Managing&New/Innova.ve& DigitalProductsin& … Business models&and&startups& • „The&Lean&Startup“&–Eric&Ries& • „The&Startup&Owner‘s&Manual“&–Steve&Blank& • „Rework“&–Jason&Fried,&David&

Managing New/Innova.ve Digital Products in new and

exis.ng organiza.ons

Georg Singer Email: [email protected]

Twi5er: @Georg_Singer, Linkedin: linkedin.com/in/gecko, Facebook: facebook.com/georg.singer Slideshare: slideshare.net/georgsinger

whoami

•  Business Development Reach-‐U/DemograI

•  PHD, Computer Science, MBA, Entrepreneurship, MSc, TheoreOcal Physics

•  Experience in various industries •  Austrian

Course outline •  1. Session (today)

–  InnovaOve products/startups – Online business models

•  2. Session (26 Nov) –  Internet markeOng

•  3. Session (3 Dec) – Lean-‐product management (development) principles

Agenda today

•  Common features of innovaOve products/startups (60’)

•  (Online) Business Models (40’) •  -‐-‐-‐-‐Break-‐-‐-‐ (10’) •  Online revenue models (30’) •  Pricing models (20’) •  CASE Study: Dropbbox (30’)

Readings Business models and startups •  „The Lean Startup“ – Eric Ries •  „The Startup Owner‘s Manual“ – Steve Blank •  „Rework“ – Jason Fried, David Heynemeyer •  Michael Rappa, h5p://digitalenterprise.org/models/models.html

(Business models) •  h5p://businessmodelgeneraOon.com/ Internet marke.ng •  „How to get found everywhere“ – Rand Fishkin •  „Internet markeOng“ – Dave Chaffey et al. •  „The new rules of MarkeOng and PR“, David Meerman Sco5

Grading •  Assignment (15 points) – Technology business plan

–  InstrucOons here h5ps://courses.cs.ut.ee/2013/soIeco/Main/Assignments

–  Deadline for submission – 16 December 2013 –  PresentaOon – 17 December 2013 –  in teams

•  Exam (60 points) –  Fun Exam – 7 January 2014

•  PresentaOon of a business plan about a business idea of yours •  Convince us (the jury) to invest into your company •  On individual basis •  h5ps://courses.cs.ut.ee/2013/soIeco/Main/SoIwareEntrepreneurshipProjectPlan

–  Normal Exam – Will contain one or two quesOons related to these 3 lectures (in addiOon to business case analysis)

•  14 January 2014

This is no one-‐way street

• Let’s make this course interacOve

• If you have quesOons, just ask!

Who are you ? – Introduce yourself-‐1 min per person

•  What is your name? •  Are you currently working? •  What are you working? •  Do you have online markeOng experience? Which one?

•  Are you here in order to market a product of yours? Which one?

•  Are you a company founder? •  What do you expect from this course?

Today´s model to build a startup • Have an interes.ng idea •  Raise a lot of money very early •  Create a perfect product with best people

• Hire an experienced CEO •  Start the marke.ng machine •  Fail -‐>The same within big organiza.ons

Steve Blank h5p://www.slideshare.net/sblank/lecture-‐1-‐business-‐model-‐customer-‐development

Why?

Reasons for failure

• Did not meet customers´needs • Bad ad predicOng the future • Wrong progress measures


Failure is…

..due to a lack of

customers NOT a product development

failure...

h5p://www.slideshare.net/sblank/customer-‐development-‐past-‐present-‐future-‐steve-‐blank-‐111909

Image h5p://www.flickr.com/photos/emmely1/6880611523/

Then why…. • Process to manage product development?

• No process to manage customer development?


Business plans – why?

• Why write a plan? – VC´s require it – Planning (strategic, financial, ops)

• What´s wrong with a plan? – StaOc – ExecuOon Oriented


An idea is NOT a Company


It´s just ONE of Many

Hypotheses


What is a company?

Photo by: Shariff Che'Lah

A business organiza.on, which sells a product or service in exchange for revenue and profit


How are companies organized?

