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Harvard innovation lab Michael J Skok Startup Secrets Business of Software 
1 
@innovationlab 
@mjskok #startupsecrets startupsecrets.com 
Redefining the Business of Software 
STARTUP 
An insider’s guide to unfair competitive advantage 
SECRETS 
#startupsecrets 
MICHAEL J SKOK 
Hi Harvard innovation lab 
startupsecrets.com 
@mjskok 
Tweet questions to:
Harvard innovation lab Michael J Skok Startup Secrets Business of Software 
2 
@innovationlab 
@mjskok #startupsecrets startupsecrets.com 
Why are we here? 
• A story… 
– Zero to a couple of billion dollars… 
– but NOT back again!
Harvard innovation lab Michael J Skok Startup Secrets Business of Software 
3 
@innovationlab 
@mjskok #startupsecrets startupsecrets.com 
If you want to build a billion dollar 
business… 
Start with a MULTI billion dollar 
problem
Harvard innovation lab Michael J Skok Startup Secrets Business of Software 
4 
@innovationlab 
@mjskok #startupsecrets startupsecrets.com 
E.G. eCommerce… 
Market: 
eCommerce: 
• $4.7 trillion 
• ~7% penetrated 
• Growing in mid teens 
Problem: 
“Under siege”, 
Disruptions 
• Offline -> Online 
• Physical -> Digital 
• Mobile -> Omni 
Channel
Harvard innovation lab Michael J Skok Startup Secrets Business of Software 
5 
@innovationlab 
@mjskok #startupsecrets startupsecrets.com 
And if you want to build a 
business around it… 
… you’ve got to make it RSVP 
• Repeatable, 
• Sustainable, 
• Valuable, 
• Predictable
Harvard innovation lab Michael J Skok Startup Secrets Business of Software 
6 
@innovationlab 
@mjskok #startupsecrets startupsecrets.com 
Startup Secrets - Tasters… 
Our agenda today includes some small samples 
from the Startup Secrets series:- 
• Value prop - fundamentals 
• Business model - basics 
• Product – friction free, “slippery” products 
• Metrics – that matter 
For the full details of these and other workshops 
see www.startupsecrets.com
Harvard innovation lab Michael J Skok Startup Secrets Business of Software 
7 
@innovationlab 
@mjskok #startupsecrets startupsecrets.com 
Value Proposition - excerpt 
… customer view
Harvard innovation lab Michael J Skok Startup Secrets Business of Software 
8 
@innovationlab 
@mjskok #startupsecrets startupsecrets.com 
Customer view = Gain/Pain 
• Revenue 
• Cost savings 
• Time 
• People 
• Competitive advantage 
• Reputation 
• Etc.. 
• Inertia 
• Switching costs? 
• Default = do nothing 
• Alternatives? 
• Good enough = 
good enough! 
• RISK on a startup 
• Find (See) 
• Try 
• Buy 
• Implement 
• Deploy 
• Own – eg.TCO 
Inertia, 
Gain RISK 
Pain
Harvard innovation lab Michael J Skok Startup Secrets Business of Software 
9 
@innovationlab 
@mjskok #startupsecrets startupsecrets.com 
Customer view = Gain/Pain 
• Revenue 
• Cost savings 
• Time 
• People 
• Competitive advantage 
• Reputation 
• Etc. 
• Inertia 
• Switching costs? 
• Default = do nothing 
• Alternatives? 
• Good enough = 
good enough! 
• RISK on a startup 
• Find (See) 
• Try 
• Buy 
• Implement 
• Deploy 
• Own – eg TCO 
Inertia, 
RISK 
Gain 
Pain 
>10 
“An order of 
magnitude”
Harvard innovation lab Michael J Skok Startup Secrets Business of Software 
10 
@innovationlab 
@mjskok #startupsecrets startupsecrets.com 
Demandware 
• Commerce, NOT infrastructure
Harvard innovation lab Michael J Skok Startup Secrets Business of Software 
11 
@innovationlab 
@mjskok #startupsecrets startupsecrets.com 
Business Model - excerpt 
… your view
Harvard innovation lab Michael J Skok Startup Secrets Business of Software 
12 
@innovationlab 
@mjskok #startupsecrets startupsecrets.com 
Basic Startup Model 
• Lifetime Value of Customer (LTV) 
• Cost of Acquiring Customer (CAC) 
LTV ~3x > 
CORE 
Levers 
Multipliers 
CAC
Harvard innovation lab Michael J Skok Startup Secrets Business of Software 
13 
@innovationlab 
@mjskok #startupsecrets startupsecrets.com 
A typical product lifecycle 
See, Try, Buy, Fly, Die… 
See Try Buy Fly Die
Harvard innovation lab Michael J Skok Startup Secrets Business of Software 
14 
@innovationlab 
@mjskok #startupsecrets startupsecrets.com 
A typical product lifecycle 
• How do we avoid: 
– Pain, time and cost of adoption? 
– Premature decline? 
Long, costly (CAC), slow payback, EXTENDED lifetime value (LTV) 
See Try Buy Fly Die
Harvard innovation lab Michael J Skok Startup Secrets Business of Software 
15 
@innovationlab 
@mjskok #startupsecrets startupsecrets.com 
Adding Retention and Upsell 
Extended 
Lifecycle 
Up-sell Re-Trial 
See Try Buy Fly Die
Harvard innovation lab Michael J Skok Startup Secrets Business of Software 
16 
@innovationlab 
@mjskok #startupsecrets startupsecrets.com 
Retention
Harvard innovation lab Michael J Skok Startup Secrets Business of Software 
17 
@innovationlab 
@mjskok #startupsecrets startupsecrets.com 
Upsell 
14 x 
leverage!
