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UW Entrefest - 10 Startup Business Models that work and 3 that fail

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UW Entrefest - 10 Startup Business Models that work and 3 that fail

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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.

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.

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UW Entrefest - 10 Startup Business Models that work and 3 that fail

  1. 1. Copyright DKParker, LLC 2016 10 Business Models (+3 that can fail) Dave Parker @DaveParkerSEA www.dkparker.com/blog Dave@dkparker.com
  2. 2. Copyright DKParker, LLC 2016 Your idea is unique – your business model isn’t!
  3. 3. Copyright DKParker, LLC 2016 Agenda  About Dave  Methods  Marketing  Sales  Pricing  10 Business Models  3 that can fail  Q&A – Your ideas
  4. 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
  5. 5. Copyright DKParker, LLC 2016 Context Matters
  6. 6. Copyright 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
  7. 7. Copyright 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
  8. 8. Copyright 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
  9. 9. Copyright DKParker, LLC 2016 OrganicSearch PaidSearch WordofMouth SalesCalls PR Miracles!
  10. 10. Copyright 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
  11. 11. Copyright DKParker, LLC 2016 Known Market Unknown Market Low Price Point High Price Point Known Search Words Unknown Search words Web Direct ✔ ✔ ✔ Direct ✔ ✔ ✔ ✔ ✔ Indirect ✔ ✔ ✔ Licensing ✔ ✔ Retail
  12. 12. Copyright 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
  13. 13. Copyright DKParker, LLC 2016 Business Models – Pick ONE!
  14. 14. Copyright DKParker, LLC 2016
  15. 15. Copyright 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
  16. 16. Copyright 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
  17. 17. Copyright 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
  18. 18. Copyright 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
  19. 19. Copyright DKParker, LLC 2016 5. 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
  20. 20. Copyright 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
  21. 21. Copyright 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
  22. 22. Copyright 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%
  23. 23. Copyright 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
  24. 24. Copyright 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
  25. 25. Copyright DKParker, LLC 2016 Three that could cost you everything!
  26. 26. Copyright 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
  27. 27. Copyright DKParker, LLC 2016 Q&A – Your Models
  28. 28. Copyright DKParker, LLC 2016 dave@dkparker.com www.dkparker.com @DaveParkerSEA
  29. 29. Copyright 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?

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