LLP-AP workshop 3 – Nov 22nd 2013

Agenda• 8-8.15 Intro and themes for the day• 8.15-10.00

– Teams present on progress and plans• 10.00-11.00

– Key themes going forward• 11.00-12.00

– Out of the building…..

1

Lean Launchpad Roadmap

Customer Discovery 1

Canvas v1:Value PropositionCustomer Segment

Get out of the bldg:Interviewing

Customer Discovery 2

Canvas v2:ChannelsCust Relationships

Themes:Cust Decision NetworkDay in the LifeCustomer EcosystemWhitespace GridTAM/SAM/SOM

CustomerValidation 1

Canvas v3:Cust Relationships(Get-Keep-Grow)Revenue ModelCost Structure

Themes:Finding PivotsMin Viable Product

CustomerValidation 2

Canvas v4: C.R. GetRevenue model v2Cost structure v1

Exit criteria for Discovery phase andEnd Game for LLP

Next steps

Interview objectives & scriptInterviews“Day in the Life”Validate/Pivot/Stop

InterviewsCust decision networkCust EcosystemWhitespace GridTAM/SAM/SOM

InterviewsCR: GetMin. viable productRevenue model: pricingElements of cost structure

Session 1 Session 2 Session 3 Session 4

3

Customer Discovery: (where we left you end workshop 2)

• What are our customers top problems? – How much will they pay to solve them

• Does our product concept solve them? – Do customers agree? – How much will they pay

• Can we draw a day-in-the-life of a customer – before & after your product

• Can we draw the org chart of users & buyers

Presentations

• Notes on process

• Connecting process across teams

• Mentor input

• Circling back on incomplete themes

NewThemes: workshop 3

Customer Validation 1• Cust Relationships (Get-Keep-Grow)• Revenue Model• Cost Structure Themes:• Finding Pivots• Minimum Viable Product

CUSTOMER RELATIONSHIPS

How will customers hear about your product?How much will it cost to acquire a customer using these strategies?

What relationship type are you establishing with each segment? personal? automated? acquisitive?

Customer Relationship: Get–keep-growfor Physical Goods

S. Blank, B. Dorf – The Startup Owner’s Manual, 2012

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Get Customers Funnel – Physical Goods

“Get Customers” Funnel

Get Customers: Who needs to hear about you?

Suppliers

Channels

Government

Partners

End User

Influencer / Recommender

Economic Buyer

Decision Maker

Demand Creation Feeds the Sales Funnel

PayingCustomers

$

Demand

Creation AcquisitionPR

SEO

Advertising

Blogs/Website

Product reviews

Cold calls

Tradeshows

EXAMPLE of GET for Physical

Product reviews

PR & Media

Advertising

Get-keep-grow for Web/Mobile products

S. Blank, B. Dorf – The Startup Owner’s Manual, 2012

“Get Customers” Funnel

Acq

uir

e

Act

ivat

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Viral Loop

Get Customers Funnel – Web/Mobile

Earned and Paid Media

“Get Customers” FunnelPR

SEO

Advertising

Blogs/Website

Tradeshows

Acq

uir

e

Act

ivat

e

Viral Mktg

SEM/PPC

Affiliate Mktg

Viral Loop

Demand Creation for the Web/Mobile Sales Funnel

GET: issues to focus on now

• What do you have to understand?

REVENUE STREAMS

what are customers really willing to pay for? how? are you generating transactional or recurring

revenues?

