6 Month Startup Seattle - Month 4 - How Startups Make Money
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How do startups make money: breaking down business models into three actionable parts. Creating, Delivering and Capturing value for your startup idea
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6 Month Startup Seattle - Month 4 - How Startups Make Money
- 3. Copyright DKParker, LLC 2017 About Dave ¤ 5X founder, Board Member, former SVP Programs at UP Global (Startup Weekend + Startup America) ¤ Startup Next creator ¤ Start Week Organizer ¤ Soon to be Author “6 Month Startup – Ideation to Revenue” ¤ 9 transactions – 6 sell side, 3 buy side ¤ VC @SevenPeaksVC – Mountain West, Seed/A Stage ¤ Why? Looking for future founders to invest in…
- 4. Copyright DKParker, LLC 2017 The next 6 Months ¤ Ideation/Research - ¤ Customer Development/Competitive analysis ¤ Value Prop/Product/Features/Expense ¤ Revenue - Monetization, Sales, Marketing and Business Development ¤ Product/MVP/Product Market Fit ¤ Launch/Go to Market/Revenue
- 5. Copyright DKParker, LLC 2017 Office Hours – 6/12 Afternoon
- 7. Copyright DKParker, LLC 2017 Rules of the Road ¤ #GiveFirst ¤ Mentor access is based on your work ¤ Don’t Ramble – I’ll interrupt ¤ Network – you need to build you network for the future starting tonight ¤ No I won’t do the work for you! ¤ Am I checking your homework?
- 8. Copyright DKParker, LLC 2017 Standing Agenda ¤ Communications ¤ SLACK Channel ¤ Blog Posts and Comments ¤ Mentor Feedback on Month 3 Deliverables ¤ Month 4 Agenda ¤ Marketing Funnel ¤ Sales Methods ¤ Revenue Models ¤ Month 4 Deliverables
- 9. Copyright DKParker, LLC 2017 Monthly Mechanics ¤ Table group review work ¤ Mentor Feedback – during dinner ¤ Monthly Content ¤ Meetups are stand alone events – come for what you need, Mentors are based on deliverables, not “drop ins”
- 11. Copyright DKParker, LLC 2017 Mentor Feedback ¤ Deliverables: ¤ Using Lean Canvas Review ¤ Customer Segments ¤ Problem ¤ Value Proposition ¤ What I thought, What I Learned, What I’m going to do about it Hi, I’m <your name here>, and I’m the problem I’m solving is <insert problem here>. Our product <insert product info here> is designed for our target customer of <insert target customer here>. We make money by <insert method here> and our team is the right team because <insert why you’re awesome here>
- 13. Copyright DKParker, LLC 2017 Now that you’ve have competitive and customer info
- 14. Copyright DKParker, LLC 2017 You can build it, but should you?
- 15. Copyright DKParker, LLC 2017 Business Model Breakdown Creating Value Product or Service Delivering Value Monetization, Marketing & Sales Capturing Value Reasonable to Acceptable Profit Margin
- 16. Copyright DKParker, LLC 2017 How not to make money? ¤ Small transaction values are bad ¤ Small percentages are bad ¤ Not being able to capture value is bad ¤ Lumpy sales cycles are bad ¤ Long sales cycles are bad ¤ Pricing too low could kill your idea before you start
- 17. Copyright DKParker, LLC 2017 Marketing – Finding the right customers
- 18. Copyright DKParker, LLC 2017 Marketing – Finding Customers ¤ Messaging/Value Proposition ¤ Does it resonate with the target customer segment ¤ They are the hero of the story ¤ Is it repeatable? ¤ Strategy ¤ Outbound first ¤ Inbound second
- 19. Copyright DKParker, LLC 2017 Key Metric Terms ¤ State your hypothesis ¤ CAC ¤ LTV ¤ ARPU ¤ Churn ¤ Time to Close ¤ Customer engagement ¤ Time on Site
- 21. Copyright DKParker, LLC 2017 Marketing Channels ¤ Paid Search ¤ Organic Search ¤ Word of mouth ¤ Sales calls ¤ Public Relations ¤ Affiliate ¤ Email marketing ¤ Social
- 22. Copyright DKParker, LLC 2017 Marketing Qualified Leads ¤ Define qualified vs list ¤ Suspects ¤ Prospects ¤ Qualified Prospects
- 23. Copyright DKParker, LLC 2017 Sales Qualified Leads ¤ Hand off to Sales ¤ Identify steps to close ¤ Number of calls
- 24. Copyright DKParker, LLC 2017 Time to Close ¤ Lead attribution ¤ Source time ¤ Compressing or Expanding ¤ Trend by source
- 25. Copyright DKParker, LLC 2017 Tracking ¤ Data allows you to know where to double down and where to hold back ¤ Conversion ratios
- 27. Copyright DKParker, LLC 2017 How will they buy? ¤ Web Direct – place the order to buy on the web ¤ Direct – outbound sales, inside/outside ¤ Indirect/Channel – fulfills demand, doesn’t generate ¤ Retail – BestBuy, etc
