Business Model for Startups
 

Business Model for Startups

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Steve Blank on how to think about assembling a business model for a startup

Steve Blank on how to think about assembling a business model for a startup

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    Business Model for Startups Business Model for Startups Presentation Transcript

    • Business Models Steve Blank www.steveblank.com Clean Tech Open Accelerator 2009, San Jose, California
    • Iʼm Confused • What is a Business Plan? • How does it differ from a Business Model?
    • Business Plan 1. A document your investors make you write that they don’t read 2. A useful place for you to collect your guesses about your business • Size of Opportunity • Customers • Channel • Demand Creation • Revenue/Expenses/Profit
    • Business Model 1. A diagram that shows all the flows between your company and its customers
    • But First… Market Risk
    • Clean Tech Markets Air, Water Energy Green Renewables Smart Transport & Waste Efficiency Building Power
    • Clean Tech Markets - Risk Air, Water Energy Green Renewables Smart Transport & Waste Efficiency Building Power • Which markets have technology risk? • Which markets have customer risk? • Which have both?
    • Clean Tech Markets - Risk Definitions Air, Water Energy Green Renewables Smart Transport & Waste Efficiency Building Power • Technology Risk – risk is in development of the product (i.e. fuel cells, thin-film arrays, etc.) then customers automatically adopt • Customer risk – risk is in customer and market adoption • Which have both? • You spend your time differently depending on risk
    • Next… Business Plan Hypothesis
    • Clean Tech Markets - Hypotheses Size of Opportunity Customer Competition Sales • Your business plan is a set of untested Marketing hypothesis Biz Dev • What are they? Customer Dev Bus/Rev Model • How do you test them? IP/Patents • How do you execute them? Regulatory Time to Market Prod Dev Model Manufacturing Team Seed Financing Follow-on Liquidity
    • Clean Tech Markets - Hypotheses Size of Opportunity Customer Competition • Size of Opportunity Sales – TAM, SAM Marketing • Customer Biz Dev – Who’s the end user? Economic buyer? Reimburser? Customer Dev • Sales Bus/Rev Model – What’s the distribution channel? IP/Patents • Marketing Regulatory – How do you create end-user demand Time to Market • Customer Development Prod Dev Model – How do you test your hypothesis Manufacturing • Business Model Team – How do all the parts work to create profits? Seed Financing • Financing Follow-on – What is the path to cash flow positive Liquidity
    • Finally… Your Hypothesis Go Here
    • Clean Tech Markets Air, Water Energy Green Renewables Smart Transport Waste Efficiency Building Power Size of Opportunity Customer Competition Sales Marketing Biz Dev Customer Dev Bus/Rev Model IP/Patents Regulatory Time to Market Prod Dev Model Manufacturing Team Seed Financing Follow-on Liquidity
    • Clean Tech Markets Air, Water Energy Green Renewables Smart Transport Waste Efficiency Building Power Size of Opportunity Customer Competition Sales Marketing Biz Dev Customer This Is Important Development Bus/Rev Model IP/Patents Regulatory Time to Market Prod Dev Model Manufacturing Team Seed Financing Follow-on Liquidity
    • Business Plan - Sum of Hypotheses • Business plan collects your hypothesis • Adds facts as you know them today • Contains a plan of how to turn hypothesis into facts • Extrapolates results if hypothesis turn into facts • Has a business model which is clearly articulated
    • Business Model… Start with the Pieces
    • Business Model • Goal is to get to a single diagram of your business • Start by drawing pieces of your business – Problem/Opportunity – Market Size – Distribution Channel – Demand Creation – Financial assumptions • Then put it all together
    • Problem/Opportunity Why Are You in Business?
    • + Pain Points in Inter-District Development of Curricula
    • Recognize Your Market Type Can Save a Ton of Dollars
    • Market Type? • Existing Market • Resegment a Niche • Resegment on Low Cost • New Market
    • Definitions: Types of Markets Existing Market Resegmented New Market Market • Existing Market – Faster/Better = High end • Resegmented Market – Niche = marketing/branding driven – Cheaper = low end • New Market – Cheaper/good enough can create a new class of product/customer – Innovative/never existed before
