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The Smarter Startup

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The Smarter Startup provides tips for improving your odds for success as an entrepreneur, starting an online business. The presentation is from the debut of The Smarter Startup book at SXSW, in …

The Smarter Startup provides tips for improving your odds for success as an entrepreneur, starting an online business. The presentation is from the debut of The Smarter Startup book at SXSW, in Austin Texas, 2013.

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  • 1. TheSmarterstartupNeal CabageSonya Zhang, PhDNewRiders Publishing
  • 2. About The authors Neal Cabage Sonya zhang Neal has successfully Sonya is a professor atfounded and sold two the College of Business online startups, at Cal Poly Pomona. experiencing the full She holds a Ph.D. in lifecycle of a startup MIS , an M.S. in Comp business. He has Science, and an MBA. consulted for major Her research focuses on brands such as user experience, web Macys.com, AIG, development, and and Disney. Internet startups.
  • 3. Presented byNeal CabageCo-AuthorTheSmarterStartup.comneal@TheSmarterStartup.com
  • 4. 5 Things Learned Along the way
  • 5. #5. some people are just lucky “Diligence is the mother of good luck. “ ~ Benjamin Franklin
  • 6. #5. some people are just lucky Is it true?
  • 7. #5. some people are just lucky Diligent Negligent Insight #1 Diligent Negligent Success + + Hard work alone is NOT a reliable Success Successpredictor of success. Hard workingpeople sometimes fail and negligent Diligent Negligent people sometimes succeed. Failure + + Failure Failure
  • 8. #5. some people are just lucky An explanation When asked to focus on counting ball bounces, study participants did not see the 6 ft gorilla. Opportunity was missed because they were too focused on the problem. Dr Richard Simmons called this “Inattention Blindness”.
  • 9. #5. some people are just lucky“Every single person I know who is successful at what they do, is successful because they love doing it.” ~Joe Penna
  • 10. #5. some people are just lucky Insight #2What about the 5 foot tall guy who wants to be in the NBA, or the girl whowants to be a singer but can’t match pitch? Lucky people are good at balancing their passion with their talents, and their opportunities. Passion Talent Opportunity Reality
  • 11. #5. some people are just lucky Insight #3 Focus on helping others with yourtalents, NOT making money. You will naturally be more aligned withsolving people’s problems this way.And that is what people will reward you for.
  • 12. #5. some people are just lucky Lessons learned Opportunity blindness occurs when too business and too focused on problems. Stay positive and follow your intuition. Focus on helping others, not making money.
  • 13. Thing #4Timing is Everything For a startup
  • 14. #4. Timing is Everything For a startup“In the publishing business, you’re either first, you’re fabulous, or you’re f***’ed.“ ~ Anonymous
  • 15. #4. Timing is Everything For a startup Insight #1 New Entr ant Opp or tu n ity Startup opportunity is best early, before a market is Ideal point tosaturated. Too early is equally enter a marketchallenging and high risk of no CHASM adoption. Moore describedthe Chasm as the ‘goldilocks’ Innovators Early adopters Early majority Late majority Laggards time to enter a market. (2.5 %) (13.5 %) (34 %) (34 %) (16 %)
  • 16. #4. Timing is Everything For a startup“As information technology’s power and ubiquity have grown, its strategic importance has diminished ... It is difficult to imagine a more perfect commodity than a byte of data.” Nicholas Carr Harvard Business Review 2003
  • 17. #4. Timing is Everything For a startup $5,000,000 Insight #2 2000 Hosting Commoditized Marc Schuster of GRP Partners 2005 $500,000observed that it now costs 1000x Open Source Software less to build a comparable $50,000business than just 10 years ago! 2009 The Cloud 2012 $5,000
  • 18. #4. Timing is Everything For a startup The problem There are 10x more activehostnames today than in 2005. The new challenge is being significant amidst so much competition!
  • 19. Switch of emphasis over time Insight #1As technology commoditizes, its competitive significance diminishes, and theadvantage shifts to those whocan break through the noise of increased competition. Tech Innovation Marketing
  • 20. #4. Timing is Everything For a startup Lessons learnedGood timing forgives a lot of mistakes. Being too early is the same as being wrong. Technology is key early in innovation lifecyclebut eventually become commoditized.
  • 21. Thing #3you can make moneySelling commodities
  • 22. #3. you can make money Selling commodities “If I went to a group of consumers and asked them if I should sell a $4 cup of coffee, what would they have told me?“ ~ Howard Schultz CEO of Starbucks
  • 23. #3. you can make money Selling commodities $10 $10 Insight Books Books The book someone buys from Acme Books Amazon.comAmazon.com is a commodity. Butthe selection, fast shipping, easyreturn policy, and dependabilityalso add value for the customer.This is value chain augmentation. Which Will She Choose?
  • 24. #3. you can make money Selling commodities Dependability Easy Returns ? Fast Shipping Books Infinite Selection Acme Books Books Amazon.com Which Will She Choose?
  • 25. #3. you can make money Selling commodities Lessons learned Sell your value chain, not the commodity. Focus on increasing intangible value. NEVER compete on price (as a startup).
  • 26. Thing #2optimization can be the difference
  • 27. #2. optimization can be the difference “Never let your (ad) campaigns write checks that your website cannot cash.” ~Avinash Kaushik Google Evangelist
  • 28. #2. optimization can be the difference The problem   CPC   CAC   2006   $0.32     $7.63     Online advertising has become much 2007   $0.62     $6.41     more challenging. Google has made 2008   $0.71     $7.02    SEO difficult, social doesn’t convert, and 2008   $1.03     $12.60    PPC costs are up, reflecting cost margins 2010   $1.24     $13.14     of the largest competitors. How can a 2011   $1.04     $19.74     startup compete? 2012   $0.84     $24.40    
