So you think you know your business model?

@gdecugis

So you think you know your business model? Guillaume Decugis, Co-Founder & CEO Scoop.it Mentor master class for The Refiners - October 2017

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What’s the difference between a company and a startup?

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“A startup is a temporary organization used to search for a repeatable and scalable business model.” Steve Blank

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Hi I’m Guillaume

Discovered Silicon Valley as a grad student in ’94-95

Tech entrepreneurs for the past 15 years

Startup advisor

Came back to launch Scoop.it in 2011 (…and start a rock band)

acquired by

became

acquired by

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These are some of the things I’ve tried

B2C

B2B

B2B2C

Saas

Revenue-share

Ad-funded

Subscription

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Mistakes I made

Building a product nobody wants

Betting on hypothetical revenue (ad-funded…)

Thinking freemium is 95% of free and 5% of premium

Leaving money on the table

Word of mouth as a distribution model

Product launches as a growth strategy

Failing to land and expand

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If you shouldn’t have (yet) a business model, why should you care now?

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Your business models is different than your revenue model.

Even if you monetize later, you need to define how you will grow and scale fast with limited resources.

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You need to lay out the assumptions you’re betting on:

Some will prove wrong => pivot

Some will prove right => scale

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You need to lay out the assumptions you’re betting on:

Some will prove wrong => pivot

Some will prove right => scale

Proving / unproving assumptions is the most critical thing you have to do as an entrepreneur.

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To simplify, start by focusing on these key questions

Who are our customers?

Why do they buy?

How much are they willing to pay (perceived value, alternatives)?

How do we acquire them?

How do we keep them?

How do we grow them?

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Seems simple, right?

Who are our customers? Young adults

Why do they buy? Listen to music on the go


$5-$15

How do we acquire them? Through mobile carriers

How do we keep them? Great QoS

How do we grow them? Sell more music

acquired by 2001

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Wrong!

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This was a good business model but not for us and not in 2001

Who are our customers? Young adults

Why do they buy? Listen to music on the go


$5-$15

How do we acquire them? Through mobile carriers

How do we keep them? Great QoS

How do we grow them? Sell more music

2009

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The business model we ended up with


young adults

Why do they buy?

to listen to music on the go


$5-$15/mth




Who are our customers? Young adults Mobile carriers

Why do they buy?Listen to music on the

goTo drive 3G

subscriptions


$5-$15 $1-5 million/year

How do we acquire them? Through mobile carriers Enterprise sales

How do we keep them? Great QoS Tight integration

How do we grow them? Sell more music Sell more music

acquired by 20072001Pivot

(that took us to $35MM/year in revenue and getting acquired for $121MM)

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Most startups pivot, even unicorns

Who are our customers? e-commerce sites

Why do they buy? To increase shopping basket value


$5-15k/year

How do we acquire them? Enterprise sales

How do we keep them? ?

How do we grow them? Success fees

2008acquired by

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Most startups pivot, even unicorns

Who are our customers? e-commerce sites e-commerce sites

Why do they buy?To increase shopping

basket valueTo increase traffic

conversion


$5-50k/year $100k-$10million/year

How do we acquire them? Enterprise sales Ad sales

How do we keep them? ?Drive more sales for

themHow do we grow them? Success fees

20112008Pivot

acquired by

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Keyword: alignment

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Misalignment vs alignment

What mobile carriers didn’t care about:

Make $.30 per download - even on millions of ringtones.

So they would NOT distribute us.

acquired by What they did care about:

Sell $50-$150/month 3G subscriptions and pay back their investment in 3G.

Music was the perfect loss leader to them

So they were ready to push our services, market them, give us the bulk of revenue and even pay for set-up and maintenance.

And once they were live, no way to stop music services without annoying their high ARPU customers.

Different model than what we thought but:

Same technology / product

Same team / capabilities (engineering, content, services and carrier biz dev)

Same relationships (record labels, carriers)

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Alignment is what makes it possible to scale with limited resources

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Getting the right business model


Why do they buy?

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Don’t build product nobody wants

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Would this be how some customers react to your product being terminated?

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Or this?

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There are many wrong ways to evaluate the strength of your value proposition

Cheap feedback:

“I really like your product” (but doesn’t use it every day or week)

“If you guys did this feature, I’d be totally paying for it” (but doesn’t have budget)

4-star ratings (nobody goes out of there way to recommend a product that’s below 5)

Quantitative Surveys:

BYOB = Bring Your Own Bias

A lot of people want to tell you what you want to hear

Use analytics wisely:

Beware of vanity metrics

Beware of the noise (1,000 fans + 10,000 unengaged = ???)

You don’t need analytics to validate you have 1,000 absolute fans (B2C) or 10 hooked customers (B2B)

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The 3 best ways to validate product-market fit

1. Talk to customers

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3. Talk to customers*

*seriously, do it

@gdecugis

What are your key challenges when creating content?

Is content research a big part of your content creation process?

What’s your current process for content research? Do you use any tools for content research?

Any frustrations or challenges with these tools / process?

How do you find new topic ideas that will resonate with your audience?

How do you ensure your content stands out against competition?

How do you benchmark your content against competition?

Interested in the private beta?

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An interview guide example for a new content intelligence product

Ask open and broad questions first, then narrow them down to avoid missing their big picture.

Don’t assume anything.

Don’t bring any bias.

Make it an anti-pitch: don’t try to convince them of anything.

