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6 Month Startup Seattle - Month 4 - How Startups Make Money

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How do startups make money: breaking down business models into three actionable parts. Creating, Delivering and Capturing value for your startup idea

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6 Month Startup Seattle - Month 4 - How Startups Make Money

  1. 1. Copyright DKParker, LLC 2017 Dave Parker @DaveParkerSEA @6MonthStartup www.dkparker.com/blog www.6MonthStartup.com https://www.slideshare.net/secret/Dg2 0OPKz5ePLc8
  2. 2. Copyright DKParker, LLC 2017 Welcome! Month 4
  3. 3. Copyright DKParker, LLC 2017 About Dave ¤ 5X founder, Board Member, former SVP Programs at UP Global (Startup Weekend + Startup America) ¤ Startup Next creator ¤ Start Week Organizer ¤ Soon to be Author “6 Month Startup – Ideation to Revenue” ¤ 9 transactions – 6 sell side, 3 buy side ¤ VC @SevenPeaksVC – Mountain West, Seed/A Stage ¤ Why? Looking for future founders to invest in…
  4. 4. Copyright DKParker, LLC 2017 The next 6 Months ¤ Ideation/Research - ¤ Customer Development/Competitive analysis ¤ Value Prop/Product/Features/Expense ¤ Revenue - Monetization, Sales, Marketing and Business Development ¤ Product/MVP/Product Market Fit ¤ Launch/Go to Market/Revenue
  5. 5. Copyright DKParker, LLC 2017 Office Hours – 6/12 Afternoon
  6. 6. Copyright DKParker, LLC 2017
  7. 7. Copyright DKParker, LLC 2017 Rules of the Road ¤ #GiveFirst ¤ Mentor access is based on your work ¤ Don’t Ramble – I’ll interrupt ¤ Network – you need to build you network for the future starting tonight ¤ No I won’t do the work for you! ¤ Am I checking your homework?
  8. 8. Copyright DKParker, LLC 2017 Standing Agenda ¤ Communications ¤ SLACK Channel ¤ Blog Posts and Comments ¤ Mentor Feedback on Month 3 Deliverables ¤ Month 4 Agenda ¤ Marketing Funnel ¤ Sales Methods ¤ Revenue Models ¤ Month 4 Deliverables
  9. 9. Copyright DKParker, LLC 2017 Monthly Mechanics ¤ Table group review work ¤ Mentor Feedback – during dinner ¤ Monthly Content ¤ Meetups are stand alone events – come for what you need, Mentors are based on deliverables, not “drop ins”
  10. 10. Copyright DKParker, LLC 2017 Introductions
  11. 11. Copyright DKParker, LLC 2017 Mentor Feedback ¤ Deliverables: ¤ Using Lean Canvas Review ¤ Customer Segments ¤ Problem ¤ Value Proposition ¤ What I thought, What I Learned, What I’m going to do about it Hi, I’m <your name here>, and I’m the problem I’m solving is <insert problem here>. Our product <insert product info here> is designed for our target customer of <insert target customer here>. We make money by <insert method here> and our team is the right team because <insert why you’re awesome here>
  12. 12. Copyright DKParker, LLC 2017 Break
  13. 13. Copyright DKParker, LLC 2017 Now that you’ve have competitive and customer info
  14. 14. Copyright DKParker, LLC 2017 You can build it, but should you?
