Startup Secrets presents a lecture on how to build a game-changing business model for your unique startup. Business models can be just as disruptive as technology!

1. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models
Game-Changing Business Models
startupsecrets.com

2. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models
Workshops
Full descriptions of each at
startupsecrets.com
1. What’s Your Roadmap to Success?
2. Building a Compelling Value Proposition
3. Turning Products into Companies
4. Culture, Mission and Vision
5. Hiring A+ Talent
6. Game-Changing Business Models
7. Go to Market Strategies
8. Getting Behind the Perfect Investor Pitch
9. Funding Strategies to go the Distance
10. Have You Got What It Takes?
11. Mastering Mutual Mentorship

3. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models
Introductions & Case Examples
 Established
• Google
 Startup
• Acquia
• Demandware
 Not-for-profit
• One Laptop Per Child
• Diagnostics For All (on the web)
3

4. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models
Agenda
1. Finding a Disruptive Business Model
2. Focusing on CORE differentiation
3. Multiply and Leverage it with innovation
4. Designing for high value
4

5. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models
What is your model for:
• Creating
• Delivering
• Harnessing
VALUE?
5
5
Business Model:
How Do You Make Money?

6. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models
Today
Let’s get creative and think specifically about startups!
6

7. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models
Business Model as a Disruptor
 Why?
• Time to market
• Market adoption
• Sustainability
 Connecting the dots for you, as a founder:
• Spend
• Cash efficiency
• Your ownership
• Valuation
7

8. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models
The Perfect Startup Storm
8
Disruptive
Business Model
Disruptive
Technology
New Market &
GTM

9. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models
How can your Business Model…
 Change the game?
 Rewrite the rules?
 Cause an innovator’s dilemma
 Be as disruptive as your technology?
9
New Game
New playing field
New boundaries
New rules
YOU choose players

10. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models
Symantec Antivirus for Mac (SAM)
Best seller – Licensed Product
Norton Antivirus for PC (NAV)
How to change the game
Best seller – Subscription Service
Example 1: Symantec – Many Years Ago!
10

11. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models
 Dramatic!
 Game changing
• Flipped the model on it’s head
 Competitors caught off guard
• Predictable profitable business model
 Led to solution leadership vs. battle: “Data Security”
• Customer need met more effectively
• More value extracted
• 1.5 product / seat => 2.6x
11
Results?

12. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models
 Off balance sheet Publisher of US products
• Investment in Management, Sales, Marketing, Support, Translation & Localization
 Acquired back by US corporation when profitable
• Pooling of interest
• Non-dilutive
• Growing earnings
 Symantec example Win / Win
12
Example 2: European Software Publishing

13. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models
 Win / win / win
• Customers = better local product, support, services
• Publishers = accelerated, off balance sheet setup of profitable business
• Shareholders = 97x return on original investment
 Non-technology disruptive business model
• Economies of scale
• Pooling of interests (tax)
• Time shifting expense → Accretive outcome
13
Results?

14. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models
 Shared ownership (Zipcar)
 Flash sales (Vente Privee)
 Crowd sourcing (uTest)
 Lead Gen (Mint.com)
 Virtual goods/currencies (Tapjoy)
 Combinations
• Acquia - OSS, SaaS
• AirBnB - Commission on P2P rentals
• Demandware - SaaS, success based rev share
• Groupon - broker, revshare
• Spotify -adbased, freemium
14
Sample Models

15. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models
 Process or Product?
 Software or Services?
 Open or Proprietary?
 Content or Data?
 Freemium or Premium?
 Subscription or License?
15
Business Model – Sample Questions

16. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models
First key question!
What is Your CORE Value?
16
Capabilities
Of
Really
Exceptional
Value
Focus on it!
C.O.R.E.
Value

17. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models
Where is your CORE value?
 Software/other technology
 Data
 Content
 Service, support
 User network
Disruptively monetize it!
• To your competitive advantage
• Where are others most vulnerable?
17
CORE
Cut to the CORE!

18. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models
 Google Apps vs. Microsoft office
• What is the C.O.R.E for each?
 Software, Data, Advertising?
 Don’t compete head-on
• Microsoft Office = enterprise market
• Google Apps = consumer market
• Free vs. $500 license
• Simple vs. Complicated
• 80% solution vs. Professional Tool
18
Example 1: Apps

19. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models
How can you compete with a market leader who has 80% to 90% market share?
1. Don’t compete head-on
2. Innovators Dilemma – go for low end
3. Disruptive technology, business model, or market approach
4. Examples: Gmail, Google Apps, Chrome
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Competing with Market Leaders

20. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models
 Apple vs. Google
• What is the C.O.R.E for each?
 Hardware, Software, Content?
 Others in Ecosystem
• Samsung, HTC
 Alternative approaches
• Amazon
20
Example 2: Mobile

21. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models
Who is winning?
Why?
Is technology the difference?
Apple, Google, & Microsoft strategies
• Always play to your strength
• Apple Mac, Google Search, Microsoft Windows
21
Android vs. iPhone

22. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models
Disrupt the market leader
• Apple disrupted carriers and manufacturers
 Verizon, Sprint, Nokia, Motorola, RIM, Symbian
• Android allowed them to fight back
Disruptive business model
• Android is free
• Advertising business model
• Search, Maps, Local, Wallet, YouTube
22
Android vs. iPhone

23. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models
Business Models Matter!
23
Don Dodge
dondodge@google.com

24. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models
Creating Value

25. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models 25
Startup Secret!
Co-Creating Value
 Be Open and Extensible (e.g., Software APIs)
• Enabling external multipliers to your value
• Building on yourself
• Eating your own cooking
• Being your own customer

26. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models
 Be Open and Extensible (e.g., Software APIs)
• Enabling external multipliers to your value
• Building on yourself
• Eating your own cooking
• Being your own customer
 Open Source
• Leverage through community
• Make the customer the product manager
 Scratching their own itch
26
Startup Secret!
Co-Creating Value

27. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models
Dries Buytaert
Founder and Project Lead Drupal
Co-Founder and CTO Acquia
http://buytaert.net
@Dries
27

28. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models
Meet Dries 12 years ago when he started work on Drupal ...
28
Compiler books
Collection of stamps
Chess board
Assembly books
All furniture is from IKEA
Student dorm in Antwerp
where I started Drupal

29. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models
1 out of 50 websites in the world
10,000+ modules
300,000+ downloads/month
1.5M unique visitors/month
FREE
29

30. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models
71 of the World's Top 100 Universities Use Drupal
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31. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models
1. Freedom to run the program
2. Freedom to study the program
3. Freedom to modify the program
4. Freedom to re-distribute the program
31
Open Source is a Software License

32. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models
Drupal Wins Because it is Less Expensive
… Yet Technically Superior!
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33. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models
Open Source
Collaboration
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34. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models
3,800 people contributed to Drupal 8
Open Source is not just a software license,
it is also a development model
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35. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models
Open Source
Collaboration
Community
35

36. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models 36

37. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models
Open Source
Collaboration
Community
Innovation
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38. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models
Technically
Superior
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39. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models
“Creative Destruction”
Joseph Schumpeter
39
Joseph Schumpenter
Economist, 1883-1950
Drupal and Open Source are Catalysts for
“Creative Destruction”
- Changes how we develop
software
- Changes how we build websites
- Changes a multi-billion dollar
industry
- Open Source enables business
model innovation
- Bonus: allows people to do well,
and do good

40. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models
Delivering & Capturing Value

41. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models
Multiply and Leverage your CORE
Multipliers:
• Increase revenue
• Increase reach
• Increase coverage
Levers:
• Reduce time
• Reduce costs
• Reduce resources
CORE
Levers
Multipliers
Startup Secret!
Multipliers and Levers
41

42. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models
Multipliers:
• Added functionality
• Community reach
Levers:
• Community development
• Community marketing
CORE
Levers
Multipliers
Multiply AND Leverages CORE
Drupal and Open Source
42

43. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models
Multiplier Examples:
• Sales & Marketing
– Tiered Pricing
– Freemium
– Channel partners
• Product
– Slippery products *
– “Russian Doll”
Packaging *
– Technology stacks
Lever Examples:
• Sales & Marketing
– Web
– Inside
– Inbound
– Viral
• Product, Support
– Offshoring
– Outsourcing
– Crowdsourcing
– Co-creation *
– Technology stacks
* Covered in this presentation
Examples in Software:
CORE
Levers
Multipliers
43
Startup Secret!
Multipliers and Levers

44. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models
 Strategies that enable Multipliers and Levers to work
together around your CORE are the real winners
44
Get Multipliers and Levers Working Together!

45. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models
Acquia

46. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models
• Provider of cloud-based solutions and support for
enterprises using the open source product Drupal
• 2000+ customers
• 250+ employees
• 150% 4 year CAGR
• Global operations
• Highly predictable and repeatable model
• Land and expand strategy
46
Acquia at A Glance

47. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models
Acquia Business Model
 Drupal is FREE
 It is also Open Source
 So how do you make money from FREE and Open IP?
1. Create valuable products and services around the CORE of Drupal
2. Use FOSS as multiplier and a lever in R&D, sales and marketing
47

48. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models
Acquia Products Around Drupal CORE
C OMMU N ITY C OMMER C EC ON TEN T
Enterprise Site FactoryDrupal
Gardens
Managed DeploymentsAcquia
Cloud
Drupal Management SuiteAcquia
Network
Drupal
Training
Professional
Services
48

49. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models
As a multiplier AND a lever (in R&D, sales, marketing, and more)
49
Example Multipliers:
• Upsell value added
products & services
• Cloud & SaaS
Example Levers:
• Target installed base
• Expand usage through
partners
CORE
Levers
Multipliers
Free and Open Source Software
(FOSS)

50. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models
One More Thing…
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51. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models
 Product feeds the business model:
• User experience
• Supportability
• Maintenance, updates (= lifecycle)
• Upgrades
• Upsells
 Leads to two startup secrets:
• Russian Dolls and SLIPPERY products
51
Designing for Success…

52. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models
• Simple
• Low to no initial cost
• Installs easily
• Proves value quickly
• Plays well with others
• Easy to use
• ROI is obvious
• Your customers can’t live without it
Think of how this improves
the Gain/Pain Ratio in our
Value Proposition
Workshop
Gain
Pain
52
Startup Secret!
Friction Free, SLIPPERY Products

53. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models
 Simple: Update your site from the browser
 Low to no initial cost: free
 Installs easy: Windows/Mac installers + SaaS
 Proves value quickly: Distributions + Start using immediately
 Plays well with others: Lots of integrations with other platforms
 Easy to use: Web-based
 ROI is obvious: Better, faster, cheaper
 Your customers can’t live without: flexibility and extensibility
53
What makes Drupal SLIPPERY?

54. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models
 Multi purpose strategy
• Packaging
• Pricing
• Distribution
• And more!
54
Startup Secret!
Build a Russian Doll

55. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models
Incent
55
Free

56. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models
Freemium
56
Limited
Free

57. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models
OEM Solution
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Limited
Personal
Free

58. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models
Premium
58
Limited
Personal
Workgroup
Free

59. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models
Sales Enabler
59
Limited
Personal
Workgroup
Corporate
Free

60. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models
Free
Adoption
60
Limited
Personal
Workgroup
Corporate
Enterprise

61. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models
“Addiction before Adoption”
Gives you, your partners and your customers:
 Digestible starting point
 Up-sell Options
 Channel Flexibility
…and more
61startupsecrets.com
Startup Secret!
Build a Russian Doll

62. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models
Acquire
On-board
Upsell /
Cross Sell
Acquia example = increasing LTV
“Land & Expand”
62
$0
$100
$200
$300
$400
2009 2010 2011 2012(e)
LTV
“Addiction before Adoption”
Startup Secret!
Build a Russian Doll

63. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models
Create, Deliver and Harness Value
Putting it All Together
63

64. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models
 Lifetime Value of Customer (LTV)
 Cost of Acquiring Customer (CAC)
64
CORE
Levers
Multipliers
LTV ~3x >
CAC
Basic Startup Model

65. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models
 Repeatable
 Scalable – with leverage
 Profitable / Sustainable
 Predictable
 Valuable
65
What makes for a GREAT business model?

66. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models
Development Target
Gross Margin 80%
R&D 100%+ 15%
Sales & Marketing 10%
G&A 45%
Profit (Loss) -100% 20%
66
• Example:
– Phases of a software company
Percent of Revenue Spent

67. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models
Expenses as Percentage of Revenue
62%
61%
53%
43%48%
29%
21% 19%
43% 50%
45% 44%
19% 14% 11% 11%
L/T Model
based on
profitable
subscription
based
software
company
62%
48%
43%
19%
51%
29%
65%
14% 11%
45%
21%
53%
44%
19%
44%
11% 10%
35%
15%
25%
67

68. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models
• Today:
– 70% of all bookings are renewable subscriptions
– 30% are consulting services (key differentiator)
– 85%+ annual renewal rate for non-project work
• Long-term Model:
– 80% renewable subscriptions
– 20% consulting services
– 90% annual renewal rate for non-project work
Highly Predictable and
Repeatable Financial Model
68

69. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models
New Geographies
New Partners
New Verticals
Potential M&A
Cross-sell
Up-sell
New Sites
New Products
New Customers Existing Customers
Result: Disruptive Business Model for Continued Growth
Total Revenue
69

70. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models
Valuable

71. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models
2013 Revenue Multiples
Median 5.2x
Valuations - SaaS
71

72. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models
2012-2013 Revenue Growth
Valuations - SaaS
2013 Revenue Multiples
Median 5.2x
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73. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models
Valuations - SaaS
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74. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models
Valuations - SaaS
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75. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models
Retention (Renewal)
75

76. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models
14x
leverage!
Upsell
76

77. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models
 Lifetime Value of Customer (LTV)
 Cost of Acquiring Customer (CAC)
77
CORE
Levers
Multipliers
LTV ~3x >
CAC
Basic Startup Model

78. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models
The Model Refined –
Enabling Retention & Upsell
 Lifecycle Value of Customer (LCV)
 Cost of Acquiring & Re-Engaging Customer (CARC)
78
CORE
Levers
Multipliers
Re-Trial
Up-sell

79. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models
Re-engagement Costs
 Must be included in CARC
 Example:
• Support
• Customer Service
• Professional Services
79

80. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models
Connecting it to Gain/Pain
 They are two views of the same principle:
• Customer view = Gain/Pain
• Vendor view = LCV/CARC
80
CORE
Levers
Multipliers
Re-Trial
Up-sell

81. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models
Start as You Plan to Finish...
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82. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models
A Typical Product Lifecycle
But it doesn’t have to be this way !
82
See Try Buy Fly Die
Long, costly (CAC), slow payback, short lifetime value (LTV)

83. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models
Adding Retention and Upsell
83
See Try Buy Fly Die
Re-TrialUp-sell
Extended
Lifecycle
Long, costly (CAC), slow payback, EXTENDED lifetime value (LTV)

84. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models
Web
Self service
On demand
SaaS
Subscription
Open source
A Disruptive and Valuable Lifecycle
See Try Buy Fly Die
Up-sell
Extended
Lifecycle Re-Trial
Up-sell Extended
Lifecycle
Short, low cost (CARC), quick payback, extended lifecycle value (LCV)
84
Re-Trial

85. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models
Applied to Software
 Installed by IT
 Customized
 Infrequent upgrades
 Proprietary
 License
85
1990+ 2010+
 On demand, SaaS
 Web based
 Self service
 Open Source
 Subscription
Web
Self service
On demand
SaaS
Subscription
Open
source
Up-sell
Extende
d
Lifecycl
e
Up-sell
Extende
d
Lifecycl
e
short, low cost (CAC), quick payback, EXTENDED lifetime value (LTV)
Re-Trial
…a fundamentally disruptive and more valuable
business model!

86. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models
Demandware Pre-IPO

94. 94

98. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models
Summary
 Disruptive Business Model – as significant as Technology
 Focus on CORE differentiation
 Multiply and Leverage it with innovation like:-
• Co-Creation
• Strategic Partners
• Russian Doll Packaging
• And Friction Free, SLIPPERY products
 Design for high value using LCV & CARC
98

99. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models
info@startupsecrets.com

100. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models
Game-Changing Business Models
startupsecrets.com