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Business Model Analytics - MaRS Best Practices
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Business Model Analytics - MaRS Best Practices

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Driven by frequent tests, experiments or iterations, the lean startup seeks to gain insights by measuring user and market responses to its activities. Nevertheless, many startups struggle with …

Driven by frequent tests, experiments or iterations, the lean startup seeks to gain insights by measuring user and market responses to its activities. Nevertheless, many startups struggle with effectively implementing the lean approach and we believe that a better understanding of business model analytics can change that for the better.

The purpose of this Best Practices session is to deconstruct the process of business model analytics to give entrepreneurs and practitioners a more concrete understanding of the analytical practices needed to drive the early stages of a new venture toward a validated business model. This session will take participants through practical and accessible methods for creating the right metrics, provide the context and use for each, and ultimately help to drive the venture’s key strategic decisions.

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  • 1. A MaRS Best Practice ! presented by Jon E Worren!
  • 2. Memory at Work ! •  A Financially Sustainable Business Model! •  Important Business Model Metrics! •  Analytical Processes! •  Examples! MaRS is a member of! Pg 3!
  • 3. “A startup is a temporary organization, designed to search for a sustainable business model.”! Steve Blank! Execu6on   Sustainable   Business   Model?   Search  
  • 4. A business model describes the value an organization offers its customers and illustrates the capabilities and resources required to create, market and deliver this value and to generate profitable, sustainable revenue streams.
  • 5. Day Month Year No. Who are our Key Partners? Who are our key suppliers? Which Key Resources are we acquiring from partners? Which Key Activities do partners perform? What Key Activities do our Value Propositions require? Our Distribution Channels? Customer Relationships? Revenue streams? What Key Resources do our Value Propositions require? Our Distribution Channels? Customer Relationships? Revenue Streams? What are the most important costs inherent in our business model? Which Key Resources are most expensive? Which Key Activities are most expensive? What value do we deliver to the customer? Which one of our customer’s problems are we helping to solve? What bundles of products and services are we offering to each Customer Segment? Which customer needs are we satisfying? What type of relationship does each of our Customer Segments expect us to establish and maintain with them? Which ones have we established? How are they integrated with the rest of our business model? How costly are they? For whom are we creating value? Who are our most important customers? Through which Channels do our Customer Segments want to be reached? How are we reaching them now? How are our Channels integrated? Which ones work best? Which ones are most cost-efficient? How are we integrating them with customer routines? For what value are our customers really willing to pay? For what do they currently pay? How are they currently paying? How would they prefer to pay? How much does each Revenue Stream contribute to overall revenues? This work is licensed under the Creative Commons Attribution-Share Alike 3.0 Unported License. To view a copy of this license, visit http:/ /creativecommons.org/licenses/by-sa/3.0/ or send a letter to Creative Commons, 171 Second Street, Suite 300, San Francisco, California, 94105, USA. Pg 6
  • 6.  Nijar Dawar: “Most companies still look for competitive advantage where it used to be: through activities related to products and new product creation”!  Both cost and value creation has shifted out of the factory! Pg 7!
  • 7.  Rita McGrath: “It’s time to go beyond the very concept of sustainable competitive advantage”!  Organizations need to forge a new path to winning: capturing opportunities fast, exploiting them decisively, and moving on even before they are exhausted! Pg 8!
  • 8. ACTIVITY Identify Areas of Investigation The Business Model Canvas Key Partners Key Activities Designed for: Designed by: Value Propositions Key Resources Cost Structure www.businessmodelgeneration.com Customer Relationships Channels Last  week:   Channels   Revenue Streams This work is licensed under the Creative Commons Attribution-Share Alike 3.0 Unported License. To view a copy of this license, visit http:/ /creativecommons.org/licenses/by-sa/3.0/ or send a letter to Creative Commons, 171 Second Street, Suite 300, San Francisco, California, 94105, USA. On: / / Iteration: No. Customer Segments This  week:   Customer   Rela6onships  
  • 9. CLTV > CAC! Customer Lifetime Value exceeds Customer Acquisition Cost! Pg 10
  • 10. Let’s look at CLTV first…. CUSTOMER LIFETIME VALUE
  • 11. Customer Lifetime Value (def.): ! Total profit a customer brings to your company over their lifetime! ! Marginal Unit Contribution (MUC): ! Sales price – Direct Variable Product Cost! – Find Average MUC/Customer! ! Pg 12!
  • 12. Retention Rate (RR): ! Current retained Customer/Customers from previous period (month or year)! ! Customer Lifetime: 1/(1-RR)! ! Pg 13!
  • 13. MUC/Customer = $10,000 year! RR = 80%! CL = 5 years*! LTV= 5 * $10,000 = $50,000! Inside sales or field sales?! ! * Examples ignores NPV calculation for simplicity Pg 14!
