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Models & Methods Dave Parker
@DaveParkerSEA
www.dkparker.com
[email protected] “Big E Entrepreneurship”
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Agenda
¤ About Dave
¤ Marketing Methods
¤ Sales Models
¤ Pricing Methods
¤ Business Models
¤ Financial Models
¤ Q&A – Your models
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About Dave
¤ SVP Programs at UP Global (Startup Weekend + Startup America)
¤ 5X Entrepreneur
¤ EIR at Mitsui Venture Capital
¤ Board member for three mid-market, handful of startups and advisory board for over 50+ startup companies
¤ Husband, Dad
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Two Methods + Three Models
¤ Marketing Methods – are mechanics to be tested
¤ Pricing Methods – how to price your product
¤ Sales Models – how you SELL your product.
¤ Business Models – are the way to monetize, including key metrics ¤ B2B
¤ B2C
¤ Financial Models – include revenue and expenses. Used for both forecast and actual
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Why?
¤ Doing a financial model requires Data & #’s for:
¤ Marketing Methods
¤ Pricing Methods
¤ Sales Model
¤ Business Model
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How many of you are planning Virality as a driver of your model?
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5 reasons you won’t go viral
1. Viral & Network effect is a B2C marketing method calculated as “K Factor” k = invites sent * conversion
2. No inherent virality in your offering – nothing to share with other people, e.g. Facebook or WhatsApp
3. No collaboration virality – extending your offering
4. Your target market is too small (TAM/SAM/LAM)
5. Budget and Creative - No “me-too” approach will work
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What you can do
¤ Clear product positioning = word of mouth. Can your message be repeated to their boss?
¤ Make your product more valuable over time <REALLY?>
¤ MVP vs. KAP “Kick Ass Product”
¤ Free trial is different from Freemium ¤ Corporate users will expense a service below a specific price
point
¤ What the conversion % to paid is the question you will have to answer
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SAM
TAM
SOM
LAM
LAM – Launch Addressable Market. Who can buy your product at MVP?
Market Sizing
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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
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Customers (10)
SEO
Inbound Outbound
Marketing Channels
Leads 1,000
Prospects 100
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Pricing
¤ 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?
¤ Bundled pricing (Services+)
¤ “Mystery of Product Pricing” dkparker.com
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Someone has to sell your product – let’s start with you
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Sales Models
¤ 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
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Known Market
Unknown Market
Low Price Point
High Price Point
Known Search Words
Unknown Search words
Web Direct ✔ ✔ ✔
Direct ✔ ✔ ✔ ✔ ✔
Indirect ✔ ✔ ✔
Licensing ✔ ✔
Retail
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Sales Model Assumptions
The following apply regardless of models
¤ Cost of Customer Acquisition (CAC)
¤ Lifetime value of Customer (LTV) ¤ Typically 36 month calculation
¤ Time to close sale ¤ How does this change with product/market maturity?
¤ Churn/Retention
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Who is your customer?
¤ Business to Business (B2B)
¤ Business to Consumer (B2C)
¤ Business to Government (B2G)
¤ At launch you get one, at scale you can have many
¤ Business to business to consumer (B2B2C)
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8 B2B Models
¤ B2B Commerce - Example Grainger ¤ Grainger is a wholesale supply company with a $15B market
cap. This ordering site shifted the expense of ordering from their counter to the customer.
¤ Subscription - Example Salesforce.com - detailed post ¤ There are so many great examples now of B2B subscriptions; I
wanted to highlight one of the frontrunners in Salesforce. One of the things they did that was masterful was recruited sales people directly (cheap for 5 users or less) who would then expense it back to their company.
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8 B2B Models
¤ Productize a Service - Example MOZ - detailed post ¤ Services business (Consulting) usually generates 35%+ Gross
Margin. Given that pull of profit $, very few companies make the shift from services company to product company.
¤ Marketplace - Example Alibaba ¤ Nearly everyone has used eBay or similar. Alibaba's IPO and
global presence is what people know it for in 2015. But this marketplace was founded in 1999.
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8 B2B Models
¤ Transaction Fees - Example Square ¤ Square launched with a replacement for credit cards like
PayPal and take a percentage of every transaction as their payment. They've since expanded into Point of Sales (POS) services.
