Date post: | 14-Jun-2015 |
Category: |
Business |
Upload: | the-bln-business-of-software |
View: | 234 times |
Download: | 3 times |
1
Harvard innovation lab Michael J SkokStartup Secrets Business of Software
@innovationlab @mjskok #startupsecrets startupsecrets.com
STARTUP SECRETS
MICHAEL J SKOK
An insider’s guide to unfair competitive advantage
Hi Harvard innovation lab
startupsecrets.com
Business of Software
@mjskok
#startupsecretsTweet questions to:(Q&A at end)
2
Harvard innovation lab Michael J SkokStartup Secrets Business of Software
@innovationlab @mjskok #startupsecrets startupsecrets.com
Why are we here?
• A story…
– Zero to a couple of billion dollars… – but NOT back again!
3
Harvard innovation lab Michael J SkokStartup Secrets Business of Software
@innovationlab @mjskok #startupsecrets startupsecrets.com
If you want to build a billion dollar business…
Start with a MULTI billion dollar problem
4
Harvard innovation lab Michael J SkokStartup Secrets Business of Software
@innovationlab @mjskok #startupsecrets startupsecrets.com
eCommerce…
Market: eCommerce:
• $4.7 trillion• ~7% penetrated• Growing in mid
teens
Problem:“Under siege”, Disruptions
• Offline -> Online• Physical -> Digital• Mobile -> Omni
Channel
5
Harvard innovation lab Michael J SkokStartup Secrets Business of Software
@innovationlab @mjskok #startupsecrets startupsecrets.com
And if you want to build a business around it…
… you’ve got to make it RSVP
• Repeatable, • Sustainable, • Valuable, • Predictable
6
Harvard innovation lab Michael J SkokStartup Secrets Business of Software
@innovationlab @mjskok #startupsecrets startupsecrets.com
Tasters…
• Value prop - fundamentals• Business model - basics• Product – friction free, “slippery”
products• Metrics – that matter• Cloud – the second front
7
Harvard innovation lab Michael J SkokStartup Secrets Business of Software
@innovationlab @mjskok #startupsecrets startupsecrets.com
Value Proposition
… customer view
8
Harvard innovation lab Michael J SkokStartup Secrets Business of Software
@innovationlab @mjskok #startupsecrets startupsecrets.com
Customer view = Gain/Pain• Revenue • Cost savings• Time• People• Competitive advantage• Reputation• Etc..
• Inertia• Switching costs?• Default = do
nothing• Alternatives?• Good enough =
good enough!• RISK on a startup
• Find (See)• Try• Buy• Implement• Deploy• Own – eg.TCO
Inertia,RISKGain
Pain
9
Harvard innovation lab Michael J SkokStartup Secrets Business of Software
@innovationlab @mjskok #startupsecrets startupsecrets.com
Customer view = Gain/Pain• Revenue • Cost savings• Time• People• Competitive advantage• Reputation• Etc.
• Inertia• Switching costs?• Default = do
nothing• Alternatives?• Good enough =
good enough!• RISK on a startup
• Find (See)• Try• Buy• Implement• Deploy• Own – eg TCO
Inertia,RISK
Gain
Pain
>10
“An order of magnitude”
10
Harvard innovation lab Michael J SkokStartup Secrets Business of Software
@innovationlab @mjskok #startupsecrets startupsecrets.com
Demandware
• Commerce, NOT infrastructure
11
Harvard innovation lab Michael J SkokStartup Secrets Business of Software
@innovationlab @mjskok #startupsecrets startupsecrets.com
Business Model
… your view
12
Harvard innovation lab Michael J SkokStartup Secrets Business of Software
@innovationlab @mjskok #startupsecrets startupsecrets.com
Basic Startup Model• Lifetime Value of Customer (LTV)• Cost of Acquiring Customer (CAC)
CORE
Lever
s
Mult
iplie
rs
LTV
CAC
LTV ~3x > CAC
13
Harvard innovation lab Michael J SkokStartup Secrets Business of Software
@innovationlab @mjskok #startupsecrets startupsecrets.com
A typical product lifecycle
See, Try, Buy, Fly, Die…
See Try Buy Fly Die
14
Harvard innovation lab Michael J SkokStartup Secrets Business of Software
@innovationlab @mjskok #startupsecrets startupsecrets.com
A typical product lifecycle
• How do we avoid:– Pain, time and cost of adoption?– Premature decline?
