2015.04.27 models & methods (dkparker.com)

Copyright DKParker, LLC Do Not Use Without Permission 2015

Models & Methods Dave Parker

@DaveParkerSEA

www.dkparker.com

[email protected] “Big E Entrepreneurship”


Agenda

¤  About Dave

¤  Marketing Methods

¤  Sales Models

¤  Pricing Methods

¤  Business Models

¤  Financial Models

¤  Q&A – Your models


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


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


Why?

¤  Doing a financial model requires Data & #’s for:

¤  Marketing Methods

¤  Pricing Methods

¤  Sales Model

¤  Business Model


Example


Marketing Methods


How many of you are planning Virality as a driver of your model?


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


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


SAM

TAM

SOM

LAM

LAM – Launch Addressable Market. Who can buy your product at MVP?

Market Sizing


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


Customers (10)

SEO

Inbound Outbound

Marketing Channels

Leads 1,000

Prospects 100


Pricing Methods


You can sell anything for nothing


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


Sales Models


Someone has to sell your product – let’s start with you


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


Known Market

Unknown Market

Low Price Point

High Price Point

Known Search Words

Unknown Search words

Web Direct ✔ ✔ ✔

Direct ✔ ✔ ✔ ✔ ✔

Indirect ✔ ✔ ✔

Licensing ✔ ✔

Retail


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


Business Models


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)


B2B Business Models


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.


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.


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.


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.


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…


B2C Business Models


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.


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.


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.


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.


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.


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.


Innovative Trends

¤  Airbnb – enabling payments for Peer-2-peer, sharing economy

¤  Kickstarter – crowdfunding

¤  Groupon – lead gen with consumer benefit

¤  Xerox – leasing equipment – 1950’s


Financial Models


To the Spreadsheets!

¤  These details manifest in assumptions

¤  Time based ¤  Launch

¤  Ramp

¤  Scale

¤  Market & Brand Development ¤  Pricing

¤  Overtime


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”


Q&A – Your Metrics & Models


[email protected] http://dkparker.com/businessmodels/ @DaveParkerSEA