Harvard innovation lab Michael J Skok Startup Secrets Business of Software 
18 
@innovationlab 
@mjskok #startupsecrets startupsecrets.com 
The Model Refined – 
Enabling Retention & Upsell 
• Cost of Acquiring & Retaining Customer (CARC) 
• Lifecycle Value of Customer (LCV) = incl. 
Repurchase, Upsell 
CORE 
Levers 
Multipliers 
Up-sell Re-Trial
Harvard innovation lab Michael J Skok Startup Secrets Business of Software 
19 
@innovationlab 
@mjskok #startupsecrets startupsecrets.com 
Retention Costs 
• Must be included in CARC as you drive down 
Churn 
– Examples: 
• Support 
• Customer Service 
• Professional Services 
• Also include any Re-engagement costs 
associated with any Upsell as you drive up 
ARPU 
– Sales, Marketing etc
Harvard innovation lab Michael J Skok Startup Secrets Business of Software 
20 
@innovationlab 
@mjskok #startupsecrets startupsecrets.com 
Value Prop & Business Model 
TOGETHER 
customer view & your view 
TOGETHER!
Harvard innovation lab Michael J Skok Startup Secrets Business of Software 
21 
@innovationlab 
@mjskok #startupsecrets startupsecrets.com 
Value Prop & Business Model 
• They are two views of the same principle: 
– Customer view = Gain/Pain 
– Vendor view = LCV/CARC 
CORE 
Levers 
Multipliers 
Up-sell Re-Trial
Harvard innovation lab Michael J Skok Startup Secrets Business of Software 
Up-sell Extended 
Extended 
Lifecycle Re-Trial 
22 
@innovationlab 
@mjskok #startupsecrets startupsecrets.com 
An extended & valuable lifecycle: 
“Land & Expand” 
Self service 
Web / Mobile 
On demand 
SaaS 
Subscription 
Open source 
Up-sell Re-Trial 
Lifecycle 
short, low cost (CARC), quick payback, extended lifecycle value (LCV) 
See Try Buy Fly Die
Harvard innovation lab Michael J Skok Startup Secrets Business of Software 
Up-sell Extended 
Extended 
Lifecycle Re-Trial 
23 
@innovationlab 
@mjskok #startupsecrets startupsecrets.com 
An extended & valuable lifecycle: 
“Land & Expand” without friction 
Self service 
Web / Mobile 
On demand 
SaaS 
Subscription 
Open source 
Up-sell Re-Trial 
Lifecycle 
short, low cost (CARC), quick payback, extended lifecycle value (LCV) 
See Try Buy Fly Die 
Frictionless, SLIPPERY
Harvard innovation lab Michael J Skok Startup Secrets Business of Software 
24 
@innovationlab 
@mjskok #startupsecrets startupsecrets.com 
Demandware 
• Software is free, it’s a shared success model 
(business model can be more important than 
product in reducing friction)
Harvard innovation lab Michael J Skok Startup Secrets Business of Software 
25 
@innovationlab 
@mjskok #startupsecrets startupsecrets.com 
How do you take away the pain, 
and reduce friction? 
… make it SLIPPERY 
(Reduce the Pain in 
the Gain/Pain Ratio)
Harvard innovation lab Michael J Skok Startup Secrets Business of Software 
26 
@innovationlab 
@mjskok #startupsecrets startupsecrets.com 
Friction Free, SLIPPERY products 
• Simple 
• Low to no initial cost 
• Installs and integrates 
• Proves value quickly 
• Package for progress 
• Experience is compelling 
• ROI is obvious 
• Your customers can’t live without it – it’s stickY
Harvard innovation lab Michael J Skok Startup Secrets Business of Software 
27 
@innovationlab 
@mjskok #startupsecrets startupsecrets.com 
Simple
Harvard innovation lab Michael J Skok Startup Secrets Business of Software 
28 
@innovationlab 
@mjskok #startupsecrets startupsecrets.com 
Which is better? 
Microsoft Sony
Harvard innovation lab Michael J Skok Startup Secrets Business of Software 
29 
@innovationlab 
@mjskok #startupsecrets startupsecrets.com 
Neither! = Less is More! 
Microsoft, Sony Apple
Harvard innovation lab Michael J Skok Startup Secrets Business of Software 
30 
@innovationlab 
@mjskok #startupsecrets startupsecrets.com 
Simple ≠ Easy to do 
• Simple ≠ Easy ! 
• Simple often means complex 
technology that makes your product 
“magic” 
• Simplification Innovation 
(search algorithms in the cloud) 
With thanks to Will Koffel @wkoffel www.clearlytech.com
Harvard innovation lab Michael J Skok Startup Secrets Business of Software 
31 
@innovationlab 
@mjskok #startupsecrets startupsecrets.com 
Example 
Knowledge Management vs. Capture 
Lotus Notes Evernote
Harvard innovation lab Michael J Skok Startup Secrets Business of Software 
32 
@innovationlab 
@mjskok #startupsecrets startupsecrets.com 
Less is More… 
features are the enemy of function 
functionality can overwhelm users 
applicability is all that ultimately matters
Harvard innovation lab Michael J Skok Startup Secrets Business of Software 
33 
@innovationlab 
@mjskok #startupsecrets startupsecrets.com 
Demandware 
• Retail practice group – best practice for 
merchants
Harvard innovation lab Michael J Skok Startup Secrets Business of Software 
34 
@innovationlab 
@mjskok #startupsecrets startupsecrets.com 
Why are we here? 