    • Type of Market Changes Everything Existing Market Resegmented New Market Market • Market • Sales – Market Size – Sales Model • Customers – Cost of Entry - Needs – Margins – Launch Type – Sales Cycle - Adoption – Competitive – Chasm Width Barriers – Positioning • Finance - Ongoing Capital - Time to Profitability
    • How Big is It? So if You Succeed Do I Care?
    • Total Available Market, Served Available Market, Target Market TAM = how big is the universe Total Available Market Served Available Market Target SAM = how many can I reach Market with my sales channel Target Market (for a startup) = who will be the most likely buyers 25
    • sizing up the market $123 billion tourism industry inside the U.S. $1 billion English travel guides sold annually $210 million 20-35 year old travelers SF (Initial test market)
    • OLED’s ‐ Billion Dollar Opportunity TAM: En@re consumer electronics market Our target market is the Flat ($790 million) SAM: Size of TV market Panel display market. ($500 million!) Target products: Camcorders, DVD Target Mkt: $155 players and recorder, digital cameras, million! computer monitors, LCD and Plasma TV Apex: ≥ 3.5M OLED TV market will grow to $15.29 billion by 2015 YEAR 1 PROJECTIONS Units sold : 1,000,000 Price per unit : $700 - $1,000 Revenue from Royalties (assuming .5-1.0% of shelf price): Worst case = $3,500,000 Best Case = $10,000,000
    • Distribution Channel How Does Your Product Get to Your Customer?
    • + Sales Ecosystem Discussion channel Mandate channel Sale Superintendant Another District district IT Director Engagement (Early Stages) School Dept. Head Another school in the district Teacher Teacher
    • Distribution Channel Licensed Partners: • Sony Consumer electronics • Samsung • Flat Screen TVs through (Other possibilities - LG, Toshiba, Panasonic, DuPont) Fry’s, Best Buy, Magnolia, etc IP A P Patents Manufacturing DistribuDon Retail E X 2 patents owned by Apex! Partners’ distribution channels • Technology patent - SOLED • Sony • Long-Brite and inkjet printing process • Samsung (Other possibilities - LG, Toshiba, Panasonic, DuPont) Dollar flows: Wages: founders & Consultants PA IP Costs: Lawyer A P License fees RT NE & Patent costs. RS E Royalties Premises: Dev’t labs. X
    • Demand Creation How Do You Drive Demand Into Your Channel?
    • + Demand Creation  State-by-state rollout: educational standards  Continuous iteration of feedback CA Pilot Broad Grow Adoption Adoption  Hypotheses: Will  Hypotheses: Will  Hypothesis: How they adopt, use, they buy hands- well does it sell and pay? off? Can it scale? itself?  10 schools f2f:  CA telemarket  All telemarket  Sales: $1,066  F2f elsewhere  $533/dist  Travel: $1,000
    • distribution and demand creation  Unique Idea: website and iPhone app form symbiotic relationship Travel AdWords App traffic Listing TravelSpy.com iPhone App traffic Blogs (ex. Magazines Travelblog.org)
    • Financial Assumptions What are the Ten Numbers that Matter?
    • Financial Assumptions • Ten Numbers that matter depends on your business – Average selling price – Life time value – Material cost – Distribution channel cost – Customer Acquisition cost – Time to market – Time to cash flow positive – Etc. • Do this before 45 pages of financials
    • Business Model How Do The Pieces Work Together?
    • Bird’s Eye View of our Business Model Hardware ($155) Online Distribution • Own website ($208+.3x) Customer • Amazon.com ($40+32x) • eBay ($300+25x) Acquisition Target Market Cost: ($41) Demand Creation Viral MyNote • SEO/SEM ($156.00) Marketing • Blogs • Forums • Bookstore promotion • Sales force • Viral marketing Offline Distribution • Website $399.99 • College bookstores ($0.02) Software (in-house) ($1.00)
    • BUSINESS MODEL iPhone Application Subscription Based Service $ 2.99 (x.7) $ 5/month Year 1: $ 40K END-USERS END-USERS Year 1: $ 50K Year 2: $1M Year 2: $1.2 M C E SE VI E NU R RV RE SE VE IC V E EN RE Third Nightlife UE party venues affiliates CITYBEATS.COM Two Revenue Streams March | 2011 Total Revenue (year 1) = $ 90 K Critical Mass: 500,000 users Total Revenue (year 2) = $ 2.2 M
    •    IP license for WiBat technology Manufactured Smaller Router Product $3.01 companies Distributors ie Netgear, $60.19 ie Windsor Meru Product Delivery Planet Batteries $93.75 Retail Stores i.e. Best Buy, Fry’s End User $125 Sale Corporate Investors •Partner router companies •Intel (they are interested in End Users wireless technology) i.e. college students (See appendix E for figures)
    • Other Investors/Channels • Mission Point Capital JFink@missionpointcapital.com • Westly Group http://www.westlygroup.com/ • California Public Utilities Commission http://www.cpuc.ca.gov/SMBUS/