But challenge what you don’t understand / what doesn’t seem right so you discover “hidden whys”.

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Why do they buy?


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Don’t build on hypothetical revenue

Most common sources of hypothetical revenue: - Ads - Freemium

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Not willing to pay

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What freemium is not

Willing to pay

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Not willing to pay (yet)

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What freemium is

Perc

eive

d va

lue

Time of use

Use

rs

Willing to pay now)

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Reasons to delay revenue generation

Legitimate reasons:

Would slow down user adoption

No/little doubt on revenue model

Bigger assumptions to validate before

Doubtful / fake reasons:

We need to stay focus

We need critical mass

We need product feedback and it’s easier to get it from free users

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Should you delay revenue generation? Or is it your priority?

Legitimate reasons:

Would slow down user adoption

No/little doubt on revenue model

Bigger assumptions to validate before

Doubtful / fake reasons:

We need to stay focus

We need critical mass

We need product feedback and it’s easier to get it from free users

If you plan on eventually charging customers, why not charge them now?

Is it because the value builds over time?

Or is it because the value is not there?

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Benefits of experimenting with revenue generation early on

Get product validation

Understand value / price

Be more capital efficient (aka less diluted)

Team alignment

Ultimate success metric

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Why kill the bear if you haven’t sold the skin yet?

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Don’t leave money on the table

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Which of these things are harder to get for a Saas product?

$49 or $79 from a solopreneur / business owner?

$799 or $50,000 from IBM?

$4,000 or $12,000 from a midsize company?

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What makes more margin?

1,000 solopreneurs / business owners paying $49

or 1 IBM paying $50,000

or 4 midsize companies paying $12,000

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Revenue is the same but your acquisition costs will differ

1,000 solopreneurs / business owners paying $49

or 1 IBM paying $50,000

or 4 midsize companies paying $12,000

Exactly the same revenue

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Can you take all the money that’s on the table?

995 solopreneurs / business owners paying $49

and 1 IBM paying $50,000

and 4 midsize companies paying $12,000

3x the previous revenue

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Why do they buy?



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Don’t leave growth to chance

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There are many customer acquisition strategies

Paid acquisition

Sales outreach

Outbound marketing

Inbound / content marketing

Influencer marketing

Viral distribution

…

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There are many customer acquisition strategies

Paid acquisition

Sales outreach

Outbound marketing

Inbound / content marketing

Influencer marketing

Viral distribution

…

Which one can you build natively in your business model? Which one gives you an unfair advantage?

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Example: How Dropbox got to 100 million users through referrals that helped understand the product value

Dropbox initial acquisition strategy: AdWords.

CPA: $250+

Product price: $99/year

One of Dropbox’s key feature: ability to share a large file without attaching it to an email.

Key friction point of freemium model: get more storage

Alignment: get more storage by sharing with friends

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Example: Scoop.it Growth hack to get 4 million users and 75,000 leads

Free Scoop.it users:

Use Scoop.it to share content to their network to showcase their expertise

Generate distribution as they use our free product (yesterday’s 2,500 signups bring tomorrow’s 2,500 signups)

Potentially the top of our funnel for our B2B Enterprise Saas

Content marketing to qualify and segment free users

Results:

4 million users (~2,500 signups / day)

75,000 leads and counting

Huge data set for our AI

without any paid acquisition costs

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Example: Scoop.it alignment

Content Marketing

What we do to acquire customers

What we help customers with

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What we do

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Distribution partnerships are hard

Time-consuming

Need to really understand the value for the partner

AppStore vs OEM

Partner vs M&A

What’s in it for them? (Musiwave case)

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Why do they buy?





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Don’t rebuild the model with every new client

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A new customer needs to bring over time much more than the initial transaction.

Tangible benefits:

Repeat business (e-commerce)

Lifetime value (Saas)

Referrals (Dropbox)

Intangible benefits:

Word of mouth

Case studies

User stories

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A new customer needs to bring over time much more than the initial transaction.

Tangible benefits:

Repeat business (e-commerce)

Lifetime value (Saas)

Referrals (Dropbox)

Intangible benefits:

Word of mouth

Case studies

User stories

Can you “land and expand”, i.e. get more revenue in month M+1 vs month M or year 2 vs 1?

What does it mean for the product / value proposition?

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Conclusion

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The perfect business model

Who are our customers? Well identified customers

Why do they buy? Have a clear and imperative reason to buy your solution


Which means they’re ready to spend significantly

How do we acquire them? What you do to acquire customers helps the rest of the model (improve product, acquire new customers…)

How do we keep them? Instant value that increases over time


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Key take-aways

Your business model is much more than how you make money: it’s how you scale fast with limited resources.

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Key take-aways


If you’re not doing R&D of your business model now, you’re not a startup. This should be your #1 priority.

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Key take-aways



Just like R&D, you don’t know your business model yet (and that’s ok!). To discover it, you need to experiment - not just theorize.

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Key take-aways




Entrepreneurs make wrong assumptions all the time (and that’s ok!). Successful startups identify them sooner enough to pivot and correct course.

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Key take-aways




Entrepreneurs make wrong assumptions all the time (and that’s ok!). Successful startups identify them sooner enough to pivot and correct course.

Building a business model is tough. Building a business model without alignment between the components is almost impossible.

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Your turn:


Why do they buy?





2017Your Startup

@gdecugis

Thanks!

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Small Business & Entrepreneurship

So you think you know your business model?