My annual 2012 "startup metrics for pirates" talk for Matt Barrie's Technology Venture Creation class.
Not too much different from 2011 except:
a) I added a matrix from Thiel's recent similar
b) added "engines of growth" examples to be clearer.
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assert(CPA < LTV) - the most important line of code (AKA Startup Metrics for Convicts-2012)
1. Technology Venture Creation (ELEC5701)
SEPT12
assert(CPA < LTV) - the most important line of code
David Jones
http://slideshare.net/djinoz/
@djinoz
david DOT jones AT gmail DOT com | skype://djinoz | Cell:+61 412 683 111 | @djinoz
2. Personal experience from startups
OEM Channel Enterprise Consumer
EmU Tech
2000
2003
2004
2006
2009
2011/
2012
High Touch Low Touch
3.
4. assert(CPA < LTV)
Even if you could build Twitter/Instagram - in
Australia you’d never get it funded.
Aussie VCs will look at 150+ deals/year but
fund 2-5 companies
Aussie angel increasing but still conservative
and sparse.
2012 Update: Maybe Blackbird is a game-
changer
Corollary: Aussie startups don’t have luxury of
unlimited venture, so frame your “Business
Models” from the beginning.
5. (Ye olde) Funding Model for:
Web 1.0, Enterprise S/W, Deep IP, Rockstar Founders
X
Australia:
Not a great track record here
david DOT jones AT gmail DOT com | skype://djinoz | Cell:+61 412 683 111 | @djinoz
6. Lean but not starving - revenue is a the best deodorant
BEWARE: Of Market Changes, Slow Execution, Too Few Customers
…a common “underfunded aussie story”.
X
Trough of
Despair
david DOT jones AT gmail DOT com | skype://djinoz | Cell:+61 412 683 111 | @djinoz
7. How to avoid the
“trough of despair”?
Ideas?
david DOT jones AT gmail DOT com | skype://djinoz | Cell:+61 412 683 111 | @djinoz
8. Revenue is a deodorant
david DOT jones AT gmail DOT com | skype://djinoz | Cell:+61 412 683 111 | @djinoz
9. Your Product is not your product
(Ash Muraya)
The
Actual Customer
Product
Acquisition
&
Monetization
david DOT jones AT gmail DOT com | skype://djinoz | Cell:+61 412 683 111 | @djinoz
10. Product vs Sales Matrix
Product needs selling, strong sales piece. Product sells itself, strong sales piece.
This is a sales-driven company. This is ideal.
Product sells itself, no sales effort. Product needs selling, no sales effort.
Does not exist. You have no revenue.
Credit: Thiel
http://blakemasters.tumblr.com/post/22405055017/peter-thiels-cs183-startup-class-9-notes-essay
david DOT jones AT gmail DOT com | skype://djinoz | Cell:+61 412 683 111 | @djinoz
11. assert(CPA < LTV)
The Metrics you need:
• Customer lifetime value (LTV sometimes CLV)
• Average revenue per user (per month/year), or ARPU
• Retention rate (monthly, decay function), or r
• Churn (the opposite of Retention!)
• Average customer lifetime, which is 1 / (1-r)
• Cost per customer acquisition, or CPA
• Retention cost (customer support, 3rd parties, ops
costs) Credit: Thiel
http://blakemasters.tumblr.com/post/22405055017/peter-thiels-cs183-startup-class-9-notes-essay
david DOT jones AT gmail DOT com | skype://djinoz | Cell:+61 412 683 111 | @djinoz
12. The Basic Math
• LTV = ARPU x Average Lifetime of a Customer –
the Cost to Serve them (COGS)
• Where ARPU = Average Revenue Per User and
Average Lifetime of a Customer = 1/Churn Rate.
david DOT jones AT gmail DOT com | skype://djinoz | Cell:+61 412 683 111 | @djinoz
13. assert(CPA < LTV) Engines of Growth
• Paid
• Sticky
• Viral
Credit: Ries
http://www.startuplessonslearned.com/2008/09/three-drivers-of-growth-for-your.html
david DOT jones AT gmail DOT com | skype://djinoz | Cell:+61 412 683 111 | @djinoz
14. assert(CPA < LTV) Paid Engine of Growth
Enterprise spam/virus cloud solution that filters email
ARPU: $200 per month
Customers on average stay with you for 18 months.