- 28. Copyright DKParker, LLC 2017 Sales Model Hypothesis Known Market Unknown Market Low Price Point High Price Point Known Search Words Unknown Search words Web Direct Direct Indirect Retail
- 29. Copyright DKParker, LLC 2017 Sales ¤ Model – Pick one, why? ¤ Strategy ¤ Who ¤ Tactics ¤ How ¤ Tools ¤ Sales tools
- 31. Copyright DKParker, LLC 2017 Business Development ¤ Strategic relationships ¤ Who has the list you want ¤ How do you get the partnership
- 32. Copyright DKParker, LLC 2017 Business Development ¤ Strategy ¤ Who should you get as a partner ¤ How will you build the relationship? ¤ What channels ¤ Tactics ¤ Messaging/Value proposition ¤ Tools ¤ CRM
- 33. Copyright DKParker, LLC 2017 Revenue Models: Services = 1 Products =14
- 34. Copyright DKParker, LLC 2017 Business and Revenue Models ¤ Business Models – abstract framework of Creating, Delivering and Capturing Value ¤ Revenue Models (part of business model) is the framework of revenue, pricing, who pay ¤ Models Lean toward Tech and Product
- 35. Copyright DKParker, LLC 2017 1. Fee for Service ¤ Example: Consulting Services company ¤ Use: B2B & B2C ¤ Key Metrics ¤ Project Revenue ¤ Cost of delivering (usually time) ¤ Gross Margin ¤ Services are hard to scale because they require people to deliver including Restaurant, Contractors, etc. ¤ Services include markup on cost of goods sold
- 36. Copyright DKParker, LLC 2017 2. 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
- 37. Copyright DKParker, LLC 2017 3. 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
- 38. Copyright DKParker, LLC 2017 4. 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
- 39. Copyright DKParker, LLC 2017 5. 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
- 40. Copyright DKParker, LLC 2017 6. 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%
- 41. Copyright DKParker, LLC 2017 7. 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
- 42. Copyright DKParker, LLC 2017 8. 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
- 43. Copyright DKParker, LLC 2017 9. Advertising/Search ¤ Example: Google, Facebook ¤ Use: B2B – advertisers pay, users are free ¤ Key Metrics ¤ Traffic ¤ Click ¤ Avg. revenue/click ¤ Challenges – Scale, need >1M uniques/month to consider the option
- 44. Copyright DKParker, LLC 2017 10. 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
- 45. Copyright DKParker, LLC 2017 11. 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
- 46. Copyright DKParker, LLC 2017 12. Coin/Tokens ¤ Bitcoin and Blockchain have burst onto the scene over the last couple of years ¤ Blockchain is a technology ¤ Bitcoin is a token, ICOs have been very succesful but aren’t a security.
- 47. Copyright DKParker, LLC 2017 Three that could cost you everything!
- 48. Copyright DKParker, LLC 2017 Three at Scale – Not Launch 13. Multi-sided Marketplaces – Etsy – create products and customers 14. Big Data – PatientsLikeMe is emerging, but requires massive data in advance = massive cash 15. Panels – Toluna, precise groups of customer service research Dead Model 1. Licensing – the old Microsoft model <pre-subscription>
- 49. Copyright DKParker, LLC 2017 Summary – Pick ONE 1. Fee for Servicer 2. Commerce 3. Subscription 4. Productize a Service 5. Transaction Fee/Rental 6. Lead Generation 7. Gaming 8. Marketplace 9. Advertising/Search 10. New Media 11. Combinations 12. Coins Tokens 13. Multi-sided Marketplaces 14. Big Data 15. Panels
- 50. Copyright DKParker, LLC 2017 Next Session – May 8 Fundraising Fundamental and Pitch Decks
- 51. Copyright DKParker, LLC 2017 Month 4 Resources ¤ Books ¤ Not yet ¤ Blogs ¤ DKParker – Marketing Funnel Breakdown ¤ DKParker – B2C Models ¤ DKParker – B2B Models ¤ Financial Model – VentureReadyModels.com ¤ Free Promo Code through 4/23/19
- 52. Copyright DKParker, LLC 2017 Month 4 Deliverables ¤ Month 4 Deliverables here https://wp.me/P3bssR-iYI (6 Month Startup Deliverables & Resources) page ¤ Marketing Hypothesis ¤ Test actual cash $100 on spend, landing page A/B test ¤ Sales Model choice ¤ Revenue Model Choice ¤ Lean Canvas – ¤ Update Customer Segment, Problem, Unique Value Prop. ¤ Add Revenue Stream, Channels ¤ Customer Development – never stop interviewing customers
- 53. Copyright DKParker, LLC 2017 See you May 8, @WeWorkLab