If you're a startup founder you recognize your idea is unique, but your business model isn't unique. What should you know about making $$ before you leave your day job.
4. Copyright
DKParker, LLC
2016
About Dave
5X founder, Board Member and (former) VC, SVP Programs at
UP Global (Startup Weekend + Startup America)
CEO – Code Fellows, code school based in Seattle
Husband, Dad & Husky
Startup Week Organizer Nov 14-18 – 150 FREE events
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DKParker, LLC
2016
Three Methods + Two Models
Marketing Methods – how you get customers to FIND you
Sales Methods – how you SELL your product.
Pricing Methods – how to price your product
Business Models – are the way to monetize, including key
metrics
Financial Models – include revenue and expenses. Used for
both forecast and actual results
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DKParker, LLC
2016
Marketing & Sales Terms
The following apply regardless of business models
Cost of Customer Acquisition (CAC)
Lifetime value of Customer (LTV)
12 month calculation (36 for mature businesses)
LTV:CAC Ratio >5X
Time to close sale
How does this change with product/market maturity?
Churn/Retention
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DKParker, LLC
2016
Marketing Channels and Metrics
What are your core assumptions for marketing?
Track all Marketing by channel and $$ spend
Paid, SEO, etc.
Cost to create leads (traffic)
Cost (effort) and % convert to prospects
Cost (effort) and % convert to customers
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DKParker, LLC
2016
Sales Methods
Web Direct – Advertising and conversion based sales, sales
support?, requires customers to search and find
Direct – internal sales people (Inside or Outside), # of
deals/Month, salary + commissions
Distribution/Channel Sales – Indirect or external, <# of
deals/Month, no Salary, just commission <Mindshare. Fulfill
demand, don’t create demand
White Label Sales/Licensing – infrastructure or license sales,
long sales cycle, few but targeted customers
Retail – Product on shelves - N/A
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DKParker, LLC
2016
Pricing Methods
What do you need to charge to cover:
Cost of build
Cost of Sale
Profit Expectation = Cash flow
Value based pricing – don’t start too low
One time or recurring?
Test, test, test
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DKParker, LLC
2016
1. New Media
Example: SnapChat, WhatsApp
Use: B2C only
Key Metrics:
K-Factor (Viral Co-efficient)
Network effect of inviting others to join
Challenges – K-Factor is hard. Little revenue until scale
Notes: Everyone wants to! Not happening in B2B
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DKParker, LLC
2016
2. Subscription
Example: Salesforce , Box, Spotify
Use: B2C & B2B
Key Metrics
Average Revenue Per User (ARPU)
Conversion ratio – e.g. trial to purchase
Churn
Challenges: MVP won’t be enough to be Kick Ass Product
Notes: Highest multiple, forecastable revenue
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DKParker, LLC
2016
3. Commerce
Example: Amazon, AmazonSupply
Use: B2C & B2B
Key Metrics:
Wholesale or cost of goods sold
Average Margin %
Average Basket
Commerce – Physical Goods- Wholesale, cost of goods, retail,
average margin, physical good
Notes: Can mature into marketplace
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DKParker, LLC
2016
4. Gaming
Example: King.com/Candy Crush
Use: B2C Only
Key Metrics:
Downloads
% play
Average in app purchase
Challenges – tends to be “hit driven business”
Notes: use in first 21 days is a predictor of success
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DKParker, LLC
2016
6. Marketplaces
Example: eBay, Alibaba
Use: B2C & B2B
Key Metrics
Average Transaction Amount
Number of Monthly Transactions
Commission %
Challenges: two sided market places require you start with
one side, value to seller & Product market fit (x2)
Notes: critical mass or marketplace required
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DKParker, LLC
2016
7. Transaction Fees/Rental
Example: 99Designs, KickStarter, Elance, Chugg
Use: B2C & B2B
Key Metrics
Average transaction revenue
Fee % per transaction
Number of transactions
Challenges: Margins are small (15%), need efficiency
Notes: Don’t start too low
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DKParker, LLC
2016
8. Lead Generation
Example: Mint.com, AllStarDirectories, NetQuote
Use: B2C & B2B
Key Metrics
Cost to generate traffic
% conversion of form data
Price per lead
Challenges: Highly competitive, barrier of entry is low
Notes: Conversion rates average 0.06%
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DKParker, LLC
2016
9. Productize a Service
Your offerings is generally complex and requires services to
deploy
Gross margin on Services >35%
Product development comes with services
Use: B2C & B2B
Examples: Moz, service company convert to tools.
Challenges – difficult to make the transition away from services
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DKParker, LLC
2016
10. Combinations
Combinations business models happen for two reasons
You don’t know which model is right
At scale you can expand revenue sources
Examples: Hardware sensors + software services to create
data analytics
Challenges – most require scale or at least traction
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DKParker, LLC
2016
The rest – at Scale – Not Launch
1. Multi-sided Marketplaces – Etsy – create products and
customers
2. Big Data – PatientsLikeMe is emerging, but requires massive
data in advance = massive cash
3. Panels – Toluna, precise groups of customer service research
4. Non-profit – Startup Weekend
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DKParker, LLC
2016
SAM
TAM
SOM
LAM
TAM – Total
Addressable Market
SAM – Service
Addressable Market
SOM – Service
Obtainable Market
LAM – Launch
Addressable Market.
Who can buy your
product at MVP?