• A story… 
– Zero to a couple of billion dollars… 
– but NOT back again!
Harvard innovation lab Michael J Skok Startup Secrets Business of Software 
35 
@innovationlab 
@mjskok #startupsecrets startupsecrets.com 
Welcome Scott Dussault 
former CFO
Harvard innovation lab Michael J Skok Startup Secrets Business of Software 
36 
@innovationlab 
@mjskok #startupsecrets startupsecrets.com 
Metrics that Matter 
• Annualized Revenue per Customer (“ARPU”) 
• Renewal Rate/Churn 
• Revenue per Employee 
• Cost of Acquiring and Retaining a Customer 
(“CARC”)
Harvard innovation lab Michael J Skok Startup Secrets Business of Software 
37 
@innovationlab 
@mjskok #startupsecrets startupsecrets.com 
TRAK 
VOCS 0.0x 
CRM 
SPSC 
RP 
BCOV BV 
IL 
SQI 
TNGO 
FLTX 
MRIN 
CTCT 
N 
CVT ECOM 
ULTI CNQR 
DWRE 
LPSN 
MKTG JIVE 
SREV 
20.0 
x 
18.0 
x 
16.0x 
14.0x 
12.0x 
CSOD 
R² = 0.6577 
TXTR 
10.0 
x 
8.0 
x 
6.0 
x 
4.0 
x 
2.0 
x 
0.0 
% 
10.0% 20.0% 30.0% 40.0% 50.0% 60.0% 
CY14E EV / Sales 
Source: FactSet, Stifel estimates 
WKDY 
Now MKTO 
Estimated CY14 Organic Growth Rate
Harvard innovation lab Michael J Skok Startup Secrets Business of Software 
38 
@innovationlab 
@mjskok #startupsecrets startupsecrets.com 
Dec. 31, 2008 
Dec. 31, 2013 
$103.7M 
204 
820 
$515,000 
82% 
100% Cloud 
$7.5M 
23 
50 
$250,000* 
37% 
*Excluding Neckermann GmbH
Harvard innovation lab Michael J Skok Startup Secrets Business of Software 
39 
@innovationlab 
@mjskok #startupsecrets startupsecrets.com 
ARPU 
• Higher ARPU indicates value delivered 
– “SLIPPERY” products will drive sequential and year 
over year ARPU growth 
• Increasing ARPU driven by upsell 
– Chance to demonstrate how well your customers re-engage 
(which is demonstrably better than re-sell) 
• Investors view ARPU as THE driver of CLV and, 
most importantly, revenue growth…
Harvard innovation lab Michael J Skok Startup Secrets Business of Software 
40 
@innovationlab 
@mjskok #startupsecrets startupsecrets.com 
Renewal Rate/Churn 
• Renewal rate/churn is unique for every business 
– Need is to demonstrate stickiness 
– Dollar value renewals, churn count, long-term 
contracts 
• Rule of thumb is “needs to be better than 90%” 
– So figure out a metric that magically results in 90% or 
better…(MJS: but don’t lie to yourself!) 
• Investors view renewal rate/churn as THE metric 
for visibility and long-term revenue growth
Harvard innovation lab Michael J Skok Startup Secrets Business of Software 
41 
@innovationlab 
@mjskok #startupsecrets startupsecrets.com 
Revenue per Employee 
• Cloud software is a technology delivery model 
that provides significant operating leverage 
– Most if not all have subscription revenue models that 
enable predictable revenue streams 
• Subscription revenue models on their own may 
not provide significant operating leverage 
• Legacy software models are inherently 
profitable, but not predictable 
• Revenue per employee greater than $250,000 is 
a benchmark for inherently profitable models
Harvard innovation lab Michael J Skok Startup Secrets Business of Software 
42 
@innovationlab 
@mjskok #startupsecrets startupsecrets.com 
CARC 
• Cost of acquiring a customer 
– Unique metric for each business – what is the sales 
model? How does marketing play in? 
• Cost of re-engaging a customer 
– What are the costs for operating a customer? How do 
customers renew? 
• High gross margin businesses with less touch on 
re-engagement will have the best CARC metrics
Harvard innovation lab Michael J Skok Startup Secrets Business of Software 
Customer 
Expansion 
Base 
Subscription 
43 
@innovationlab 
@mjskok #startupsecrets startupsecrets.com 
Frictionless Land and Expand, Drives ALL 
of these Metrics 
Q1 Q2 Q3 Q4 
Year 2 
Q1 Q2 Q3 Q4 
Year 3 
Q1 Q2 Q3 Q4 
Year 1 
Quarterly Revenue 
$200,000 
$180,000 
$160,000 
$140,000 
$120,000 
$100,000 
$80,000 
$60,000 
$40,000 
$20,000 
$0 
Cohort analysis includes a family of third-party solution partner customers who share a minimum level of subscription revenue and 56 customers all of which have been 
operating on Demandware’s platform for a minimum of three years through December 31, 2013. Analysis excludes two customers operating on the platform for three years – 
one invoiced through a third party and Neckermann GmbH.
