One of the questions I get asked often by entrepreneurs is how they can build a really valuable business, and what metrics they should consider. It's a big question and there are so many qualitative and quantitative as well as subjective parts to this. At a high level, the answer is that when you reach scale, the business will be valued by the size of your potential market opportunity, your demonstrated leadership and growth in the market, based on some differentiated and defensible advantage* with a business model that shows real financial leverage. And of course there will be many other elements such as the quality of your team and the trust in your brand. Looking at the business model, I have been lucky enough to work with some terrific investment banks over the years while building, taking public and selling companies and asked Goldman Sachs to share the work done recently around SaaS and Cloud companies where I focus my investing. Here are some introductory slides from our Business Model session that highlight the some of the key elements such as Retention and Upsell that can not only be correlated to, but drive high leverage in your valuation. This is part of the workshop on Game Changing Business Models - itself part of the series on Startup Secrets, by Michael J Skok on how to get competitive advantage as a startup. Michael's slides are the framework for the workshop, and are NOT self contained. For fuller coverage of the slides, visit Michael's website http://mjskok.com/

1. Harvard innovation lab : Michael J Skok : Startup Secrets : Go To Market
Hi
Hi Harvard innovation lab
#innovationlab @mjskok #startupsecrets www.mjskok.com
START UP
Building a Highly Valued
SECRETS
An insider’s guide to unfair competitive advantage
Business (Model)
Disruptive Business Models to build Value
MICHAEL J SKOK & Featuring GOLDMAN SACHS
North Bridge Venture Partners
twitter: @mjskok mjskok.com
1

2. Harvard innovation lab : Michael J Skok : Startup Secrets : Go To Market
Hi www.mjskok.com
#innovationlab @mjskok #startupsecrets
For context and more information:
See the overall Business Model session and other
Case examples at :
http://www.mjskok.com/resources/business-model
Subscription
SaaS
On demand
Self service
Extended Up-sell Extended Re-Trial
Up-sell
…a fundamentally disruptive & more valuable
Open
Lifecycle Lifecycle
source
Web business model
short, low cost (CAC), quick payback, EXTENDED lifetime value (LTV)
2

3. Harvard innovation lab : Michael J Skok : Startup Secrets : Go To Market
Hi www.mjskok.com
#innovationlab @mjskok #startupsecrets
What makes for a GREAT business
model?
• Repeatable
factors
• Scalable – with leverage
Many
• Profitable / sustainable
• Predictable
• Valuable….
3

4. Harvard innovation lab : Michael J Skok : Startup Secrets : Go To Market
Hi www.mjskok.com
#innovationlab @mjskok #startupsecrets
What makes you valuable?
Many factors, but some play more of a
role than others in your business
model…
(with thanks to Goldman Sachs)
4

5. Harvard innovation lab : Michael J Skok : Startup Secrets : Go To Market
Hi www.mjskok.com
#innovationlab @mjskok #startupsecrets
Valuations – SaaS
2013 Revenue Multiples
Median
5.2x
2012-2013 Revenue Growth
5

6. Harvard innovation lab : Michael J Skok : Startup Secrets : Go To Market
Hi www.mjskok.com
#innovationlab @mjskok #startupsecrets
Valuations – SaaS
2013 Revenue Multiples
Median
5.2x
2012-2013 Revenue Growth
6

7. Harvard innovation lab : Michael J Skok : Startup Secrets : Go To Market
Hi www.mjskok.com
#innovationlab @mjskok #startupsecrets
Valuations – SaaS
7

8. Harvard innovation lab : Michael J Skok : Startup Secrets : Go To Market
Hi www.mjskok.com
#innovationlab @mjskok #startupsecrets
Valuations – SaaS
8

9. Harvard innovation lab : Michael J Skok : Startup Secrets : Go To Market
Hi www.mjskok.com
#innovationlab @mjskok #startupsecrets
An important refinement
• Retention For
HIGH
• Upsell Leverage
9

10. Harvard innovation lab : Michael J Skok : Startup Secrets : Go To Market
Hi www.mjskok.com
#innovationlab @mjskok #startupsecrets
Retention 10x leverage
10

11. Harvard innovation lab : Michael J Skok : Startup Secrets : Go To Market
Hi www.mjskok.com
#innovationlab @mjskok #startupsecrets
Upsell
14x
Leverage !
11

12. Harvard innovation lab : Michael J Skok : Startup Secrets : Go To Market
Hi www.mjskok.com
#innovationlab @mjskok #startupsecrets
What makes you valuable?
For the rest of the analysis and slides
see
http://www.mjskok.com/resource/buildi
ng-highly-valued-business-model
(with thanks to Goldman Sachs)
12

13. Harvard innovation lab : Michael J Skok : Startup Secrets : Go To Market
Hi www.mjskok.com
#innovationlab @mjskok #startupsecrets
Basic Startup Model
• Lifetime Value of Customer (LTV)
• Cost of Acquiring Customer (CAC)
LTV ~3x >
CAC
Multipliers
Levers
CORE
13