¤ Lead Generation - Example Mint ¤ Consumers are the product to whom Lead Generation
companies are selling. They are a business that sells other businesses (consumer) leads. They are paid for the lead, not a transaction. Sometimes this is a great customer experience like Mint, but with others, like Insurance, it's a bad customer experience.
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8 B2B Models
¤ Combination - Example Uber ¤ Uber is a business that created a marketplace that
innovated around transaction fees (the driver doesn't control the price like an eBay seller).
¤ Nonprofit - Example Startup Weekend ¤ I have to give a head nod here to UP Global, the parent
of Startup Weekend and Startup Next. The company is a 501(c)(3) that doesn't make money through its events, but rather through sponsorships.
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Other Models – ONLY at Scale
¤ Big Data Sales – Data Analytics
¤ Multisided Marketplace – Etsy, Zarly
¤ Panels – ability to interview panel of customers or pay for Access. Examples: PatientsLikeMe, Toluna
¤ B2B2C – please don’t hurt yourself…
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12 B2C Models
¤ New Media - Example Twitter ¤ This model is actually the "no model required" model. If you
have a business that acquires users via virality or K-factor, you don't really need to start with a business model. But for the rest of us mortals, you'll need to choose one model from the list that follows.
¤ Search - Example Google ¤ Google's model on search wasn't original (at least according
to Yahoo's lawsuit). The Pay Per Click (PPC) model was the monetization option for search results.
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12 B2C Models
¤ Gaming - Example King ¤ When the app store launched, the model for games was the
$0.99-$4.99 per download. This model was quickly replaced with in-app sales. Likely the world's best business model - sell virtual stuff for real money!
¤ Advertising - Example Facebook ¤ Facebook delivers consumer eyeballs for advertisers. You'll
need at least 1M uniques a month to your site to monetize this way however.
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12 B2C Models
¤ B2C Commerce - Example Amazon ¤ Amazon may not have been first, but it's clearly the biggest
e-commerce site on the web. They now sell some of their own products, but its start was in books, a product that was the same, regardless of where you purchased the product.
¤ Subscription - Example Netflix ¤ Netflix cracked the code on subscription for consumers. No
freemium, just subscribe.
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12 B2C Models
¤ Subscription - Freemium/Premium Example Spotify ¤ Spotify is a great example of free to paid version of
subscriptions. The reason freemium subscription isn't listed in B2B is that, usually, Business customers won't purchase a de-featured product.
¤ Marketplace - Example eBay ¤ Ah, eBay! You have sellers (they came first) and buyers; they
find each other and transact on your website. It's a brilliant and really hard business - because you have to build both sides of the market at the same time.
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12 B2C Models
¤ Transaction Fees - Example AirBnB ¤ I love AirBnB, they created underutilized inventory - vacant
rooms and your house - and made it easy to book and transact over the web. For creating a market, they charge a transaction fee.
¤ Lead Generation - Example Groupon ¤ This one is super close to Mint, listed as B2B above, but the
benefit is more tangible to the consumer vs. the business in this circumstance.
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12 B2C Models
¤ Hardware - Example Jawbone ¤ Hardware is the classic example of retail pricing less cost of
goods sold. It's great to see sites like Kickstarter (transaction fee) helping launch more hardware companies by providing pre-paid purchases.
¤ Rental - Example Chegg ¤ Chegg was a great idea of taking something that was
ridiculously expensive in the physical (text books) and making them available as a rental.
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Innovative Trends
¤ Airbnb – enabling payments for Peer-2-peer, sharing economy
¤ Kickstarter – crowdfunding
¤ Groupon – lead gen with consumer benefit
¤ Xerox – leasing equipment – 1950’s
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To the Spreadsheets!
¤ These details manifest in assumptions
¤ Time based ¤ Launch
¤ Ramp
¤ Scale
¤ Market & Brand Development ¤ Pricing
¤ Overtime
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Just say “no” to $100M!
¤ Avoid the Top 10 Fails Fundraising
¤ Bottom Up vs. Top Down Model
¤ Find a proxy for your business model “Like this for that”
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[email protected] http://dkparker.com/businessmodels/ @DaveParkerSEA