  • 14. MUC/Customer = $100 year! RR = 80%! CL = 5 years! LTV= 5 * $100 = $500! What does a $500 LTV mean for our acquisition process?! Pg 15!
  • 15. MUC/Customer = $100 year! RR = 50%! CL = 2 years! LTV= 2 * $100 = $200! ! What does a $200 LTV mean for our acquisition process? Relationship strategy? Target Customer?! Pg 16!
  • 16. Monthly vs Annual! –  Important for recurring revenue! –  What do your customers prefer: Monthly or annual billing! –  What is your retention rate/returning customer rate?! Customer Types/Segments! –  Do you charge all customers the same or does it vary by type or segment?! Gross margin per customer! –  Does each new customer normally drive service, support or installation cost?! Pg 17!
  • 17. ! CLTV should be 3-5 times CAC! ! CAC should be earned back in less than 12 months! Pg 18!
  • 18. - Recurring revenue! - Cross & upsell! - Product line expansions ! - Lead gen for 3rd party! - Scalable pricing! - Low retention rate! - Customer satisfaction! Pg 19!
  • 19. The other part of the equation…. CUSTOMER ACQUISITION COST
  • 20.  May be calculated with or w/o fixed M&S salaries (CAC1 vs CAC2)! !  May not be calculated with accuracy until a number of sales have closed! –  Cycle times! –  Level of touch/automation required (Can you do it touch less?)! –  Conversion rates! Pg 21!
  • 21. - Field sales! - Long cycles! - Outbound marketing! - Viral effects! - Inbound marketing! - Touchless conversion ! - Inside sales! - Channels and partnerships! Pg 22!
  • 22. B2B example  Trade Show ! –  Direct cost: $5,000! –  Indirect: $5,000! –  Total: $10,000!  Results! –  200 contacts - leads! –  12 ask for proposal! –  188 “wants more information”! Key Questions  Is this a good show for leads?! –  Right types of businesses?! –  Right role/level of contacts?!  How much should we invest in attending this show?! –  All-in: Booth + full team + sub-event?! –  Floor-team only?! –  Single rep?! Pg 23!
  • 23. The Plan   Add contacts to CRM system!   Clearly identify show as “source”!   Start nurture program! Execution   Email blast 1: 200 send/receive! –  Newsletter! –  Invite to webinar!   Response! –  Objective 1: Demonstrate value & build credibility! –  80 opens (A/B test “subject”)! –  Objective 2: Convert to paying customers! –  40 sign-ups for webinar! –  Provide more information! •  Email blasts •  Webinars •  Direct calls –  10 forwards!   Webinar: 30 attendees!   Direct Call – hottest prospects! –  30 attendees! –  10 that “missed”! –  12 that received show proposals! Pg 24!
  • 24. After the Call 8 new ask for proposals! 6 not interested! 38 “maybes”! Cost Round 1 Email/newsletter: $750! Webinar: $650! Direct call: $2,000! Total: $3,350! Per lead: $85! ! Pg 25!
  • 25. Webinar II E-mail/Newsletter Email blast 1: 200 send/ receive! –  Newsletter! –  Invite to webinar II! Webinar:! –  25 attendees! –  5 “no show”! ! Response! –  60 opens! –  10 forwards! –  30 sign-ups for webinar! Pg 26!
  • 26. Sales Email Sales Promotion Newsletter! –  “Buy-now” incentives! –  No webinar! –  Links to products/ecommerce! –  Call to Action Link! Phone Follow up! –  All trade show contacts! –  Webinar attendees! –  All with outstanding proposals! ! Results 20 request for proposals! Plus 20 previous proposals ! Total 40 proposals! Avg. proposal= $10,000! Pipeline is $400,000! Closing rate = 50%! Conversion rate LeadCustomer 10%! Cycle time: 10 weeks! Pg 27!
  • 27. Costs Trade show: $10,000! –  $50/Lead! Email-blasts*2: $1,500! –  $7.50/lead! Webinar*2: $1,300! –  $6.50/Lead! CAC Total Cost: $22,400! New customers: 20! CAC: $1,120 ($11.2%)! Conclusion: OK (less than 15%)! Direct calls: $9,500! –  Round 1: $2,000! –  Final: $7,500! Pg 28!
  • 28.  Get more/better leads: Increase trade show efficiency by contacting prospects prior to show to schedule meetings!  Coverage: Should we send more people/change trade show attendance?!  Collateral & Tools: Will different marketing material change efficiency on the floor?!  Buy Leads: Can leads of same quality be bought/rented at less than $25?!  Conversion rates/Nurture program: Run A/B tests if enough data! –  Increase open rates, sign-ups: test subject line, lay-out & sign-up! –  Change timing of webinar (reduce no-shows)! –  Change topic for webinar! Pg 29!