For their organiza.on companies use business

models


What is a business model?

A business model covers and describes all necessary parts of a company to make

money


What about „our“ technology?

Your technology is one part of the many cri.cal parts needed to

build a company


Customers don´t care about your

technology, they are trying to solve a problem


Image h5p://www.brucebucks.com/2011/09/ignore-‐list/

What is a startup?

•  Aren´t small versions of large companies •  They are about learning/discovery, not execu.on

•  Entrepreneurs and their VC´s were/are execu.ng on guesses

•  But the facts are/were outside the building


A startup is a temporary organiza.on designed to search for a repeatable and scalable

business model


How to build a start-‐up

Idea Business model(s)

Size of the Opportunity

Customer Discovery

Customer ValidaOon

Theory Prac.ce


Image h5p://xpda.com/junkmail/junk155/GPN-‐2000-‐000650.jpeg

How to build a Web start-‐up

Idea Business model(s)

Size of the Opportunity

Customer Discovery

Customer ValidaOon

Web startups get the Product in front of Customers earlier


Image h5p://xpda.com/junkmail/junk155/GPN-‐2000-‐000650.jpeg

Genius is 1% inspira.on and 99% perspira.on

Thomas Edison

Break 10 minutes

Product development/innova.on approaches

h5p://kingmagic.files.wordpress.com/2006/11/683_sourismissionimpossibleblog.jpg

Tradi.onal product management Waterfall model

Source: h5p://en.wikipedia.org/wiki/Waterfall_model

Problem:known

From Eric Ries´s presenta1on on Slideshare.

Solu.on:known

Agile Unit of progress: code


Problem:known

Solu.on:unknown

„Product owner“ or in-‐house customer

Product development at Lean Startup Unit of progress: Validated Learning

about customers


Business Models

Why are business models important

•  Most important aspect of your venture •  How do you make money? •  Why are you be5er than your compeOOon? •  Why should your customer buy you? •  How do you differenOate yourself from the compeOOon?

•  How do you access the market? •  Many start-‐ups are not clear about that

A business model describes all the parts of the company necessary to make money

? What are those parts? What parts is a business model composed of?

9 Building blocks

Images from h5p://www.businessmodelgeneraOon.com/

h5p://youtu.be/QoAOzMTLP5s

Customer Segments

h5p://www.businessmodelgeneraOon.com

Value proposiOons


Channels


Customer RelaOonships (Service)


Revenue Streams


Key Resources


Key AcOviOes


Key Partners


Cost structure


51 images by JAM"

customer segments

key partners

cost structure

revenue streams

channels

customer relationships

key activities

key resources

value proposition

www.businessmodelgenera.on.com h5p://www.businessmodelgeneraOon.com

The business model canvas

• SystemaOc way of – designing – challenging – invenOng

• business models

Created by Alexander Osterwalder and Yves Pigneur

Downlaod hip://www.businessmodelgenera.on.com/canvas Online hip://canvanizer.com/

Revenue models & Pricing – More Detail

Basics

•  What is revenue? •  What is a revenue model? •  Who of you has a revenue model in place? •  What is important when thinking about a revenue model?

What revenue streams?





Revenue and pricing brief

1.  How many of our product will we sell? 2.  What‘s the revenue model? 3.  How will we charge? 4.  Does this add up to a business that‘s worth

doing? (App based businesses?)

Steve Blank: The Startup Owner‘s Manual

Revenue Model

Strategy to generate cash from each customer segment

• Web/Mobile • Physical

Web/Mobile Revenue Models

Different ways to classify RM

• One-‐off vs. recurring •  Direct vs. indirect •  B2B, B2C, C2C

“Direct” revenue models •  Sales (etailers) : Product, app, or service sales •  Subscrip1ons: SaaS, games, monthly subscripOon •  Freemium: use the product for free: upsell/conversion •  Adver1sing sales: unique and/or large audience •  Pay-‐per-‐use: revenue on a “per use” basis (also uOlity or on-‐demand

model) •  Transac1on brokerage: Small fee per transaOon for bringing

buyers and sellers together and facilitate transacOons, (Paypal, Ebay, Amazon, Fortumo)

•  Virtual goods: selling virtual goods e.g. in games

•  Infomediary model – Exploit data about consumers and their “consumpOon” habits (Nielsen, NetraOngs, FB?)