See Try Buy Fly Die
Long, costly (CAC), slow payback, EXTENDED lifetime value (LTV)
15
Harvard innovation lab Michael J SkokStartup Secrets Business of Software
@innovationlab @mjskok #startupsecrets startupsecrets.com
Adding Retention and Upsell
See Try Buy Fly Die
Re-TrialUp-sellExtendedLifecycle
16
Harvard innovation lab Michael J SkokStartup Secrets Business of Software
@innovationlab @mjskok #startupsecrets startupsecrets.com
Retention
17
Harvard innovation lab Michael J SkokStartup Secrets Business of Software
@innovationlab @mjskok #startupsecrets startupsecrets.com
Upsell
14 x leverage!
18
Harvard innovation lab Michael J SkokStartup Secrets Business of Software
@innovationlab @mjskok #startupsecrets startupsecrets.com
The Model Refined – Enabling Retention & Upsell
• Cost of Acquiring & Retaining Customer (CARC)• Lifecycle Value of Customer (LCV) = incl.
Repurchase, Upsell
CORE
Lever
s
Mult
iplie
rs
Re-TrialUp-sell
LCV
CARC
19
Harvard innovation lab Michael J SkokStartup Secrets Business of Software
@innovationlab @mjskok #startupsecrets startupsecrets.com
Retention Costs
• Must be included in CARC as you drive down Churn– Examples:
• Support• Customer Service • Professional Services
• Also include any Re-engagement costs associated with any Upsell as you drive up ARPU– Sales, Marketing etc
20
Harvard innovation lab Michael J SkokStartup Secrets Business of Software
@innovationlab @mjskok #startupsecrets startupsecrets.com
Value Prop & Business ModelTOGETHER
customer view & your viewTOGETHER!
21
Harvard innovation lab Michael J SkokStartup Secrets Business of Software
@innovationlab @mjskok #startupsecrets startupsecrets.com
Value Prop & Business Model• They are two views of the same
principle:– Customer view = Gain/Pain– Vendor view = LCV/CARC
CORE
Lever
s
Mult
iplie
rs
Re-TrialUp-sell
LCV
CARC
GAIN
PAIN
Vendor View
Customer View
22
Harvard innovation lab Michael J SkokStartup Secrets Business of Software
@innovationlab @mjskok #startupsecrets startupsecrets.com
Web / Mobile
Self service
On demand
SaaSSubscription
Open source
An extended & valuable lifecycle:“Land & Expand”
See Try Buy Fly Die
Re-TrialUp-sellExtendedLifecycle Re-Trial
Up-sellExtendedLifecycle
short, low cost (CARC), quick payback, extended lifecycle value (LCV)
23
Harvard innovation lab Michael J SkokStartup Secrets Business of Software
@innovationlab @mjskok #startupsecrets startupsecrets.com
Web / Mobile
Self service
On demand
SaaSSubscription
Open source
An extended & valuable lifecycle:“Land & Expand” without friction
See Try Buy Fly Die
Re-TrialUp-sellExtendedLifecycle Re-Trial
Up-sellExtendedLifecycle
short, low cost (CARC), quick payback, extended lifecycle value (LCV)
Frictionless, SLIPPERY
24
Harvard innovation lab Michael J SkokStartup Secrets Business of Software
@innovationlab @mjskok #startupsecrets startupsecrets.com
Demandware
• Software is free, it’s a shared success model
25
Harvard innovation lab Michael J SkokStartup Secrets Business of Software
@innovationlab @mjskok #startupsecrets startupsecrets.com
How do you take away the pain, and reduce friction?