Harvard innovation lab Michael J Skok Startup Secrets Business of Software 
44 
@innovationlab 
@mjskok #startupsecrets startupsecrets.com 
Frictionless, SLIPPERY+ Land & Expand 
= ?
Harvard innovation lab Michael J Skok Startup Secrets Business of Software 
45 
@innovationlab 
@mjskok #startupsecrets startupsecrets.com 
Frictionless, SLIPPERY+ Land & Expand 
= fastest growing software companies
Harvard innovation lab Michael J Skok Startup Secrets Business of Software 
46 
@innovationlab 
@mjskok #startupsecrets startupsecrets.com 
Frictionless, SLIPPERY+ Land & Expand 
= fastest growing software companies 
“Addiction before Adoption & Expansion”
Harvard innovation lab Michael J Skok Startup Secrets Business of Software 
“Addiction before Adoption & Expansion” 
47 
@innovationlab 
@mjskok #startupsecrets startupsecrets.com 
Frictionless, SLIPPERY+ Land & Expand 
= fastest growing software companies 
Delight, 
ADOPTION 
ADDICTION 
(Free, Open Source) 
Upsell 
EXPANSION 
$400 
$350 
$300 
$250 
$200 
$150 
$100 
$50 
$0 
LCV
Harvard innovation lab Michael J Skok Startup Secrets Business of Software 
48 
@innovationlab 
@mjskok #startupsecrets startupsecrets.com 
Why are we here? 
• A story… 
– Zero to a couple of billion dollars… 
– but NOT back again!
@North_Bridge @mjskok 
@futureofcloud 
#futureofcloud 
THE FUTURE OF 
CLOUD COMPUTING 
4TH ANNUAL SURVEY 2014 
http://bit.ly/2014FutureCloud 
NORTH BRIDGE FUTURE OF CLOUD COMPUTING SURVEY IN PARTNERSHIP WITH GIGAOM RESEARCH
THE FIRST 
CLOUD FRONT 
50 
@futureofcloud 
#futureofcloud
TRANSITIONING 
51 
LEGACY APPLICATIONS: 
ecommerce 
CRM ERP 
@futureofcloud 
#futureofcloud 
@SALESFORCE @WORKDAY @DEMANDWARE
THE SECOND 
CLOUD FRONT 
52 
@futureofcloud 
#futureofcloud
GROWTH IN WEB APIs 
SINCE 2005 
1 
186 299 438 593 
865 
1263 
1546 
2026 
2418 
3422 
5018 
7182 
9011 
11,493 
10302 
Jun-05 Mar-06 Oct-06 May-07 Dec-07 Jul-08 Feb-09 Sep-09 Apr-10 Nov-10 Jun-11 Jan-12 Aug-12 Mar-13 Oct-13 Jun-14 
Source Programmable 
Web 
@futureofcloud 
#futureofcloud
REIMAGINING 
APPLICATIONS 
IN THE CLOUD 
54 
@futureofcloud 
#futureofcloud
THE SECOND CLOUD FRONT: 
MANY CLOUD SERVICES => 
RE-IMAGINED APP 
UBER 
55 
@futureofcloud 
#futureofcloud
From: 
AMAZING BECAUSE CLOUD 
56 
@futureofcloud 
#futureofcloud
To: 
IMPOSSIBLE WITHOUT CLOUD 
57 
@futureofcloud 
#futureofcloud
Harvard innovation lab Michael J Skok Startup Secrets Business of Software 
58 
@innovationlab 
@mjskok #startupsecrets startupsecrets.com 
Why are we here? 
• A story… 
– Zero to a couple of billion dollars… 
– but NOT back again!
Harvard innovation lab Michael J Skok Startup Secrets Business of Software 
59 
@innovationlab 
@mjskok #startupsecrets startupsecrets.com 
Tasters… 
• Value prop - fundamentals 
• Business model - basics 
• Product – friction free, “slippery” products 
• Metrics – that matter 
• Cloud – the second front
Harvard innovation lab Michael J Skok Startup Secrets Business of Software 
… fundamentally more Repeatable, Sustainable, Valuable & Predictable… 
60 
@innovationlab 
@mjskok #startupsecrets startupsecrets.com 
Redefining the (Business of) Software 
1990+ Now + 
• Installed by IT 
• Customized 
• Infrequent upgrades 
• Proprietary 
• License 
 Web / Mobile / Self 
 SReersvtficuel APIs, 
Extensibility 
 On demand, SaaS, 
Cloud 
 Open Source, Open Data 
 Subscription, 
Recurring 
Web 
On demand 
Self service 
SaaS 
Subscription 
Open 
source 
Up-sell 
Extende 
d 
Lifecycl 
e 
Up-sell 
Extende 
d 
Lifecycl 
e 
Re-Trial 
RSVP = YES! 
short, low cost (CAC), quick payback, EXTENDED lifetime value (LTV)
Harvard innovation lab Michael J Skok Startup Secrets Business of Software 
61 
@innovationlab 
@mjskok #startupsecrets startupsecrets.com 
Thank You BoS! 
RESOURCES at mjskok.com/bos2014 
STARTUP 
SECRETS 
#startupsecrets 
MICHAEL J SKOK 
Hi Harvard innovation lab 
startupsecrets.com 
@mjskok

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Redefining the Business of Software

  • 1. Harvard innovation lab Michael J Skok Startup Secrets Business of Software 1 @innovationlab @mjskok #startupsecrets startupsecrets.com Redefining the Business of Software STARTUP An insider’s guide to unfair competitive advantage SECRETS #startupsecrets MICHAEL J SKOK Hi Harvard innovation lab startupsecrets.com @mjskok Tweet questions to:
  • 2. Harvard innovation lab Michael J Skok Startup Secrets Business of Software 2 @innovationlab @mjskok #startupsecrets startupsecrets.com Why are we here? • A story… – Zero to a couple of billion dollars… – but NOT back again!