14. Harvard innovation lab : Michael J Skok : Startup Secrets : Go To Market
Hi www.mjskok.com
#innovationlab @mjskok #startupsecrets
The Model Refined –
Enabling Retention & Upsell
• Lifecycle Value of Customer (LCV)
• Cost of Acquiring & Re-Engaging Customer (CARC)
Multipliers
Levers
Up-sell CORE Re-Trial
14

15. Harvard innovation lab : Michael J Skok : Startup Secrets : Go To Market
Hi www.mjskok.com
#innovationlab @mjskok #startupsecrets
Re-engagement Costs
• Must be included in CARC
• Example:
– Support
– Customer Service
– Professional Services
15

16. Harvard innovation lab : Michael J Skok : Startup Secrets : Go To Market
Hi www.mjskok.com
#innovationlab @mjskok #startupsecrets
Connecting it to Gain/Pain
See
• They are two views of the same principle:
http://www.mjs
– Customer view = Gain/Pain kok.com/resou
– Vendor view = LCV/CARC rce/building-
compelling-
value-
proposition
slide 29
onward for
more details
Multipliers
Levers
Up-sell CORE Re-Trial
16

17. Harvard innovation lab : Michael J Skok : Startup Secrets : Go To Market
Hi www.mjskok.com
#innovationlab @mjskok #startupsecrets
Build for a long lifetime…
17

18. Harvard innovation lab : Michael J Skok : Startup Secrets : Go To Market
Hi www.mjskok.com
#innovationlab @mjskok #startupsecrets
A typical product lifecycle
But it doesn’t have to be this way !
Long, costly (CAC), slow payback, EXTENDED lifetime value (LTV)
See Try Buy Fly Die
18

19. Harvard innovation lab : Michael J Skok : Startup Secrets : Go To Market
Hi www.mjskok.com
#innovationlab @mjskok #startupsecrets
Adding Retention and Upsell
Extended
Up-sell
Lifecycle Re-Trial
Long, costly (CAC), slow payback, EXTENDED lifetime value (LTV)
See Try Buy Fly Die
19

20. Harvard innovation lab : Michael J Skok : Startup Secrets : Go To Market
Hi www.mjskok.com
#innovationlab @mjskok #startupsecrets
A disruptive & valuable lifecyle
Subscription
SaaS
On demand
Self service Up-sell Extended
Extended
Up-sell Re-Trial
Lifecycle Lifecycle Re-Trial
Open source
Web
short, low cost (CARC), quick payback, extended lifecycle value (LCV)
See Try Buy Fly Die
20

21. Harvard innovation lab : Michael J Skok : Startup Secrets : Go To Market
Hi www.mjskok.com
#innovationlab @mjskok #startupsecrets
Applied to Software
1990+ 2010+
• Installed by IT  Web based
• Customized  Self service
• Infrequent upgrades  On demand, SaaS
• Proprietary  Open Source
• License  Subscription
Subscription
SaaS
On demand
Self service Extende Extende
d Up-sell d Re-Trial
Up-sell
…a fundamentally disruptive & more valuable
Open
source
Lifecycl
e
Lifecycl
e
Web business model short, low cost (CAC), quick payback, EXTENDED lifetime value (LTV)
21

22. Harvard innovation lab : Michael J Skok : Startup Secrets : Go To Market
Hi www.mjskok.com
#innovationlab @mjskok #startupsecrets
Recent example – Demandware
(NYSE:DWRE)
See the full case example here
http://www.mjskok.com/resources/business-model
Demandware is an example of a company that
leveraged it’s SaaS technology disruption with a
fundamentally different business model to it’s
competitors, creating innovation on demand for it’s
customer and making partners out them with a shared
success model.
22

23. Demandware business model – simplified summary
 Create: Development plus LINK partnerships
– Traditional R&D with leverage from LINK partners for whole
product
 Deliver: SaaS
– On Demand Commerce Innovation NOT Infrastructure
 Harness: % of GMV payment
– Shared success with customers
Copyright 2012 Demandware, Inc. – CONFIDENTIAL | 23

24. Commerce Innovation. Not Infrastructure.
See the full case example here
http://www.mjskok.com/resources/business-model

25. Harvard innovation lab : Michael J Skok : Startup Secrets : Go To Market
Hi www.mjskok.com
#innovationlab @mjskok #startupsecrets
For context and more information:
See the overall Business Model session and other
Case examples at :
http://www.mjskok.com/resources/business-model
Subscription
SaaS
On demand
Self service
Extended Up-sell Extended Re-Trial
Up-sell
…a fundamentally disruptive & more valuable
Open
Lifecycle Lifecycle
source
Web business model
short, low cost (CAC), quick payback, EXTENDED lifetime value (LTV)
25

26. Harvard innovation lab : Michael J Skok : Startup Secrets : Go To Market
Hi
Hi Harvard innovation lab
#innovationlab @mjskok #startupsecrets www.mjskok.com
START UP
Building a Highly Valued
SECRETS
An insider’s guide to unfair competitive advantage
Business (Model)
Disruptive Business Models to build Value
MICHAEL J SKOK & Featuring GOLDMAN SACHS
North Bridge Venture Partners
twitter: @mjskok mjskok.com
26