… make it SLIPPERY
26
Harvard innovation lab Michael J SkokStartup Secrets Business of Software
@innovationlab @mjskok #startupsecrets startupsecrets.com
Friction Free, SLIPPERY products
(Reduce the Pain in the Gain/Pain Ratio)
27
Harvard innovation lab Michael J SkokStartup Secrets Business of Software
@innovationlab @mjskok #startupsecrets startupsecrets.com
Friction Free, SLIPPERY products• Simple
• Low to no initial cost
• Installs and integrates
• Proves value quickly
• Package for progress
• Experience is compelling
• ROI is obvious
• Your customers can’t live without it – it’s stickY
28
Harvard innovation lab Michael J SkokStartup Secrets Business of Software
@innovationlab @mjskok #startupsecrets startupsecrets.com
Simple
29
Harvard innovation lab Michael J SkokStartup Secrets Business of Software
@innovationlab @mjskok #startupsecrets startupsecrets.com
Which is better?
Microsoft Sony
30
Harvard innovation lab Michael J SkokStartup Secrets Business of Software
@innovationlab @mjskok #startupsecrets startupsecrets.com
Neither! = Less is More!
Microsoft, Sony Apple
31
Harvard innovation lab Michael J SkokStartup Secrets Business of Software
@innovationlab @mjskok #startupsecrets startupsecrets.com
Simple ≠ Easy to do
• Simple ≠ Easy !
• Simple often means complex technology that makes your product “magic”
• Simplification Innovation(search algorithms in the cloud)
32
Harvard innovation lab Michael J SkokStartup Secrets Business of Software
@innovationlab @mjskok #startupsecrets startupsecrets.com
Example
Knowledge Management vs. Capture
EvernoteLotus Notes
33
Harvard innovation lab Michael J SkokStartup Secrets Business of Software
@innovationlab @mjskok #startupsecrets startupsecrets.com
Less is More…
features are the enemy of function
functionality can overwhelm users
applicability is all that ultimately matters
34
Harvard innovation lab Michael J SkokStartup Secrets Business of Software
@innovationlab @mjskok #startupsecrets startupsecrets.com
Demandware
• Retail practice group – best practice for merchants
35
Harvard innovation lab Michael J SkokStartup Secrets Business of Software
@innovationlab @mjskok #startupsecrets startupsecrets.com
Why are we here?
• A story…
– Zero to a couple of billion dollars… – but NOT back again!
36
Harvard innovation lab Michael J SkokStartup Secrets Business of Software
@innovationlab @mjskok #startupsecrets startupsecrets.com
Welcome Scott Dussault
former CFO
37
Harvard innovation lab Michael J SkokStartup Secrets Business of Software
@innovationlab @mjskok #startupsecrets startupsecrets.com
Metrics that Matter
• Annualized Revenue per Customer (“ARPU”)
• Renewal Rate/Churn
• Revenue per Employee• Cost of Acquiring and Retaining a
Customer (“CARC”)
38
Harvard innovation lab Michael J SkokStartup Secrets Business of Software
@innovationlab @mjskok #startupsecrets startupsecrets.com
VOCS 0.0x
TRAK
CRM
SPSC
BCOV BVIL
SQITNGO
FLTX
MRIN
CTCT
N
CVT ECOMULTI CNQR
DWRE
LPSN
MKTG JIVERP
SREV
16.0x
14.0x
12.0x
CSOD
TXTR
R² = 0.6577
2.0x
4.0x
6.0x
8.0x
10.0x
20.0x
0.0%
10.0% 20.0% 30.0% 40.0% 50.0% 60.0%
CY14
E EV
/ Sa
les
Source: FactSet, Stifel estimates
18.0x
WKDY
Now MKTO
Estimated CY14 Organic Growth Rate
39
Harvard innovation lab Michael J SkokStartup Secrets Business of Software
@innovationlab @mjskok #startupsecrets startupsecrets.com
Total Revenue
Live Customers
Live Sites
ARPU
Subscription Gross Margins
Dec. 31, 2008
Dec. 31, 2013
$515,000
820
204
$103.7M
82%
100% Cloud
$7.5M
23
50
$250,000*
37%
*Excluding Neckermann GmbH
40
Harvard innovation lab Michael J SkokStartup Secrets Business of Software
@innovationlab @mjskok #startupsecrets startupsecrets.com
ARPU
• Higher ARPU indicates value delivered– “SLIPPERY” products will drive sequential and
year over year ARPU growth