  • 3. Harvard innovation lab Michael J Skok Startup Secrets Business of Software 3 @innovationlab @mjskok #startupsecrets startupsecrets.com If you want to build a billion dollar business… Start with a MULTI billion dollar problem
  • 4. Harvard innovation lab Michael J Skok Startup Secrets Business of Software 4 @innovationlab @mjskok #startupsecrets startupsecrets.com E.G. eCommerce… Market: eCommerce: • $4.7 trillion • ~7% penetrated • Growing in mid teens Problem: “Under siege”, Disruptions • Offline -> Online • Physical -> Digital • Mobile -> Omni Channel
  • 5. Harvard innovation lab Michael J Skok Startup Secrets Business of Software 5 @innovationlab @mjskok #startupsecrets startupsecrets.com And if you want to build a business around it… … you’ve got to make it RSVP • Repeatable, • Sustainable, • Valuable, • Predictable
  • 6. Harvard innovation lab Michael J Skok Startup Secrets Business of Software 6 @innovationlab @mjskok #startupsecrets startupsecrets.com Startup Secrets - Tasters… Our agenda today includes some small samples from the Startup Secrets series:- • Value prop - fundamentals • Business model - basics • Product – friction free, “slippery” products • Metrics – that matter For the full details of these and other workshops see www.startupsecrets.com
  • 7. Harvard innovation lab Michael J Skok Startup Secrets Business of Software 7 @innovationlab @mjskok #startupsecrets startupsecrets.com Value Proposition - excerpt … customer view
  • 8. Harvard innovation lab Michael J Skok Startup Secrets Business of Software 8 @innovationlab @mjskok #startupsecrets startupsecrets.com Customer view = Gain/Pain • Revenue • Cost savings • Time • People • Competitive advantage • Reputation • Etc.. • Inertia • Switching costs? • Default = do nothing • Alternatives? • Good enough = good enough! • RISK on a startup • Find (See) • Try • Buy • Implement • Deploy • Own – eg.TCO Inertia, Gain RISK Pain
  • 9. Harvard innovation lab Michael J Skok Startup Secrets Business of Software 9 @innovationlab @mjskok #startupsecrets startupsecrets.com Customer view = Gain/Pain • Revenue • Cost savings • Time • People • Competitive advantage • Reputation • Etc. • Inertia • Switching costs? • Default = do nothing • Alternatives? • Good enough = good enough! • RISK on a startup • Find (See) • Try • Buy • Implement • Deploy • Own – eg TCO Inertia, RISK Gain Pain >10 “An order of magnitude”
  • 10. Harvard innovation lab Michael J Skok Startup Secrets Business of Software 10 @innovationlab @mjskok #startupsecrets startupsecrets.com Demandware • Commerce, NOT infrastructure
  • 11. Harvard innovation lab Michael J Skok Startup Secrets Business of Software 11 @innovationlab @mjskok #startupsecrets startupsecrets.com Business Model - excerpt … your view
  • 12. Harvard innovation lab Michael J Skok Startup Secrets Business of Software 12 @innovationlab @mjskok #startupsecrets startupsecrets.com Basic Startup Model • Lifetime Value of Customer (LTV) • Cost of Acquiring Customer (CAC) LTV ~3x > CORE Levers Multipliers CAC
  • 13. Harvard innovation lab Michael J Skok Startup Secrets Business of Software 13 @innovationlab @mjskok #startupsecrets startupsecrets.com A typical product lifecycle See, Try, Buy, Fly, Die… See Try Buy Fly Die
  • 14. Harvard innovation lab Michael J Skok Startup Secrets Business of Software 14 @innovationlab @mjskok #startupsecrets startupsecrets.com A typical product lifecycle • How do we avoid: – Pain, time and cost of adoption? – Premature decline? Long, costly (CAC), slow payback, EXTENDED lifetime value (LTV) See Try Buy Fly Die
  • 15. Harvard innovation lab Michael J Skok Startup Secrets Business of Software 15 @innovationlab @mjskok #startupsecrets startupsecrets.com Adding Retention and Upsell Extended Lifecycle Up-sell Re-Trial See Try Buy Fly Die
  • 16. Harvard innovation lab Michael J Skok Startup Secrets Business of Software 16 @innovationlab @mjskok #startupsecrets startupsecrets.com Retention
  • 17. Harvard innovation lab Michael J Skok Startup Secrets Business of Software 17 @innovationlab @mjskok #startupsecrets startupsecrets.com Upsell 14 x leverage!
  • 18. Harvard innovation lab Michael J Skok Startup Secrets Business of Software 18 @innovationlab @mjskok #startupsecrets startupsecrets.com The Model Refined – Enabling Retention & Upsell • Cost of Acquiring & Retaining Customer (CARC) • Lifecycle Value of Customer (LCV) = incl. Repurchase, Upsell CORE Levers Multipliers Up-sell Re-Trial
  • 19. Harvard innovation lab Michael J Skok Startup Secrets Business of Software 19 @innovationlab @mjskok #startupsecrets startupsecrets.com Retention Costs • Must be included in CARC as you drive down Churn – Examples: • Support • Customer Service • Professional Services • Also include any Re-engagement costs associated with any Upsell as you drive up ARPU – Sales, Marketing etc
  • 20. Harvard innovation lab Michael J Skok Startup Secrets Business of Software 20 @innovationlab @mjskok #startupsecrets startupsecrets.com Value Prop & Business Model TOGETHER customer view & your view TOGETHER!