  15. 15. Copyright DKParker, LLC 2017 Business Model Breakdown Creating Value Product or Service Delivering Value Monetization, Marketing & Sales Capturing Value Reasonable to Acceptable Profit Margin
  16. 16. Copyright DKParker, LLC 2017 How not to make money? ¤ Small transaction values are bad ¤ Small percentages are bad ¤ Not being able to capture value is bad ¤ Lumpy sales cycles are bad ¤ Long sales cycles are bad ¤ Pricing too low could kill your idea before you start
  17. 17. Copyright DKParker, LLC 2017 Marketing – Finding the right customers
  18. 18. Copyright DKParker, LLC 2017 Marketing – Finding Customers ¤ Messaging/Value Proposition ¤ Does it resonate with the target customer segment ¤ They are the hero of the story ¤ Is it repeatable? ¤ Strategy ¤ Outbound first ¤ Inbound second
  19. 19. Copyright DKParker, LLC 2017 Key Metric Terms ¤ State your hypothesis ¤ CAC ¤ LTV ¤ ARPU ¤ Churn ¤ Time to Close ¤ Customer engagement ¤ Time on Site
  20. 20. Copyright DKParker, LLC 2017 OrganicSearch PaidSearch WordofMouth SalesCalls PR Miracles! TimetoClose Month1 Month2 Month3 Month4 $ Spen d # Conv # Conv # MRR Time
  21. 21. Copyright DKParker, LLC 2017 Marketing Channels ¤ Paid Search ¤ Organic Search ¤ Word of mouth ¤ Sales calls ¤ Public Relations ¤ Affiliate ¤ Email marketing ¤ Social
  22. 22. Copyright DKParker, LLC 2017 Marketing Qualified Leads ¤ Define qualified vs list ¤ Suspects ¤ Prospects ¤ Qualified Prospects
  23. 23. Copyright DKParker, LLC 2017 Sales Qualified Leads ¤ Hand off to Sales ¤ Identify steps to close ¤ Number of calls
  24. 24. Copyright DKParker, LLC 2017 Time to Close ¤ Lead attribution ¤ Source time ¤ Compressing or Expanding ¤ Trend by source
  25. 25. Copyright DKParker, LLC 2017 Tracking ¤ Data allows you to know where to double down and where to hold back ¤ Conversion ratios
  26. 26. Copyright DKParker, LLC 2017 Sales
  27. 27. Copyright DKParker, LLC 2017 How will they buy? ¤ Web Direct – place the order to buy on the web ¤ Direct – outbound sales, inside/outside ¤ Indirect/Channel – fulfills demand, doesn’t generate ¤ Retail – BestBuy, etc
  28. 28. Copyright DKParker, LLC 2017 Sales Model Hypothesis Known Market Unknown Market Low Price Point High Price Point Known Search Words Unknown Search words Web Direct Direct Indirect Retail
  29. 29. Copyright DKParker, LLC 2017 Sales ¤ Model – Pick one, why? ¤ Strategy ¤ Who ¤ Tactics ¤ How ¤ Tools ¤ Sales tools
  30. 30. Copyright DKParker, LLC 2017 Business Development
  31. 31. Copyright DKParker, LLC 2017 Business Development ¤ Strategic relationships ¤ Who has the list you want ¤ How do you get the partnership
  32. 32. Copyright DKParker, LLC 2017 Business Development ¤ Strategy ¤ Who should you get as a partner ¤ How will you build the relationship? ¤ What channels ¤ Tactics ¤ Messaging/Value proposition ¤ Tools ¤ CRM
  33. 33. Copyright DKParker, LLC 2017 Revenue Models: Services = 1 Products =14
  34. 34. Copyright DKParker, LLC 2017 Business and Revenue Models ¤ Business Models – abstract framework of Creating, Delivering and Capturing Value ¤ Revenue Models (part of business model) is the framework of revenue, pricing, who pay ¤ Models Lean toward Tech and Product
  35. 35. Copyright DKParker, LLC 2017 1. Fee for Service ¤ Example: Consulting Services company ¤ Use: B2B & B2C ¤ Key Metrics ¤ Project Revenue ¤ Cost of delivering (usually time) ¤ Gross Margin ¤ Services are hard to scale because they require people to deliver including Restaurant, Contractors, etc. ¤ Services include markup on cost of goods sold
  36. 36. Copyright DKParker, LLC 2017 2. Commerce ¤ Example: Amazon, AmazonSupply ¤ Use: B2C & B2B ¤ Key Metrics: ¤ Wholesale or cost of goods sold ¤ Average Margin % ¤ Average Basket ¤ Commerce – Physical Goods- Wholesale, cost of goods, retail, average margin, physical good ¤ Notes: Can mature into marketplace
  37. 37. Copyright DKParker, LLC 2017 3. Subscription ¤ Example: Salesforce , Box, Spotify ¤ Use: B2C & B2B ¤ Key Metrics ¤ Average Revenue Per User (ARPU) ¤ Conversion ratio – e.g. trial to purchase ¤ Churn ¤ Challenges: MVP won’t be enough to be Kick Ass Product ¤ Notes: Highest multiple, forecastable revenue