• Increasing ARPU driven by upsell– Chance to demonstrate how well your
customers re-engage (which is demonstrably better than re-sell)
• Investors view ARPU as THE driver of CLV and, most importantly, revenue growth…
41
Harvard innovation lab Michael J SkokStartup Secrets Business of Software
@innovationlab @mjskok #startupsecrets startupsecrets.com
Renewal Rate/Churn
• Renewal rate/churn is unique for every business– Need is to demonstrate stickiness– Dollar value renewals, churn count, long-term
contracts
• Rule of thumb is “needs to be better than 90%”– So figure out a metric that magically results in 90%
or better…(MJS: but don’t lie to yourself!)
• Investors view renewal rate/churn as THE metric for visibility and long-term revenue growth
42
Harvard innovation lab Michael J SkokStartup Secrets Business of Software
@innovationlab @mjskok #startupsecrets startupsecrets.com
Revenue per Employee
• Cloud software is a technology delivery model that provides significant operating leverage– Most if not all have subscription revenue models
that enable predictable revenue streams
• Subscription revenue models on their own may not provide significant operating leverage
• Legacy software models are inherently profitable, but not predictable
• Revenue per employee greater than $250,000 is a benchmark for inherently profitable models
43
Harvard innovation lab Michael J SkokStartup Secrets Business of Software
@innovationlab @mjskok #startupsecrets startupsecrets.com
CARC
• Cost of acquiring a customer– Unique metric for each business – what is the
sales model? How does marketing play in?
• Cost of re-engaging a customer– What are the costs for operating a customer?
How do customers renew?
• High gross margin businesses with less touch on re-engagement will have the best CARC metrics
44
Harvard innovation lab Michael J SkokStartup Secrets Business of Software
@innovationlab @mjskok #startupsecrets startupsecrets.com
Frictionless Land and Expand, Drives ALL of these Metrics
Q1 Q2 Q3 Q4
Year 2
Q1 Q2 Q3 Q4
Year 3
Q1 Q2 Q3 Q4
Year 1
Cohort analysis includes a family of third-party solution partner customers who share a minimum level of subscription revenue and 56 customers all of which have been operating on Demandware’s platform for a minimum of three years through December 31, 2013. Analysis excludes two customers operating on the platform for three years – one invoiced through a third party and Neckermann GmbH.
Qu
art
erly
Re
ven
ue
BaseSubscription
Customer Expansion
$0
$20,000
$40,000
$60,000
$80,000
$100,000
$120,000
$140,000
$160,000
$180,000
$200,000
45
Harvard innovation lab Michael J SkokStartup Secrets Business of Software
@innovationlab @mjskok #startupsecrets startupsecrets.com
Frictionless, SLIPPERY+ Land & Expand = ?
46
Harvard innovation lab Michael J SkokStartup Secrets Business of Software
@innovationlab @mjskok #startupsecrets startupsecrets.com
Frictionless, SLIPPERY+ Land & Expand = fastest growing software companies
47
Harvard innovation lab Michael J SkokStartup Secrets Business of Software
@innovationlab @mjskok #startupsecrets startupsecrets.com
Frictionless, SLIPPERY+ Land & Expand = fastest growing software companies
“Addiction before Adoption & Expansion”
48
Harvard innovation lab Michael J SkokStartup Secrets Business of Software
@innovationlab @mjskok #startupsecrets startupsecrets.com
Frictionless, SLIPPERY+ Land & Expand = fastest growing software companies
ADDICTION(Free, Open Source)
Delight,ADOPTION
UpsellEXPANSION
Year
1
Year
2
Year
3
Year
4$0
$50$100$150$200$250$300$350$400
LCV
“Addiction before Adoption & Expansion”
49
Harvard innovation lab Michael J SkokStartup Secrets Business of Software
@innovationlab @mjskok #startupsecrets startupsecrets.com
Why are we here?