  • 21. Harvard innovation lab Michael J Skok Startup Secrets Business of Software 21 @innovationlab @mjskok #startupsecrets startupsecrets.com Value Prop & Business Model • They are two views of the same principle: – Customer view = Gain/Pain – Vendor view = LCV/CARC CORE Levers Multipliers Up-sell Re-Trial
  • 22. Harvard innovation lab Michael J Skok Startup Secrets Business of Software Up-sell Extended Extended Lifecycle Re-Trial 22 @innovationlab @mjskok #startupsecrets startupsecrets.com An extended & valuable lifecycle: “Land & Expand” Self service Web / Mobile On demand SaaS Subscription Open source Up-sell Re-Trial Lifecycle short, low cost (CARC), quick payback, extended lifecycle value (LCV) See Try Buy Fly Die
  • 23. Harvard innovation lab Michael J Skok Startup Secrets Business of Software Up-sell Extended Extended Lifecycle Re-Trial 23 @innovationlab @mjskok #startupsecrets startupsecrets.com An extended & valuable lifecycle: “Land & Expand” without friction Self service Web / Mobile On demand SaaS Subscription Open source Up-sell Re-Trial Lifecycle short, low cost (CARC), quick payback, extended lifecycle value (LCV) See Try Buy Fly Die Frictionless, SLIPPERY
  • 24. Harvard innovation lab Michael J Skok Startup Secrets Business of Software 24 @innovationlab @mjskok #startupsecrets startupsecrets.com Demandware • Software is free, it’s a shared success model (business model can be more important than product in reducing friction)
  • 25. Harvard innovation lab Michael J Skok Startup Secrets Business of Software 25 @innovationlab @mjskok #startupsecrets startupsecrets.com How do you take away the pain, and reduce friction? … make it SLIPPERY (Reduce the Pain in the Gain/Pain Ratio)
  • 26. Harvard innovation lab Michael J Skok Startup Secrets Business of Software 26 @innovationlab @mjskok #startupsecrets startupsecrets.com Friction Free, SLIPPERY products • Simple • Low to no initial cost • Installs and integrates • Proves value quickly • Package for progress • Experience is compelling • ROI is obvious • Your customers can’t live without it – it’s stickY
  • 27. Harvard innovation lab Michael J Skok Startup Secrets Business of Software 27 @innovationlab @mjskok #startupsecrets startupsecrets.com Simple
  • 28. Harvard innovation lab Michael J Skok Startup Secrets Business of Software 28 @innovationlab @mjskok #startupsecrets startupsecrets.com Which is better? Microsoft Sony
  • 29. Harvard innovation lab Michael J Skok Startup Secrets Business of Software 29 @innovationlab @mjskok #startupsecrets startupsecrets.com Neither! = Less is More! Microsoft, Sony Apple
  • 30. Harvard innovation lab Michael J Skok Startup Secrets Business of Software 30 @innovationlab @mjskok #startupsecrets startupsecrets.com Simple ≠ Easy to do • Simple ≠ Easy ! • Simple often means complex technology that makes your product “magic” • Simplification Innovation (search algorithms in the cloud) With thanks to Will Koffel @wkoffel www.clearlytech.com
  • 31. Harvard innovation lab Michael J Skok Startup Secrets Business of Software 31 @innovationlab @mjskok #startupsecrets startupsecrets.com Example Knowledge Management vs. Capture Lotus Notes Evernote
  • 32. Harvard innovation lab Michael J Skok Startup Secrets Business of Software 32 @innovationlab @mjskok #startupsecrets startupsecrets.com Less is More… features are the enemy of function functionality can overwhelm users applicability is all that ultimately matters
  • 33. Harvard innovation lab Michael J Skok Startup Secrets Business of Software 33 @innovationlab @mjskok #startupsecrets startupsecrets.com Demandware • Retail practice group – best practice for merchants
  • 34. Harvard innovation lab Michael J Skok Startup Secrets Business of Software 34 @innovationlab @mjskok #startupsecrets startupsecrets.com Why are we here? • A story… – Zero to a couple of billion dollars… – but NOT back again!
