Your SlideShare is downloading. ×
The 2 ways to build a $100 million business August 2013
The 2 ways to build a $100 million business August 2013
The 2 ways to build a $100 million business August 2013
The 2 ways to build a $100 million business August 2013
The 2 ways to build a $100 million business August 2013
The 2 ways to build a $100 million business August 2013
The 2 ways to build a $100 million business August 2013
The 2 ways to build a $100 million business August 2013
The 2 ways to build a $100 million business August 2013
The 2 ways to build a $100 million business August 2013
The 2 ways to build a $100 million business August 2013
The 2 ways to build a $100 million business August 2013
The 2 ways to build a $100 million business August 2013
The 2 ways to build a $100 million business August 2013
The 2 ways to build a $100 million business August 2013
The 2 ways to build a $100 million business August 2013
The 2 ways to build a $100 million business August 2013
The 2 ways to build a $100 million business August 2013
The 2 ways to build a $100 million business August 2013
Upcoming SlideShare
Loading in...5
×

Thanks for flagging this SlideShare!

Oops! An error has occurred.

×
Saving this for later? Get the SlideShare app to save on your phone or tablet. Read anywhere, anytime – even offline.
Text the download link to your phone
Standard text messaging rates apply

The 2 ways to build a $100 million business August 2013

19,272

Published on

With tens of thousands of new start-ups being created every year, the potential of a company to truly scale and become a large, stand-alone business is more crucial than ever before. A great product …

With tens of thousands of new start-ups being created every year, the potential of a company to truly scale and become a large, stand-alone business is more crucial than ever before. A great product is always the foundation but a clear distribution strategy becomes essential to cut through the noise. So most early-stage VCs have started to evaluate investment opportunities with an imaginary benchmark in mind: can this company become a $100 million opportunity?

Generally speaking, there are two ways (and only two ways) to scale a business to hit that $100 million threshold:
1. Your business has a high Life Time Value (LTV) per user, giving you the freedom to spend a significant amount of money in customer acquisition. High LTV can usually be found in transactional or subscription businesses.
2. Your business has a high viral co-efficient (or perhaps even a network effect) that lets you amass users cheaply without worrying too much about the monetization per user or spending money on paid acquisition.

Unfortunately, many consumer internet startups find themselves stuck in the middle of these two strategies: they have a low monetization per user and limited viral effects. That unfortunate combination makes it rather difficult to reach the $100M mark.
As the consumer Internet space becomes more and more crowded, every startup founder needs to be thinking about these two ways to scale a business. Too often I have seen entrepreneurs believe that customers will automatically flock to their cool new service, completely underestimating how tough it is to cut through the noise and build an audience.

To build a standalone company and capture the attention of investors, you need a viable way to scale your business. The earlier you figure this out the better, since it may require you to build your product differently. While the $100 million mark may seem far away in those early days, it’s important to begin thinking about paths to reach this threshold from the start.

Published in: Technology, Economy & Finance
5 Comments
27 Likes
Statistics
Notes
  • Isn't this just stating the obvious? How many great companies were obvious wins when they started? Seems like a recipe for safe and small plays.
       Reply 
    Are you sure you want to  Yes  No
    Your message goes here
  • @travid yes, will add them on the slide with the acquisition channels
       Reply 
    Are you sure you want to  Yes  No
    Your message goes here
  • Great presentation boris. I think a few missing channels are social media (nastygal - ecommerce + social media), content marketing (hubspot - small businesses + content marketing) and distribution channels (instagram - ios in app store + social media). When used properly, these can be the secret weapons for those businesses that get stuck in the middle. Case study on Nasty Gal (Ebay page to ecommerce powerhouse using social media) http://www.businessinsider.com/nasty-gal-founder-in-the-new-york-times-2013-3
       Reply 
    Are you sure you want to  Yes  No
    Your message goes here
  • @MikeRossi this happens but the best companies have usually already pretty good LTV / CAC ratio's from the start
       Reply 
    Are you sure you want to  Yes  No
    Your message goes here
  • I think it would be interesting how to explore examples of companies who have started with relatively low LTV and high CAC and then have managed to move one of the variables in the correct direction.
       Reply 
    Are you sure you want to  Yes  No
    Your message goes here
No Downloads
Views
Total Views
19,272
On Slideshare
0
From Embeds
0
Number of Embeds
24
Actions
Shares
0
Downloads
109
Comments
5
Likes
27
Embeds 0
No embeds

Report content
Flagged as inappropriate Flag as inappropriate
Flag as inappropriate

Select your reason for flagging this presentation as inappropriate.

Cancel
No notes for slide

Transcript

  • 1. The only 2 ways to build a $100 million business Boris Wertz | August 2013
  • 2. Why $100 million?
  • 3. “VC fundable” (but you can a build great company without VC)
  • 4. some VC math -  $20 million seed fund -  return target 3-4x = $80 million -  5% stake at exit > $1.6 billion in exit value needed on 20-25 investments
  • 5. LTV > CAC (ideally 4-5x at scale)
  • 6. high LTV / user (SaaS, e-commerce > transactional businesses) 1
  • 7. SaaS example -  ARPU: $70 -  Monthly Churn: 2% (> 50 months) -  LTV: $3,500 1
  • 8. 1 CAC acquisition channels WoM SEO SEM Tradeshows Outbound sales
  • 9. Increasing LTV -  increase ARPU: upsell, enterprise accounts -  decrease churn: increase utility of product, customer success 1
  • 10. viral effect (social networks, platforms > often advertising businesses) 2
  • 11. Facebook -  ARPU / year: $6 -  MAU: 1.15 billion -  Other examples: Twitter, YouTube, Instagram, Snapchat, Wattpad 2
  • 12. virality & network effect -  virality: sharing / WoM (e.g. communication products, social games) -  network effect: additional user = additional value (e.g. Craigslist, Indiegogo, Twitter) 2
  • 13. stuck in the middle (most start-ups) 3
  • 14. e.g.: news curation -  low viral co-efficient -  low monetization (advertising) 3
  • 15. e.g.: low-utility SaaS -  combination of low ARPU ($30) and high churn (7-8%) – e.g. marketing tool for SMB s -  resulting LTV of around $400 too low to use most acquisition channels 3
  • 16. e.g.: one product e-com -  low repeat purchase frequency = low LTV -  competing with multi-product retailers like Amazon on customer acquisition 3
  • 17. take-aways -  $100m opportunity = “VC fundable” -  2 models to get there: high LTV / high CAC or low LTV / low (=zero) CAC -  think about distribution early on
  • 18. thank you bwertz@versiononeventures.com twitter: @bwertz
  • 19. about me •  early stage investor through Version One Ventures •  40+ investments in consumer & enterprise co s - 6 exits (Twitter, Groupon, Google, Salesforce) •  entrepreneur: co-founded JustBooks / AbeBooks (sold to Amazon in 2008) •  co-founder of startup accelerator GrowLab •  BC Angel of the Year 2011 / Pacific E&Y Entrepreneur Of The Year 2005 •  Masters and PhD in business administration

×