• A story…
– Zero to a couple of billion dollars… – but NOT back again!
THE FUTURE OF
4TH ANNUAL SURVEY 2014
NORTH BRIDGE FUTURE OF CLOUD COMPUTING SURVEY IN PARTNERSHIP WITH GIGAOM RESEARCH
@North_Bridge @mjskok
@futureofcloud#futureofcloud
CLOUD COMPUTING
http://bit.ly/2014FutureCloud
THE FIRSTCLOUD FRONT
51
@futureofclo
ud
#futureofclo
ud
TRANSITIONING
52
LEGACY APPLICATIONS:
ecommerceERPCRM
@futureofclo
ud
#futureofclo
ud
@SALESFORCE @WORKDAY @DEMANDWARE
THE SECOND CLOUD FRONT
53
@futureofclo
ud
#futureofclo
ud
GROWTH IN WEB APIs SINCE 2005
Jun-05 Mar-06 Oct-06 May-07 Dec-07 Jul-08 Feb-09 Sep-09 Apr-10 Nov-10 Jun-11 Jan-12 Aug-12 Mar-13 Oct-13 Jun-14
1 186 299 438 593865
12631546
20262418
3422
5018
7182
9011
10302
11,493
Source Programmable Web
@futureofclo
ud
#futureofclo
ud
REIMAGINING APPLICATIONSIN THE CLOUD
55
@futureofclo
ud
#futureofclo
ud
UBER
THE SECOND CLOUD FRONT:
MANY CLOUD SERVICES =>RE-IMAGINED APP
56
@futureofclo
ud
#futureofclo
ud
AMAZING BECAUSE
CLOUD
57
From:
@futureofclo
ud
#futureofclo
ud
IMPOSSIBLE WITHOUT
CLOUD
58
To:
@futureofclo
ud
#futureofclo
ud
59
Harvard innovation lab Michael J SkokStartup Secrets Business of Software
@innovationlab@mjskok #startupsecrets startupsecrets.com
Why are we here?
• A story…
– Zero to a couple of billion dollars… – but NOT back again!
60
Harvard innovation lab Michael J SkokStartup Secrets Business of Software
@innovationlab@mjskok #startupsecrets startupsecrets.com
Tasters…
• Value prop - fundamentals• Business model - basics• Product – friction free, “slippery”
products• Metrics – that matter• Cloud – the second front
61
Harvard innovation lab Michael J SkokStartup Secrets Business of Software
@innovationlab @mjskok #startupsecrets startupsecrets.com
Redefining the (Business of) Software
• Installed by IT
• Customized
• Infrequent upgrades
• Proprietary
• License
1990+ Now +
On demand, SaaS, Cloud
Web / Mobile / Self Service Restful APIs, Extensibility
Open Source, Open Data Subscription, Recurring
Web
Self service
On demandSaaS
Subscription
Open source
Up-sell
Extended
Lifecycle
Up-sell
Extended
Lifecycle
short, low cost (CAC), quick payback, EXTENDED lifetime value (LTV)
Re-Trial
… fundamentally more Repeatable, Sustainable, Valuable & Predictable… RSVP = YES!
62
Harvard innovation lab Michael J SkokStartup Secrets Business of Software
@innovationlab @mjskok #startupsecrets startupsecrets.com
STARTUP SECRETS
MICHAEL J SKOK
Hi Harvard innovation lab
startupsecrets.com
Thank You BoS!Slides at
mjskok.com/bos2014
@mjskok
#startupsecrets