Margin after channel partners and operational costs is 50%
The LTV is = 200 * 18 * 50% = $1800
You use Google Adwords to acquire users is $500
So you are $1300 ahead
But not sticky if Google release free email with filtering (low switch cost)
Credit: Thiel
http://blakemasters.tumblr.com/post/22405055017/peter-thiels-cs183-startup-class-9-notes-essay
david DOT jones AT gmail DOT com | skype://djinoz | Cell:+61 412 683 111 | @djinoz
15. assert(CPA < LTV) Sticky Engine of Growth
Same solution, but more sticky by offering “archiving”
ARPU: $200 per month
Customers on average stay with you for 36 months.
Margin after channel partners and operational costs is 50%
The LTV is = 200 * 36 * 50% = $3600
You use Google Adwords to acquire users is $500
So you are $3100 ahead
Credit: Thiel
http://blakemasters.tumblr.com/post/22405055017/peter-thiels-cs183-startup-class-9-notes-essay
david DOT jones AT gmail DOT com | skype://djinoz | Cell:+61 412 683 111 | @djinoz
16. assert(CPA < LTV) Retention & Churn
• LEAKY BUCKET is the enemy of LTV
• Particularly devastating in Consumer/Social
• Punters leave before you monetise them
• Enterprise tends to be stickier because of corporate
dynamics.
david DOT jones AT gmail DOT com | skype://djinoz | Cell:+61 412 683 111 | @djinoz
17. assert(CPA < LTV) LTV’s in startups
• How can you possibly know LTV at the start?
• Everything in Dave McClures AARRR
• (Acquisition, Activation, Retention, Referral Revenue)
• In consumer measure rates:
• crossing free to paid
• In-app purchase rates
david DOT jones AT gmail DOT com | skype://djinoz | Cell:+61 412 683 111 | @djinoz
18. assert(CPA < LTV) Viral Engine of Growth
Add a Default Footer: “Filtered by Mail Filter X”
ARPU: $200 per month
Customers on average stay with you for 36 months.
Margin after channel partners and operational costs is 50%
The LTV is = 200 * 36 * 50% = $3600
You use Google Adwords to acquire users is $100
So you are $3500 ahead
OK, not a killer viral engine but you get the idea – just a non-Facebook example ;)
Credit: Thiel
http://blakemasters.tumblr.com/post/22405055017/peter-thiels-cs183-startup-class-9-notes-essay
david DOT jones AT gmail DOT com | skype://djinoz | Cell:+61 412 683 111 | @djinoz
19. Tip of the day:
NONE OF THAT MATTERS
david DOT jones AT gmail DOT com | skype://djinoz | Cell:+61 412 683 111 | @djinoz
20. Validation Tip of the day:
Look them deeply in the eye and ask for money
david DOT jones AT gmail DOT com | skype://djinoz | Cell:+61 412 683 111 | @djinoz
21. Validation Tip of the day:
Look them deeply in the eye and ask for money
Because if you can’t get to product/market fit
you will never get to sustained ARPU
1.You will never get initial purchases
2.If you do, the leaky bucket has a big hole.
david DOT jones AT gmail DOT com | skype://djinoz | Cell:+61 412 683 111 | @djinoz
22. The Business Model drives the Business Plan
Product Focus: Core Utility
Company Focus: Right Business Model
The “right” business model takes iteration.
But this BM framework prescribes what
activities you SHOULD focus on
(the business plan being covered by Ryan Junee)
david DOT jones AT gmail DOT com | skype://djinoz | Cell:+61 412 683 111 | @djinoz
23. david DOT jones AT gmail DOT com | skype://djinoz | Cell:+61 412 683 111 | @djinoz
24. The Business Model Canvas
david DOT jones AT gmail DOT com | skype://djinoz | Cell:+61 412 683 111 | @djinoz
25. david DOT jones AT gmail DOT com | skype://djinoz | Cell:+61 412 683 111 | @djinoz
26. david DOT jones AT gmail DOT com | skype://djinoz | Cell:+61 412 683 111 | @djinoz
27. david DOT jones AT gmail DOT com | skype://djinoz | Cell:+61 412 683 111 | @djinoz
28. ThreatMetrix early BM (fail)
Big Data
aggregation Confere
& combine nces Security
Security
Vendors Vendors
Ummm? (2-sided market problem)
BotNet
Detection
BizDev
will make
CERTS Security Banks?
