw to Qualified Lead
20%
Qualified Lead Cost =
0.75
0.03 * 0.20
= $125

106. 106
Cost per Visitor = $0.75
Visitor to Raw Lead
3%
Raw to Qualified Lead
20%
Closed Deal Cost =
0.75
0.03 * 0.20 * 0.10
= $1250
Qualified Lead to Closed Deal
10%

107. 107
Cost per Visitor = $0.75
Visitor to Raw Lead
3%
Raw to Qualified Lead
20%
= $1250
Qualified Lead to Closed Deal
10%
Marketing Cost
Sales Cost
Marketing Cost Sales Cost = ?

108. 108
Visitors
Raw Leads (RLC)
50
Qualified Leads (QLC)
10
Closed Deals (CDC)
1
Sales Cost
Sales Cost = (1,667 * RLC) + (50 * QLC) + (10*CDC)
1,667

109. 109
Visitors
Raw Leads
50
Qualified Leads
10
Closed Deals
1
Sales Cost
Sales Cost = (1,667 * $2.00) + (50 * $20. 00) + (10 * $200. 00)
1,667
= $3,334 + $1,000 + $2,000 = $6,334
$2.00
$20.00
$200.00

110. 110
3%
20%
$1,250 + $6,334
10%
Marketing Cost Sales Cost
= $7,584CAC =
Customer Acquisition Cost (CAC)

111. 111
LTV = ?
Lifetime Value of a Customer (LTV)

112. 112
Lifetime Value of a Customer (LTV)
Average Revenue Per User (ARPU)
ARPU =
Total Revenue
Customers

113. 113
Lifetime Value of a Customer (LTV)
Average Revenue Per User (ARPU)
ARPU =
Total Revenue
Customers
Gross Margin =
Revenue - Cost
Revenue

114. 114
Lifetime Value of a Customer (LTV)
LTV = ARPU * Gross Margin
not quite...

115. 115
Churn
churn =
leave
stay

116. 116
Lifetime Value of a Customer (LTV)
LTV=
ARPU * Gross Margin
Churn

117. 117
Lifetime Value of a Customer (LTV)
LTV=
0.01
Suppose ARPU = $500 per month
& Gross Margin = 40%
& Churn = 1% per month
1%
$500 * 0.4
= $20,000

118. 118
$1,250 + $6,334
Marketing Cost Sales Cost
= $7,584CAC =
LTV=
0.01
$500 * 0.4
= $20,000
ARPU Gross Margin
Churn

119. Balancing a SaaS model
3xCAC < LTV
recover CAC < 12 months
why?
churn < 3%

120. the equation that matters...
segments
value
prop.
REVENUE
customersofferinfrastructure
COST
activities
partners
resources
relationships
channels
financial
<

121. ... is this one: CAC << LTV
acquisition activation retention revenue
referral
CAC LTV

122. if
CAC << LTV
COST < REVENUE
and
then COMPANY!

123. five innovations
define: “startup”
business model generation
the scientific method
customer discovery
lean startup methodology

124. Customer Discovery
Business Model Generation
Lean Startup Methodology
Startup Engineering

125. venturelab.gatech.edu
@venturelab / @keithmcgreggor
keith@venturelab.gatech.edu
75 Fifth St NW, Suite 202, Atlanta GA 30308