“Ancillary” revenue models

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

•  Back-‐end/complementary offers: add-‐on sales items from other companies as part of their registraOon or purchase processes

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

Selected revenue models in more detail

Sales/Merchant model (B2C)

•  Online version of tradiOonal retailer •  Revenue model: Sales •  VariaOons:

–  Virtual merchant: Amazon.com –  Bricks-‐and-‐clicks (click-‐and-‐mortar): Barnes&Noble Books –  Catalog merchant: O5o.com –  Bit-‐Vendor: Apple iTunes Music store, e-‐book vendors, mobile apps sellers

Slide 2-‐69

Source: h5p://digitalenterprise.org/models/models.html

Subscrip.on model (B2C) •  Users are charged a periodic (daily, monthly or annual) fee to subscribe to a service. –  sites to combine free content with "premium" (i.e., subscriber-‐ or member-‐only) content.

–  SubscripOon fees are incurred irrespecOve of actual usage rates.

–  SubscripOon and adverOsing models are frequently combined.

•  Content services: Neylix, Listen.com •  Internet service providers: offer network connecOvity •  Professional social networks (membership feeds): xing.com, linkedin.com •  Newspaper subscripOons: I.com (financial Omes), wsj.com (wall street

journal)….

Slide 2-‐70 Source: h5p://digitalenterprise.org/models/models.html

Source: Nils Andres PresentaOon at M2C 2013, Hamburg

Freemium model =Free + Premium

Fred Wilson 2006

“Give your service away for free, possibly ad supported but maybe not, acquire a lot of customers very efficiently through word of mouth, referral networks, organic search markeOng, etc., then offer premium priced value added services or an enhanced version of your service to your customer base.”

Requirements for Freemium

•  Incremental cost of a new customer is negligible

•  SaaS = cost close to 0 •  Significant cannibalizaOon is avoided

Ways to restrict offering •  Feature limited (e.g. a "lite" version of soIware, such

as Skype, three-‐way video calling only in paid version) •  Capacity limited (e.g. Dropbox only up to 5 GB) •  Seat limited (e.g. only usable on one computer) •  Customer class limited (e.g. only educaOonal users) •  Effort limited (e.g. all or most features are available for

free, but require extended unlocking which can be shortcut for a fee, such as some soIware for virtual prinOng on PDF)

•  Support limited (e.g. users of a "lite" version do not receive telephone and/or email support)

•  Time or bandwidth limited (e.g. SpoOfy, which limits the Ome free users can use the service for, rese}ng each month or “seven day free trial with your credit card”)

h5p://en.wikipedia.org/wiki/Freemium

Strengths and Weaknesses of Freemium

•  Strengths – Accelerates trial and adopOon at relaOvely low cost –  Terrific as launch strategy

•  Weaknesses –  Free-‐to-‐pay is sexy but dangerous – Get tons of users fast –  If the do not convert and pay you are dead – Mapping profitable conversion of free to paid users crucial

Different kinds of „free“

h5p://www.freemium.org/wp-‐content/uploads/2008/10/4kinds1.jpg

Adver.sing based model (two-‐sided market) •  Extension of tradiOonal media broadcast model –  Core service free –  Sell adverOsing space

•  VariaOons: –  Portal: Yahoo.com –  Classifieds: Monster.com, Craigslist – Query based paid placement: Google, Yahoo paid search

–  Content targeted adverOsing: Google, Facebook, Android app ads

– …. Slide 2-‐78


Pay-‐per-‐use (U.lity) model •  The uOlity or "on-‐demand" model is based on metering usage, or a "pay as you go" approach.

