9 Business to Business (B2B) Startup Business Models

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Models & Methods Dave Parker

@DaveParkerSEA

www.dkparker.com

Dave@dkparker.com “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

¤  CEO Code Fellows

¤  5X Entrepreneur

¤  SVP Programs at UP Global (Startup Weekend + Startup America)

¤  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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Example

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Marketing Methods

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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 Methods

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You can sell anything for nothing

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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”

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Sales Models

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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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Business Models

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Who is your customer?

Who Pays?

¤  Business to Business (B2B)

¤  Business to Consumer (B2C)

¤  Business to Government (B2G)

¤  At launch you get one, at scale you can have a number

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9 B2B Business Models

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9 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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9 B2B Models

¤  Search – Example Google ¤  Yahoo was first in the PPC business. Search is a free

consumer service paid for by advertisers – targets action or intention.

¤  Advertising – Example Facebook ¤  Monetizing eyeballs. Need to start with 1M uniques to be

fundable. Cost per Thousand (CPM) on Banners can target demographic vs. intention.

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9 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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9 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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9 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).

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Other Models – ONLY at Scale

¤  Nonprofit - Example Startup Weekend

¤  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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Financial Models

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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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Q&A – Your Metrics & Models

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dave@dkparker.com http://dkparker.com/businessmodels/ @DaveParkerSEA