REVENUE MODEL =the strategy the company uses to generate cash from each customer segment YES, different segments will look different in revenue

Where is the money coming from?Revenue Model Choices

Bits

Physical

Product

Web Physical

Channel

Direct Sales Products Subscription Upsell/Next Sell

Ancillary Sales:• Referral revenue • Affiliate revenue• E-mail list rentals• Back-end offers

Direct Sales Products Service Upsell/Next Sell

Referrals Leasing

Direct Sales Products Subscription Add-on services Upsell/Next Sell

Referrals

Web/Mobile: “Direct” revenue models

• Sales: Product, app, or service sales

• Subscriptions: SAAS, games, monthly subscription

• Freemium: use the product for free: upsell/conversion

• Pay-per-use: revenue on a “per use” basis

• Virtual goods: selling virtual goods

• Advertising sales: unique and/or large audience

“Ancillary” revenue models

• Referral revenue: pay for referring traffic/customers to other web or mobile sites or products.

• Affiliate revenue: finder’s fees/commissions from other sites for directing customers to make purchases at the affiliated site

• E-mail list rentals: rent your customer email lists to advertiser partners

• Back-end offers: add-on sales items from other companies as part of their registration or purchase confirmation processes, or “sell” their existing traffic to a company that strives to monetize it and share the resulting revenue

Physical Revenue ModelsAsset Sale

• Sale of ownership right to a physical product

Usage Fee

• Usage of service. Fee is proportional to the usage of the service.

Subscription Fee

• Fee for continuous access to a service

Renting

• Fee for temporary access to a good or service

Licensing

• Fee for use of some IP (including software)

Intermediation Fee

• Often found in marketplaces of various types, a fee for bringing together two or more parties involved in a transaction

Advertising

• Fee paid by brands and companies to get in front of potential customers

PRICING MODEL =

the tactics you use to set the price in each customer segment

Other words we use in the place of price

• Fee• Commission• Subscription• Toll• Interest• Rent• Tax• Shipping

Common approaches to pricing Cost + markup Typically not a strategic way to price Driven by internal economics and not

customer insight

Cost based

Value based

Based on buyer’s perception of value (e.g. time saved, new efficiency created, etc.)

Customers don’t necessarily feel that they want to pay this way

Pricing Choices (1)consider pros and cons of each

• Cost-based pricing: based on a multiple of actual product cost. Typically priced for maximum revenue/profit versus volume

• Value pricing: based on the value delivered by the product rather than the cost itself

• Competitive pricing: positions the product vs. others in its competitive set, typically in existing markets

• Volume pricing: designed to encourage multiple purchases or users

Pricing Choices (2)consider pros and cons of each

• Portfolio pricing. Mix of high markups and some with low, depending on competition, lock-in, value delivered, and loyal customers

• “Razor/razor blade” model: part of the product is free or inexpensive; yet it pulls through repeat, highly profitable purchases on an ongoing basis

• Subscription: while now thought of a software strategy, the “Book of the Month Club” pioneered this for physical products

• Leasing: lowers the entry cost for customers. Provides constant earnings over a period of years

More pricing considerationsconsider pros and cons of each

• Freemium– 95:4:1 is typical but NOT guaranteed split

• Fixed List price• Negotiated price• Auction bids

– Up– down

• Dynamic pricing

Multi-side Markets and Revenue

• Single-sided markets that care about revenues

• Web-based Multi-sided markets may care about users first, revenues second

How do we price the product?Pricing Model Choices

How do we price the product?

36

• Product-based pricing• Competitive pricing• Volume pricing• Value pricing• Portfolio pricing• The “razor/razor blade” model• Subscription• Time/Hourly Billing• Leasing

Pricing Models - Physical

Competition as an influence

• Pure competition• Oligopoloy• Monopoloy

Nature of Market

How they will react?

What is their product? What are their costs and prices? “What pricing will make them

feel the worst?”

How do we price the product?

38

• Product-based pricing• Subscriptions• Freemium• Pay-per-use• Virtual goods• Advertising sales

Pricing Models – Web/Mobile/Cloud

Does it add up?

39

• Is the revenue adequate to cover costs in the short term;

• Are you confident the revenue will grow materially if not dramatically over time; and

• Does the profitability get better as the revenues get bigger?

CHANNELS (revisited)

Relook your channel choices in the context of Customer Relationship “GET” choices AND examine the revenue implications. How does the money flow?