  • 35. Harvard innovation lab Michael J Skok Startup Secrets Business of Software 35 @innovationlab @mjskok #startupsecrets startupsecrets.com Welcome Scott Dussault former CFO
  • 36. Harvard innovation lab Michael J Skok Startup Secrets Business of Software 36 @innovationlab @mjskok #startupsecrets startupsecrets.com Metrics that Matter • Annualized Revenue per Customer (“ARPU”) • Renewal Rate/Churn • Revenue per Employee • Cost of Acquiring and Retaining a Customer (“CARC”)
  • 37. Harvard innovation lab Michael J Skok Startup Secrets Business of Software 37 @innovationlab @mjskok #startupsecrets startupsecrets.com TRAK VOCS 0.0x CRM SPSC RP BCOV BV IL SQI TNGO FLTX MRIN CTCT N CVT ECOM ULTI CNQR DWRE LPSN MKTG JIVE SREV 20.0 x 18.0 x 16.0x 14.0x 12.0x CSOD R² = 0.6577 TXTR 10.0 x 8.0 x 6.0 x 4.0 x 2.0 x 0.0 % 10.0% 20.0% 30.0% 40.0% 50.0% 60.0% CY14E EV / Sales Source: FactSet, Stifel estimates WKDY Now MKTO Estimated CY14 Organic Growth Rate
  • 38. Harvard innovation lab Michael J Skok Startup Secrets Business of Software 38 @innovationlab @mjskok #startupsecrets startupsecrets.com Dec. 31, 2008 Dec. 31, 2013 $103.7M 204 820 $515,000 82% 100% Cloud $7.5M 23 50 $250,000* 37% *Excluding Neckermann GmbH
  • 39. Harvard innovation lab Michael J Skok Startup Secrets Business of Software 39 @innovationlab @mjskok #startupsecrets startupsecrets.com ARPU • Higher ARPU indicates value delivered – “SLIPPERY” products will drive sequential and year over year ARPU growth • Increasing ARPU driven by upsell – Chance to demonstrate how well your customers re-engage (which is demonstrably better than re-sell) • Investors view ARPU as THE driver of CLV and, most importantly, revenue growth…
  • 40. Harvard innovation lab Michael J Skok Startup Secrets Business of Software 40 @innovationlab @mjskok #startupsecrets startupsecrets.com Renewal Rate/Churn • Renewal rate/churn is unique for every business – Need is to demonstrate stickiness – Dollar value renewals, churn count, long-term contracts • Rule of thumb is “needs to be better than 90%” – So figure out a metric that magically results in 90% or better…(MJS: but don’t lie to yourself!) • Investors view renewal rate/churn as THE metric for visibility and long-term revenue growth
  • 41. Harvard innovation lab Michael J Skok Startup Secrets Business of Software 41 @innovationlab @mjskok #startupsecrets startupsecrets.com Revenue per Employee • Cloud software is a technology delivery model that provides significant operating leverage – Most if not all have subscription revenue models that enable predictable revenue streams • Subscription revenue models on their own may not provide significant operating leverage • Legacy software models are inherently profitable, but not predictable • Revenue per employee greater than $250,000 is a benchmark for inherently profitable models
  • 42. Harvard innovation lab Michael J Skok Startup Secrets Business of Software 42 @innovationlab @mjskok #startupsecrets startupsecrets.com CARC • Cost of acquiring a customer – Unique metric for each business – what is the sales model? How does marketing play in? • Cost of re-engaging a customer – What are the costs for operating a customer? How do customers renew? • High gross margin businesses with less touch on re-engagement will have the best CARC metrics
  • 43. Harvard innovation lab Michael J Skok Startup Secrets Business of Software Customer Expansion Base Subscription 43 @innovationlab @mjskok #startupsecrets startupsecrets.com Frictionless Land and Expand, Drives ALL of these Metrics Q1 Q2 Q3 Q4 Year 2 Q1 Q2 Q3 Q4 Year 3 Q1 Q2 Q3 Q4 Year 1 Quarterly Revenue $200,000 $180,000 $160,000 $140,000 $120,000 $100,000 $80,000 $60,000 $40,000 $20,000 $0 Cohort analysis includes a family of third-party solution partner customers who share a minimum level of subscription revenue and 56 customers all of which have been operating on Demandware’s platform for a minimum of three years through December 31, 2013. Analysis excludes two customers operating on the platform for three years – one invoiced through a third party and Neckermann GmbH.
  • 44. Harvard innovation lab Michael J Skok Startup Secrets Business of Software 44 @innovationlab @mjskok #startupsecrets startupsecrets.com Frictionless, SLIPPERY+ Land & Expand = ?
  • 45. Harvard innovation lab Michael J Skok Startup Secrets Business of Software 45 @innovationlab @mjskok #startupsecrets startupsecrets.com Frictionless, SLIPPERY+ Land & Expand = fastest growing software companies
  • 46. Harvard innovation lab Michael J Skok Startup Secrets Business of Software 46 @innovationlab @mjskok #startupsecrets startupsecrets.com Frictionless, SLIPPERY+ Land & Expand = fastest growing software companies “Addiction before Adoption & Expansion”
  • 47. Harvard innovation lab Michael J Skok Startup Secrets Business of Software “Addiction before Adoption & Expansion” 47 @innovationlab @mjskok #startupsecrets startupsecrets.com Frictionless, SLIPPERY+ Land & Expand = fastest growing software companies Delight, ADOPTION ADDICTION (Free, Open Source) Upsell EXPANSION $400 $350 $300 $250 $200 $150 $100 $50 $0 LCV
  • 48. Harvard innovation lab Michael J Skok Startup Secrets Business of Software 48 @innovationlab @mjskok #startupsecrets startupsecrets.com Why are we here? • A story… – Zero to a couple of billion dollars… – but NOT back again!