  • 29. Sample A Email/NewsleBer  I   Sample B (Content/ Autom) Email/NewsleBer  I   Webinar  I   Phone  I   Email/NewsleBer  II   Email/Free   Trial   Email/NewleBer  II   Upgrade   Promo   Sales  Promo6on  I   Webinar  II   Sales  Promo6on  email   Sample C (Experience/ Autom) Sales  Promo6on  II   Upgrade   Promo   Closing  Call   Pg 30!
  • 30.  Optimize by cohort first if! –  Cohort is large enough! –  You have the bandwidth to manage test iterations in parallel!  Optimize process first if! –  Each cohort is too small to split! –  Your resources does not allow you to run various processes in parallel! Pg 31!
  • 31. Trade show sample Website signups Rented Lead DB Email/NewsleBer  I   Email/NewsleBer  I   Email/NewsleBer  I   Email/NewleBer  II   Email/NewleBer  II   Email/NewleBer  II   Sales  Promo6on  I   Sales  Promo6on  I   Sales  Promo6on  I   Closing  Call   Closing  Call   Closing  Call   Pg 32!
  • 32. Trade show sample Website signups Rented Lead DB Email/Free  Trial   Email/Free  Trial   Email/Free  Trial   Upgrade  Promo   Upgrade  Promo   Upgrade  Promo   Upgrade  Promo   Upgrade  Promo   Upgrade  Promo   Pg 33!
  • 33.   Know what you are optimizing for!   Use a tool that allows you to track cohorts and processes!   Design! Pg 34!
  • 34. We understand that some of the original content from the EAT24 case study may be perceived as offensive to some readers and have sought to mitigate that by blocking out certain elements of the case study, without impacting the learnings that can be gleaned That does not mean that MaRS condemns the actions of EAT24 in any way or suggest! Pg 35!
  • 35. If you aim for an automated acquisition process, CRO is a must: CONVERSION RATE OPTIMIZATION
  • 36.  No VC funding – all bootstrapped!  Needed to ensure every dollar spent yielded a return!  Have been building a tongue-in-cheek identity (check their blog!)!  Noticed a number of porn stars were fans through twitter!  Wanted to test if porn sites could be a viable source of leads! 37!
  • 37. Does porn make people hungry?! Pg 38
  • 38. Pg 39!
  • 39. Pg 40
  • 40. Pg 41!
  • 41.  Design banner ads to test out!  Start by testing ad placement (homepage vs video landing pages)!  Place ads in desired placement!  Measure Click-through-rates (CTR) and Conversion (Orders)!  Optimize by focusing ad spend on 3 top performing ads in terms of conversion.!  Read full case study here: http://blog.eat24hours.com/how-to-advertise-on-a-porn-website/ !
  • 42.  Ads with Monkeys, Cats and Dogs will be rejected by porn sites!  Ads on video landing pages experienced 5xCTR compared to porn homepages (did A/B testing)!  Porn banner ads experienced 3x impressions of Google +Facebook+Twitter combined at 10$ of cost!  Orders spiked when porn ads ran (no metrics provided)!  90 % of porn-ad traffic was unique visitors (new audience)!  Yet, new customer retention was 4x that of Facebook!  “Chicago is the horniest city in the United States”!
  • 43. Test  Plan:  What  to   improve?   Current  Performance  =   Baseline   Hypothesis:  What  changes   do  you  think  would  help?   Device  an  A/B  split  test  to   see  if  hypothesis  valid     Measure  the  results;   implement  learnings  
  • 44. RECOMMENDATIONS
  • 45. 1.  Customer Acquisition is the most important activity in the business – it is everyone’s business.! 2.  Build a strong culture for customer acquisition by dedicating resources, time & recognition ! 3.  Understand what you want to achieve and how to measure it! 4.  Plan campaigns like experiments: Know what you are testing for and make sure to measure results! 5.  Master the process: Be consistent and disciplined about executing, measuring and learning from tests! 6.  Find the tools that can support you in managing customer contacts, email delivery, funnel measurement & management, building micro-sites and landing pages, A/B testing, surveying.!
  • 46. “If you torture data long enough, it will confess”! !Ronald Coase! Pg 47
  • 47.   Kellblog.com !   Forentrepreneurs.com!   CRO slides on startup-marketing.com !   CLTV Calculator: http://hbsp.harvard.edu/multimedia/flashtools/cltv/index.html!   The EAT24 case study: http://blog.eat24hours.com/how-to-advertise-on-a-porn-website/ ! Pg 49!