  • 29. #2. optimization can be the difference Insight #1 You must optimize your efforts both strategically and tactically. Use the correct ad channels, optimize your conversion funnel, and retain existing customers to improve lifetime customer value and your margins. Original Advertising Plan x Traffic Optimization x Conversion Optimization x Customer Retention
  • 30. #2. optimization can be the difference Channel Optimization Inbound Outbound Marketing Marketing Firmly define an inbound oroutbound posture. The details of • Relationship Focus • Transaction Focus selecting ad channels, and • Long-Term Client • Short-Term Customer • Low-Cost Purchasemessaging will naturally fall into • High-Cost Purchase • Differentiated (unique) • Competitive place from there.
  • 31. #2. optimization can be the difference Channel Optimization Inbound is about building a brand and nurturing a long term sales funnel. Outbound is about acquiring near term prospects in a high volume market, who are likely to convert quickly. Inbound Outbound Marketing Marketing Guest Paid Prod SEO Social Affiliates Blogging Search Feeds “Pull” “Push”
  • 32. #2. optimization can be the differenceConversion Optimization Look for bottlenecks in yourconversion funnel to repair. Usesplit testing (A/B/n) techniques to discover better convertingforms, design, and messaging. Landing Add Cart Checkout Shipping Receipt
  • 33. #2. optimization can be the difference Customer Retention If you have a longer conversion funnel, don’t expect a conversion on the first visit. Ask for an email address instead of the sale, so you can nurture the lead until ready. First Touch Last Touch Conversion Organic CPC Email $
  • 34. #2. optimization can be the difference Traffic   Conversion   Reten;on     Original   (+100%)   (+25%)   (+100%)   The results Traffic  quan:ty   CPC   Conversion  rate   100   $1.00     2%   200   $0.50     2%   200   $0.50     2.50%   200   $0.50     N/A   Adver:sing  cost   $100     $100     $100     $100     We increased our ROAS by Units  sold   2   4   5   10  500% and went from -28% ROI, Unit  price   $50     $50     $50     $50     Unit  cost   $20     $20     $20     $20    to a healthy 67% ROI. We can Gross  revenue  (sold  *  price)   $100     $200     $250     $500    now buy meaningful traffic to Total  cost  (units  +  ads)   ($140)   ($180)   ($200)   ($300)   Net  profit   ($40)   $20     $50     $200     grow the business. ROAS  (revenue/ad  spend)   100%   200%   250%   500%   ROI  ([revenue-­‐costs]/ads)   -­‐28%   11%   25%   67%  
  • 35. #2. optimization can be the difference Insight #2 You must be able to buy traffic to grow your business. Fortunately you can dramatically improve profitability of your campaigns just by paying attention to the details.
  • 36. #2. optimization can be the difference Lessons Learned Use the right ad channels. Consistent messaging from the ad to your funnel. Look for “friction” in your funnel and fix it. Engage users so they come back to buy later instead of just leaving.
  • 37. Thing #1don’t build a productIn search of a market
  • 38. #1. don’t build a product In search of a market“No business plan survives first contact with customers… Get out of the building and talk to your customers” ~ Steve Blank
  • 39. #1. don’t build a product In search of a market Insight #1 IdeasThe Lean methodology “build, Buildlearn, measure” feedback look Learn is fantastic for optimizing a product concept if approximate customer Product Data demand is know. Measure
  • 40. #1. don’t build a product In search of a market Insight #2 …But Lean is not efficient forearly stage “green field” market discovery. If you find yourself PIVOT AS“pivoting” frequently, then you missed a step! PROCESS
  • 41. #1. don’t build a product In search of a market Insight #3 There must be a more efficient way to discover market opportunity …
  • 42. Introducingthe poem framework
  • 43. The Poem framework A conceptual framework for evaluating market opportunity.Evaluate a concept against five forces to determine market viability. Timing Finance Product 5 Forces of Competition Customer Market Opportunity
  • 44. The Poem framework The Idea Imagine an object inside of a box and only a few holes in the box to look through. If you look through all of the holes however, you can start to construct a rough idea of what is inside.
  • 45. The Poem framework i. Customer FIlter II. Product/Service Filter iii. Economic Filter• Clearly Identifiable Customer [ A-F] • Tight Niche Focus [ ] • Healthy Margins [ ]• Meaningful Problem to Solve [ ] • No Network Effect [ ] • Demand Constraints [ ]• Segmentable market [ ] • Lean Method Viable [ ] • Supply Constraints [ ]• Customer Accessibility [ ] • Team-to-Market Fit [ ] • Sunk Costs [ ]• Customer Loyalty [ ] • Inherent Story (Virality) [ ] • Cash Flow Requirements [ ] Overall Customer Score ____ Overall Product Score ____ Overall Financing Score ____ IV. Timing Filter V. Competition Filter Overall Score• Secular Trend Alignment [ ] • Limited Competition [ ] i. Customer Overall Score [ ]• Recent Innovation Enabler [ ] • Competitor Fitness [ ] ii. Product Overall Score [ ]• Market Inefficiency [ ] • Team Fitness [ ] iii. Financing Overall Score [ ]• Recent Competition Surge [ ] • Defensible Position [ ] iv. Timing Overall Score [ ]• Signs of Commoditization [ ] • Barriers to Entry [ ] v. Competition Overall Score [ ] Overall Timing Score ____ Overall Competition Score ____ Total Overall Score ____
  • 46. The Poem framework The Product Opportunity Evaluation Matrix (POEM) is open source and available via Creative Commons license. Learn more and find resources at: http://PoemFramework.org
  • 47. Thank you!Find the book online Keep In TouchTheSmarterStartup.com nealcabage.comFacebook.com/SmarterStartup neal@TheSmarterStartup.com