  38. 38. Copyright DKParker, LLC 2017 4. Productize a Service ¤ Your offerings is generally complex and requires services to deploy ¤ Gross margin on Services >35% ¤ Product development comes with services ¤ Use: B2C & B2B ¤ Examples: Moz, service company convert to tools. ¤ Challenges – difficult to make the transition away from services
  39. 39. Copyright DKParker, LLC 2017 5. Transaction Fees/Rental ¤ Example: 99Designs, KickStarter, Elance, Chugg ¤ Use: B2C & B2B ¤ Key Metrics ¤ Average transaction revenue ¤ Fee % per transaction ¤ Number of transactions ¤ Challenges: Margins are small (15%), need efficiency ¤ Notes: Don’t start too low
  40. 40. Copyright DKParker, LLC 2017 6. Lead Generation ¤ Example: Mint.com, AllStarDirectories, NetQuote ¤ Use: B2C & B2B ¤ Key Metrics ¤ Cost to generate traffic ¤ % conversion of form data ¤ Price per lead ¤ Challenges: Highly competitive, barrier of entry is low ¤ Notes: Conversion rates average 0.06%
  41. 41. Copyright DKParker, LLC 2017 7. Gaming ¤ Example: King.com/Candy Crush ¤ Use: B2C Only ¤ Key Metrics: ¤ Downloads ¤ % play ¤ Average in app purchase ¤ Challenges – tends to be “hit driven business” ¤ Notes: use in first 21 days is a predictor of success
  42. 42. Copyright DKParker, LLC 2017 8. Marketplaces ¤ Example: eBay, Alibaba ¤ Use: B2C & B2B ¤ Key Metrics ¤ Average Transaction Amount ¤ Number of Monthly Transactions ¤ Commission % ¤ Challenges: two sided market places require you start with one side, value to seller & Product market fit (x2) ¤ Notes: critical mass or marketplace required
  43. 43. Copyright DKParker, LLC 2017 9. Advertising/Search ¤ Example: Google, Facebook ¤ Use: B2B – advertisers pay, users are free ¤ Key Metrics ¤ Traffic ¤ Click ¤ Avg. revenue/click ¤ Challenges – Scale, need >1M uniques/month to consider the option
  44. 44. Copyright DKParker, LLC 2017 10. New Media ¤ Example: SnapChat, WhatsApp ¤ Use: B2C only ¤ Key Metrics: ¤ K-Factor (Viral Co-efficient) ¤ Network effect of inviting others to join ¤ Challenges – K-Factor is hard. Little revenue until scale ¤ Notes: Everyone wants to! Not happening in B2B
  45. 45. Copyright DKParker, LLC 2017 11. Combinations ¤ Combinations business models happen for two reasons ¤ You don’t know which model is right ¤ At scale you can expand revenue sources ¤ Examples: Hardware sensors + software services to create data analytics ¤ Challenges – most require scale or at least traction
  46. 46. Copyright DKParker, LLC 2017 12. Coin/Tokens ¤ Bitcoin and Blockchain have burst onto the scene over the last couple of years ¤ Blockchain is a technology ¤ Bitcoin is a token, ICOs have been very succesful but aren’t a security.
  47. 47. Copyright DKParker, LLC 2017 Three that could cost you everything!
  48. 48. Copyright DKParker, LLC 2017 Three at Scale – Not Launch 13. Multi-sided Marketplaces – Etsy – create products and customers 14. Big Data – PatientsLikeMe is emerging, but requires massive data in advance = massive cash 15. Panels – Toluna, precise groups of customer service research Dead Model 1. Licensing – the old Microsoft model <pre-subscription>
  49. 49. Copyright DKParker, LLC 2017 Summary – Pick ONE 1. Fee for Servicer 2. Commerce 3. Subscription 4. Productize a Service 5. Transaction Fee/Rental 6. Lead Generation 7. Gaming 8. Marketplace 9. Advertising/Search 10. New Media 11. Combinations 12. Coins Tokens 13. Multi-sided Marketplaces 14. Big Data 15. Panels
  50. 50. Copyright DKParker, LLC 2017 Next Session – May 8 Fundraising Fundamental and Pitch Decks
  51. 51. Copyright DKParker, LLC 2017 Month 4 Resources ¤ Books ¤ Not yet ¤ Blogs ¤ DKParker – Marketing Funnel Breakdown ¤ DKParker – B2C Models ¤ DKParker – B2B Models ¤ Financial Model – VentureReadyModels.com ¤ Free Promo Code through 4/23/19
  52. 52. Copyright DKParker, LLC 2017 Month 4 Deliverables ¤ Month 4 Deliverables here https://wp.me/P3bssR-iYI (6 Month Startup Deliverables & Resources) page ¤ Marketing Hypothesis ¤ Test actual cash $100 on spend, landing page A/B test ¤ Sales Model choice ¤ Revenue Model Choice ¤ Lean Canvas – ¤ Update Customer Segment, Problem, Unique Value Prop. ¤ Add Revenue Stream, Channels ¤ Customer Development – never stop interviewing customers
  53. 53. Copyright DKParker, LLC 2017 See you May 8, @WeWorkLab

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