you more
& incident/in secure eComme
Governm fection rce?
data
Business White Label
Telcos Developm OEM in
ent Security
Products
Super Super
Talented Talented Large Data Flat Monthly
Security
Program
Staff
Processing Reqs Can this Scale? Fee (peril of
mers (boil the ocean OEM)
problem)
david DOT jones AT gmail DOT com | skype://djinoz | Cell:+61 412 683 111 | @djinoz
29. ThreatMetrix 2008-2011
Per
Transaction Webinars/De
Research/ Assessment
DM mos/Evals
Conferences eCommerce
Data
Close/Custo
Center Marketing Realtime
Support mer Service
Evangelism SaaS Fraud Social &
Awareness Device Protection for Dating
Intelligenc eCommerce BizDev
Geo Data
Provider e
Cloud
s Payment Banks
Service
Software Processors
Security Credit Card
Data Customer Companies
Transactions Resellers in
are accretive new
Territories
Super Super
Large Data
Upfront
Processing Reqs
Talented Talented Purchase Autorenew
Program Security Transaction
mers Staff Blocks
david DOT jones AT gmail DOT com | skype://djinoz | Cell:+61 412 683 111 | @djinoz
30. Summary: Benefits of BM Canvas
• Won’t stop you being deluded
• Won’t stop you arguing black==white
BUT
• Surfaces assumptions
• Structures dependencies
• Scopes debate
• Use it to test the logic of a new activity
david DOT jones AT gmail DOT com | skype://djinoz | Cell:+61 412 683 111 | @djinoz
31. Drill-in Example 1
Key Partners
Who are our Key Partners?
Who are our key suppliers?
Which Key Resources are we acquiring from partners?
Which Key Activities do partners perform?
motivations for partnerships:
Optimization and economy
Reduction of risk and uncertainty
Acquisition of particular resources and activities
david DOT jones AT gmail DOT com | skype://djinoz | Cell:+61 412 683 111 | @djinoz
32. Drill-in Example 2
Cost Structure
What are the most important costs inherent in our business model?
Which Key Resources are most expensive?
Which Key Activities are most expensive?
is your business more:
Cost Driven (leanest cost structure, low price value proposition,
maximum automation, extensive outsourcing)
Value Driven ( focused on value creation, premium value proposition)
sample characteristics:
Fixed Costs (salaries, rents, utilities)
Variable costs Economies of scale
Economies of scope
david DOT jones AT gmail DOT com | skype://djinoz | Cell:+61 412 683 111 | @djinoz
33. Questions?
david DOT jones AT gmail DOT com | skype://djinoz | Cell:+61 412 683 111 | @djinoz
34. Paper MVP vs Hacked MVP
The jury is still out
but hacked MVP
gives more accurate
CustDev feedback
david DOT jones AT gmail DOT com | skype://djinoz | Cell:+61 412 683 111 | @djinoz
35. Focus or Fail
If you have limited resources and cash reserves then focus is your
most valuable discipline – if your hypothesis wrong at least you “fail fast”
Don’t let
Perfect be the
Enemy of the
Good
(picture credit: Mick Liubinskas/Pollenizer)
david DOT jones AT gmail DOT com | skype://djinoz | Cell:+61 412 683 111 | @djinoz
36. Ye Olde Startup Funding Model
(too early to talk about but I know your thinking about it)
Market Team
Product Market
Team Product
@djinoz david@dealsta.com.au
37. New, New Angel Funding Model
Naval
AngelList
@djinoz david@dealsta.com.au
Notes de l'éditeur
Slide #1 comment 10/01/12
There is not a deep pool of Australian startup that reach IPO that is profitable for more than a few select investors. Therefore, the Seed/Angel/VC scene is limited – however if companies are building for: Sustainable permanence Tradesale exit These are great outcomes that build an ecosystem of success and attract investors.
But….shortage of cash and small customer base means that aussie upstarts don’t evolve when the market changes. There is a point in time where agility/adaption is required because often Aussies startups are first or early to market (good innovators) but often don’t have the financial framework to win the sprint or the marathon.
Agility vs schizophrenic
A business model describes the rationale of how an organization creates, delivers, and captures value