•  Unlike subscriber services, metered services are based on actual usage

Slide 2-‐79 Source: h5p://digitalenterprise.org/models/models.html

Brokerage Model (B2B, B2C, C2C) •  Facilitate online transacOons for consumers and businesses

–  Primary value proposiOon—saving Ome and money

•  Revenue model: –  TransacOon fees

•  Examples –  AucOon Broker: ebay.com –  TransacOon broker: Paypal –  Distributor: Alibaba.com (b2b) –  Virtual marketplace – Amazon.com, Apple app store, Android market

Slide 2-‐80


Non Web/mobile

•  Asset sale – Sale of ownership right to a physical product

•  Usage fee

•  Licensing -‐ Fee for use of some IP (including soIware)

•  RenOng – Fee for temporary access •  SubscripOon -‐ e.g. x videos per month

Pricing

Pricing model

TacOcs to set the price in each customer segment

Web/mobile pricing

•  In web/mobile channels, pricing is very transparent and almost always easily found online

•  Need to monitor compeOOve pricing

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 percepOon of value (e.g. Ome saved, new efficiency created, etc.)

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

Exercise (10’)

•  What price tag to put on a startup that helps streamline the process of ge}ng divorced in the US?

Example

•  Crosby puts the average divorce at around $27,000 in legal fees; Wevorce charges a flat rate of $7,500. She imagines a Wevorce office for every 400,000 Americans and esOmates $1 billion in annual revenue.

http://www.nytimes.com/2013/05/05/magazine/y-combinator-silicon-valleys-start-up-machine.html?pagewanted=3&_r=0&ref=magazine

Pricing Choices (1)

•  Cost-‐based pricing: based on a mulOple 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

•  Compe11ve pricing: posiOons the product vs. others in its compeOOve set, typically in exisOng markets

•  Volume pricing: designed to encourage mulOple purchases or users

Pricing Choices (2)

•  PorMolio pricing. Mix of high markups and some with low, depending on compeOOon, lock-‐in, value delivered, and loyal customers; different prices for B2B or B2C e.g. Dropbox

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

•  Subscrip1on: while now thought of a soIware 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

Price and quality (mass vs. Niche)

h5p://liveseysolar.com/wp-‐content/uploads/2011/09/Price-‐v-‐Quality1.png

AddiOonal components of pricing

•  Exclusive vs. non-‐exclusive •  What do you price? What do you give away for free?

•  How does cost vary at different producOon levels?

CompeOOon as an influence

•  Pure compeOOon •  Oligopoloy •  Monopoloy

Nature of Market

How they will react?

§ What is their product? § What are their costs and prices?

(Economies of scale, mass markets vs niche markets, quality vs. price..)

§ “What pricing will make them feel the worst?”

Group Exercise -‐ 20 ‘

•  Visit the Amazon web site (www.amazon.com) •  Write down the different revenue opportuniOes for this site (some may be evident from the site, but others may not); write down your ideas also.

•  What’s your revenue model? •  How will you price your products? •  How do compeOtors price?

19.11.13 93/39

Case study – Dropbox – in groups (1 hour)

•  Fill in the business model canvas for Dropxbox •  Answer the following ques.ons:

–  What is the product? –  What is the target market? –  Market size? –  Why is Dropbox be5er than the compeOOon? –  What were the problems with other products? –  What is their business model?

•  What is free? •  What is paid?

–  How did he create iniOal demand to test the prototype? –  Why did search engine adverOsing not work?

•  What were the acquisiton cost per customer? –  What was the most successful markeOng program? Why? –  Why did they not target business customers? –  How did he manage the product regarding updates and innovaOon?

•  Where did/does he get ideas for product improvments from? •  How did they test improvements to get measurable data?

•  Present aqerwards

Thank you! • Next week:

– Lean product management principles

– Aardvark.com case study

Documents

Managing&New/Innova.ve& DigitalProductsin& … Business models&and&startups& • „The&Lean&Startup“&–Eric&Ries& • „The&Startup&Owner‘s&Manual“&–Steve&Blank& • „Rework“&–Jason&Fried,&David&