  • 49. @North_Bridge @mjskok @futureofcloud #futureofcloud THE FUTURE OF CLOUD COMPUTING 4TH ANNUAL SURVEY 2014 http://bit.ly/2014FutureCloud NORTH BRIDGE FUTURE OF CLOUD COMPUTING SURVEY IN PARTNERSHIP WITH GIGAOM RESEARCH
  • 50. THE FIRST CLOUD FRONT 50 @futureofcloud #futureofcloud
  • 51. TRANSITIONING 51 LEGACY APPLICATIONS: ecommerce CRM ERP @futureofcloud #futureofcloud @SALESFORCE @WORKDAY @DEMANDWARE
  • 52. THE SECOND CLOUD FRONT 52 @futureofcloud #futureofcloud
  • 53. GROWTH IN WEB APIs SINCE 2005 1 186 299 438 593 865 1263 1546 2026 2418 3422 5018 7182 9011 11,493 10302 Jun-05 Mar-06 Oct-06 May-07 Dec-07 Jul-08 Feb-09 Sep-09 Apr-10 Nov-10 Jun-11 Jan-12 Aug-12 Mar-13 Oct-13 Jun-14 Source Programmable Web @futureofcloud #futureofcloud
  • 54. REIMAGINING APPLICATIONS IN THE CLOUD 54 @futureofcloud #futureofcloud
  • 55. THE SECOND CLOUD FRONT: MANY CLOUD SERVICES => RE-IMAGINED APP UBER 55 @futureofcloud #futureofcloud
  • 56. From: AMAZING BECAUSE CLOUD 56 @futureofcloud #futureofcloud
  • 57. To: IMPOSSIBLE WITHOUT CLOUD 57 @futureofcloud #futureofcloud
  • 58. Harvard innovation lab Michael J Skok Startup Secrets Business of Software 58 @innovationlab @mjskok #startupsecrets startupsecrets.com Why are we here? • A story… – Zero to a couple of billion dollars… – but NOT back again!
  • 59. Harvard innovation lab Michael J Skok Startup Secrets Business of Software 59 @innovationlab @mjskok #startupsecrets startupsecrets.com Tasters… • Value prop - fundamentals • Business model - basics • Product – friction free, “slippery” products • Metrics – that matter • Cloud – the second front
  • 60. Harvard innovation lab Michael J Skok Startup Secrets Business of Software … fundamentally more Repeatable, Sustainable, Valuable & Predictable… 60 @innovationlab @mjskok #startupsecrets startupsecrets.com Redefining the (Business of) Software 1990+ Now + • Installed by IT • Customized • Infrequent upgrades • Proprietary • License  Web / Mobile / Self  SReersvtficuel APIs, Extensibility  On demand, SaaS, Cloud  Open Source, Open Data  Subscription, Recurring Web On demand Self service SaaS Subscription Open source Up-sell Extende d Lifecycl e Up-sell Extende d Lifecycl e Re-Trial RSVP = YES! short, low cost (CAC), quick payback, EXTENDED lifetime value (LTV)
  • 61. Harvard innovation lab Michael J Skok Startup Secrets Business of Software 61 @innovationlab @mjskok #startupsecrets startupsecrets.com Thank You BoS! RESOURCES at mjskok.com/bos2014 STARTUP SECRETS #startupsecrets MICHAEL J SKOK Hi Harvard innovation lab startupsecrets.com @mjskok

Hinweis der Redaktion

  1. Amazon
  2. Sustainable – with operating leverage
  3. And ultimately applicability to the customer’s need and job to be done…
  4. We sit at the convergence of three significant sectors; 1) global retail, 2) digital commerce and 3) cloud computing software delivery We serve a large and growing market We deliver a mission critical, consumer facing enterprise-class application in a SaaS delivery model Our unique platform & shared success value proposition has created a significant barrier to entry DWRE is a growth story Revenue has grown from $21.4 million in 2009 to $103.7 million in 2013 Growth has been achieved because we have multiple growth vectors 1) New customer acquisition 2) Customer growth through site growth 3) Customer growth through site launches All leading to expansion of ARPU, $515k as of June 30th and increasing every quarter since we started tracking at the end of 2008
  5. Modern explosion in Cloud Services (SaaS services and APIs) Engineer your differentiation as your CORE Everything else? Lucky You, there’s a service for that – “outservice” it! Cloud Services + Outsourcing = “Outservicing” When developing frictionless, SLIPPERY products, the S in SLIPPERY = Simple and Cloud Services can simplify your development and your offering.
  6. While significant value was created in the Software1.0 era, we are in the midst of a significant shift in how software is developed, deployed, and monetized The last 20 years could be characterized as DIY computing - where applications were installed and customized by IT, requiring significant resources and ongoing maintenance on thousands of servers and desktops -- in the 2.0 world, the software is hosted and delivered over the Web / Mobile with no installation or maintenance required <click> in the 1.0 era, customization often took months, if not years -- while in 2.0 it is configured rapidly to meet customer needs <click> the customer was at the mercy of a the vendor’s infrequent upgrade and bug fix cycle – while now update cycles have shrunk from years to weeks, with updates happening often without the customer being aware <click> applications were proprietary requiring vendors to write large amounts of undifferentiated code and only a small amount on their unique value add -- while today open software taps into developers worldwide, leveraging the community and innovation outside to allow vendors to focus on their differentiation <click> the 1.0 world required a significant up front capital investment that didn’t keep the vendor on the hook – in the 2.0 world we see a recurring subscription model which scales up and down with usage, providing a pay-by- the drink model for the customer and an annuity stream for the vendor <click> much software purchased was never successfully deployed (aptly called shelfware). In the 2.0 world, we coin a new term, Proofware, because if a vendor can’t prove their offering delivers value, the customer will turn it off and move on. The changes I am talking about are not merely a simple deployment change for vendors. It is <click> a fundamentally different business. These changes threaten today’s multi$B software companies and create a significant opportunity.