Web Channels

41

Physical Channels

42

Types of ChannelsWho is your customer?

43

– OEM– VAR– Reseller– Distributor

Direct Indirect Licensing

Channel Economics

44

Profit + SG&A + R&D

En

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er

EU

D

isco

un

ts

Revenue

List price

Source: Mark Leslie, Stanford GSB

Cost of Goods(Supply Chain)

Direct Sales

Channel Economics

45

Cost of Goods(Supply Chain)

Profit + SG&A + R&D

En

d C

on

sum

er

EU

D

isco

un

ts

Reseller

Revenue List Price

Source: Mark Leslie, Stanford GSB

Profit + SG&A + R&D

En

d C

on

sum

er

EU

D

isc

ou

nts

Reseller

Dis

trib

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Revenue List Price

Cost of Goods(Supply Chain)

Reseller Channel

Distributor/Reseller Channel

Channel Economics: OEM or IP Licensing

46

Your Product Becomes Your Customer’s Cost of Goods

Source: Mark Leslie, Stanford GSB

En

d C

on

sum

er

ResellerProfit + SG&A

+ R&D

Cost of Goods

(Supply Chain)

EU

D

isc

ou

nts

Reseller

Dis

trib

uto

r

Mas

ter

Dis

trib

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r

Profit + SG&A + R&D

Cost of Goods(Supply Chain)

Your RevenueList

Price

How Are Channels Compensated?

47

– Commission

– Percentage of sales price

– Discounted pre-purchase

Book Publishing

48

•Percent of

Retail

• You get (approximately)- 35% of retail- the distributor gets 10%- the wholesaler gets 15% - the retailer gets 40%

- less any discount they offer the customer

PublisherNational

WholesalerDistributor Retailer Customer

35% 15% 10% 40%

$7.00 $3.00 $2.00 $8.00 $20.00

Book Publishing Economics

49

PublisherNational

DistributorWholesaler Retailer Customer

Wholesale costs

Markup

Allowances

Payment guarantees

Payments

Bills

Credit guarantees

Payment guarantees

Return rights

Credits

50images by JAM

customer segments

key partners

cost structure

revenue streams

channels

customer relationships

key activities

key resources

value proposition

Cost Structure

Pivots: your status

• Customer segment• Customer need (pain you are solving)• Platform• Business model• Features

– zoom in (to minimum viable product)– zoom out (towards whole product)

MVP: where are you at?

Can you:-specify what to make and test?-From LLP discovery, what can you strip out?-What must you include?

10 inch

From a Jon Nakane 11/2013 presentation

From a Jon Nakane 11/2013 presentation

Lean Launchpad Roadmap

Customer Discovery 1

Canvas v1:Value PropositionCustomer Segment

Get out of the bldg:Interviewing

Customer Discovery 2

Canvas v2:ChannelsCust Relationships

Themes:Cust Decision NetworkDay in the LifeCustomer EcosystemWhitespace GridTAM/SAM/SOM

CustomerValidation 1

Canvas v3:Cust Relationships(Get-Keep-Grow)Revenue ModelCost Structure

Themes:Finding PivotsMin Viable Product

CustomerValidation 2

Canvas v4: C.R. GetRevenue model v2Cost structure v1

Exit criteria for Discovery phase andEnd Game for LLP

Next steps

Interview objectives & scriptInterviews“Day in the Life”Validate/Pivot/Stop

InterviewsCust decision networkCust EcosystemWhitespace GridTAM/SAM/SOM

InterviewsCR: GetMin. viable productRevenue model: pricingElements of cost structure

Session 1 Session 2 Session 3 Session 4

Next steps: from workshop 3 to 4

• Next hypotheses• Interviews• Customer Relationship: Get-keep-grow• Min. viable product (MVP)• Revenue model: pricing• Elements of cost structure• Canvas v4