1. Class 7
What’s the Idea and
How Large is the
Opportunity
Antofagasta, Chile, June 2011
www.de-pe.com @depeteam
With the Support of:
1

2. INDEX
• Customer Development Process Review
– When to move out of Customer Discovery & Customer
Validation
• Your business strategy
– Identify your market
• How to size the market
– Market Analysis Questions
– Top down vs. Bottom Up
• Examples

3. PEOPLE
Los emprendedores invitados

5. ayni
Quechua {sust} : ayuda mutua

6. La Historia

7. Carolina Andrade

8. ¿Quiénes somos?
ayni
La plataforma virtual (web) socialmente
responsable que ofrece una selección única de
accesorios exóticos

9. Somos un baúl de tesoros artesanales del mundo

10. Impacto Social
• Responsabilidad social -
comercio justo
• Asociaciones con ONGs
para promover
programas de
educación sanitaria
• Impacto tangible en
comunidades de
artesanos

11. Socios Claves Actividades Propuesta de Relación con Segmento de
Claves Valor Clientes Clientes
• ONGs
• Directorio • Diseño de una • Conectar al • Página web • Consumidor
• StartUp Chile página web artesano con el • Redes sociales socialmente
diferenciada consumidor final • Eventos responsable y
• Cuidadosa de una manera deportivos afluente entre los
selección de tangible 25 y 40 años en
Recursos Claves producto Canales el mercado
-
• Capital • Optimización • Ofrecer norteamericano
• Diseñadores y de cadena de productos únicos • Página web
programadores producción, alto y de moda y una • Boutiques o
• Know-how de involucramiento experiencia de tiendas selectas
marketing y en proceso compra • Flagship store
procesos
Estructura de -Costos Revenue Stream
• Promoción • Ventas en línea
• Página web • Ventas a través de tiendas físicas
• Inventario, flete y aduanas
• Personal (marketing y operaciones)
11
Source: Business Model Canvas, © 2009 Alexander Osterwalder & Yves Pigneur

12. TIP
• Ejecución es mejor que parálisis: tomar
decisiones con información incompleta y
probar las ideas lo más pronto posible

13. Customer
Development
Process
Review

14. The Goal
To determine if there are customers and a
market for the vision that is developed by the
founders and the product development team.
– Not to gather feature lists from perspective
customers, nor is it to run lots of focus groups.

15. The Goal
Find out who the customers for your product are
& whether the problem you believe you are
solving is important to them

16. The Goal
Customer validation proves that you have found
a set of repeatable customers and a market who
react positively to your product

17. The Goal
Create end user demand and scale that demand
into the company’s sales channel.
Key Marketing Spending & Where you take
investment.

18. The Goal
Transitioning the organization from one that is
designed for learning and discovery to a well-
oiled machine engineered for execution.

19. Where we
are at

20. Discovery & Validation
Tells you the following
• Verifies your market
• Locates your customers
• Tests the perceived value of your product
• Identifies the economic buyer
– who’s budget pays for your product - different from user in some cases)
• Establishes your pricing and channel strategy
• Checks out yours sales cycle and process

21. Discovery & Validation
•
?
Have we identified a problem a customer wants solved?
• Does our product solve these customer needs?
• If so, do we have a viable and profitable business model?
• Have we learned enough to go out and sell?

22. Get out of the Building!!

23. Don’t be these guys
• Fastoffice, 1994
– Raised 8 million USD
– 18 months development
– Product: a device that would offer fax, voicemail,
intelligent call forwarding, email, video and phone
calls
Product Price: $1395
Great Product, Raw Market

24. Your Strategy
Existing Resegmented
New Market
Market Market
Customers Existing Existing New/New Usage
1. Cost, 2. Perceived Simplicity and
Customer Needs Performance
need convenience
1. Good enough at the Low in “traditional
low end attributes,”
Performance Better/faster
2. Good enough for improved by new
new niche customer metrics
Existing, Non-consumption /
Competition Existing Incumbents
Incumbents other startups
1. Existing
Existing
Risks Incumbents, Market Adoption
Incumbents
2. Niche Strategy Fails

25. Market
sizing/estimations
Estimating the number of
buyers of a particular
product, or users of a
service

26. Market Sizing Analysis
Questions
1.What does the venture do “best”, and
more importantly, “better” than others? –
2.Who will pay for the venture’s offerings,
and are there enough such players ready
to pay?
3.How much are potential customers
currently paying for similar offerings/
needs?

27. Market Sizing Analysis
Questions
4. How much value is the venture delivering to
customers, and how much will they be
potentially ready to pay for its offerings?
5. Assign a number to the value you are delivering
to customers. Is it critical. Is your offering saving
them $100 or $20?
6. Do the economics work out in the target
customer base?

28. Market Sizing Analysis
Questions
7. How much value or “wallet share” is the
venture capturing out of the client’s budget?
8. Who is the venture’s REAL competition?
• For Coke and Pepsi, more than each other,
their competition is with the homemade lassi,
nimbu pani, juices and even drinking water.

29. Market Sizing
• Market Sales Potential (MSP)
– Prospective Buyers (B) * Quantity Sold (Q) * Price (P)
• The main purpose of market sizing is used
– To inform business viability,
• specifically go/no-go decisions,
– Key marketing decisions
• pricing of the service or marketing tactics to increase usage.
– Preliminary estimate of the level of operational and
technological capabilities required to service the
expected market.

30. The Cost-Revenue Model
Profit
Revenue Cost
( Price X Quantity )—( Fixed + Variable )
• Price • Customer • Capital • Labor
discrimination segmentation equipment • Materials
• Changes in — New/existing • Land • Energy
pricing — Loyal/ • Buildings
structure switchers
• Viability of • Channel
pricing over restrictions or
time temporary
• Discounts or disturbances
couponing • Changing
• Competitor’s consumer
pricing demands

31. Market Sizing Methods
• Top-down Approach
– involves defining a “universe” target market and
applying various filters that continually reduces
the figure to an estimation of the total
addressable market
There are a billion people in China; 70% of them do
not have 20/20 vision; eyeglasses sell for $20 a pair;
our addressable market is therefore $14 billion.

32. Market Sizing Methods
• Bottom Up Approach
– Sizes a market using projections of individual clusters.
– First, identify the customer segments it intends to
reach, and then make estimates of their size and
growth.
Our retail location at Dongsnhuan in Beijing gets 2500 passersby
each weekday. Average conversion rates for retail opticians are
0.8%, so we project selling 20 pairs of glasses a day. We can open
20 locations in a year, so by year's end our annual revenue run
rate will be $1.7 million.

33. Top Down
Approach

34. Top-down approach
Starts with an
Universe estimate of the overall
market and then
Filter A evaluates the (limited)
successive proportions
that it intends to
Filter N
reach.
Estimation of Total
Addressable Market

35. Government plans to distribute social
payments to rural farmers through mobile
phones
• Universe = any adult in a rural area
– 20 million adults.
• Out of these, 20% are farmers.
• Payment only works for people with mobile
phones, this equates to 70%
• 40% of these, qualify based on crop revenues.
20,000,000 adults * 20% farmers * Market Potential
70% (mobile ) * 40% (qualify) 1,120,000

36. How many pairs of boxers are
sold in the UK each year?
0-10yrs old
7.5 potential buyers
No boxers users
10-20yrs old 20-40yrs old 40-80yrs old
3.25 mn potential buyers 6.5 mn potential buyers 13 mn potential buyers
75% wear boxers 50% wear boxers 50% wear boxers
3 million users 3.2 million users 6.5 million users
3 pairs/year 4 pairs/year 3 pairs/year
3 pairs / yr 4 pairs / yr
# boxers sold to men  9.5mn users   3.2mn users   41 million boxers
user user
36

37. Bottom up
approach

38. Bottom Up Approach
The problem with a top down approach
• Includes different customer segments
• Ignores variables such as operational
constraints
The bottom up forecast is more robust and both
should be included when evaluating the size of
your market.

39. Methodology
1. Our product/service will save (audience) a lot of money.
– We estimate $X per year based on current spending for this
product/service.
2. An average customer will spend $X per year with us
because they spend three times that now.
3. Using (example) sales as a proxy (such as copier sales) we
think that our average sales rep can make 10 cold calls per
day and develop 3 solid leads per week.
– Of those, the rep can close 2 per month.
4. At a 2 per month closing rate per rep, that's $Z on an
annual basis.
– Here's a table of the cash flow based on this: (TABLE)

40. Methodology
5. Using our experience in (market) as an analog, we
estimate that customers will stay with our product for
3.5 years.
6. If we time these cash flows correctly, we can hire 5
new reps per month.
– Assuming 90 days to train them and a maximum of 15
reps, here's a table of what we will look like at a full up
run rate.
7. Notice that at about 36 months our hit rate drops off
and our development $ go back up.
– By this time we anticipate competitive pressure and we
will use leads acquired per day and time from
conversions to sales as an early warning metric.

41. Key Points
1. Make sure to ask the right question to size
the market as accurately as possible
2. Estimates are only as good as the quality of
the information
3. Willingness to purchase and competitor
moves are highly subjective
4. Offer ranges rather than point estimates.

42. BOTTOM UP EXAMPLES

43. Example 1
• A typical customer will pay us $1,000/year
• We’ll hire five sales reps
– Each rep will sell 10 per month
• We’ll lose a certain percentage of customers per
year
• We’ll up-sell a certain percentage of customers
• With this math we’ll add approximately $600,000
in annual recurring revenue per year assuming
customer dropoff and up-sell equal out

44. Key Key Value Costumer Costumer
partners activities proposition relationships segments
Live- Makes
Stream events Social Media
Sponsors for Events
booth Photos more fun
Electronics Print Branded Direct
Photostrips Venues
Memories Marketing
on-site
Manufacturers Follow
Events Production
Key resources Live Channels Companies &
Ad agencies
Printer Supply Booth
Deep
Companies Electronics Production
Brand Wedding
Simple Interaction Companies Sites
Enclosure & Agencies
Word of Transport by
Custom Sales People
SW Mouth
Cost structure Revenue streams
10% to
Fixed Printer execute the
deal Rental Booth Sale
Supply Cost
10% to close Up-Sell
the deal
www.businessmodelgeneration.com

45. Startup Metrics - StudioSnaps
Adquisición - Reuniones Friend Network->Email Introduction: (3/mo.) ;
2 (67%) ; 1 (20%) ; .5 (10%) Cold call (5/mo.) ; Cold E-mail (5/mo.)
13 total
Activación – Booking
Bookings obtained from meetings
1 (50%) ; 1 (100%) ; 1 (100%)
Retención
Time will tell
(TBD)
Ingresos
Everyone pays & ½ up front
(100%)
Referidos
2 (200%) ; 1 (100%) Referral Business
; 1 (100%)
5.5 bookings / mo.
(.70*5.5* 450.000+.30*5.5*
70% Simple Rentals – 450.000
1.700.000)*12 = 54.450.000 CLP/yr
30% Full Activation – 1.700.000

46. www.studiosnaps.com

47. GROUP WORK
A ensuciarse las manos

48. LA TAREA!
• HOY
– Presentaciones de la clase
– Trabajo grupal: Calcular tamano del mercado buttom
up y top down.