Business Models
                                         Steve Blank
                              www.steveblank.com
Clea...
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 coll...
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 ...
Clean Tech Markets - Risk
Air, Water    Energy       Green     Renewables   Smart   Transport
 & Waste     Efficiency   Bu...
Clean Tech Markets - Risk Definitions
Air, Water    Energy         Green       Renewables       Smart       Transport
 & Wa...
Next…

Business Plan Hypothesis
Clean Tech Markets - Hypotheses
Size of Opportunity
Customer
Competition
Sales
                      •   Your business pla...
Clean Tech Markets - Hypotheses
Size of Opportunity
Customer
Competition           •   Size of Opportunity
Sales          ...
Finally…

Your Hypothesis Go Here
Clean Tech Markets
                      Air, Water    Energy       Green     Renewables   Smart   Transport
             ...
Clean Tech Markets
                      Air, Water    Energy       Green     Renewables   Smart   Transport
             ...
Business Plan - Sum of Hypotheses

•   Business plan collects your hypothesis
•   Adds facts as you know them today
•   Co...
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

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
                           ...
Type of Market Changes Everything

        Existing Market             Resegmented            New Market
                 ...
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
         ...
sizing up the market

                       $123 billion tourism
                       industry inside the U.S.



     ...
OLED’s ‐ Billion Dollar Opportunity
     TAM: En@re consumer electronics market                 Our target market is the F...
Distribution Channel

How Does Your Product Get to Your Customer?
+
    Sales Ecosystem
                      Discussion channel
                      Mandate channel
         Sale
       ...
Distribution Channel
                                             Licensed Partners:
                                     ...
Demand Creation

How Do You Drive Demand Into Your Channel?
+
    Demand Creation
       State-by-state rollout: educational standards

       Continuous iteration of feedback

   ...
distribution and demand creation
    Unique Idea: website and iPhone app form
     symbiotic relationship

              ...
Financial Assumptions

What are the Ten Numbers that Matter?
Financial Assumptions

•   Ten Numbers that matter depends on
    your business
     –   Average selling price
     –   Li...
Business Model

How Do The Pieces Work Together?
Bird’s Eye View of our Business Model
  Hardware
   ($155)
                                          Online Distribution
 ...
BUSINESS MODEL
          iPhone Application                 Subscription Based Service


$ 2.99 (x.7)                     ...
   IP license for WiBat
       technology                                         Manufactured
                           ...
Other Investors/Channels

•   Mission Point Capital
    JFink@missionpointcapital.com
•   Westly Group
    http://www.west...
Business Model for Startups
Business Model for Startups
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Business Model for Startups

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

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Business Model for Startups

  1. 1. Business Models Steve Blank www.steveblank.com Clean Tech Open Accelerator 2009, San Jose, California
  2. 2. Iʼm Confused • What is a Business Plan? • How does it differ from a Business Model?
  3. 3. 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
  4. 4. Business Model 1. A diagram that shows all the flows between your company and its customers
  5. 5. But First… Market Risk
  6. 6. Clean Tech Markets Air, Water Energy Green Renewables Smart Transport & Waste Efficiency Building Power
  7. 7. 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?
  8. 8. 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
  9. 9. Next… Business Plan Hypothesis
  10. 10. 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
  11. 11. 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
  12. 12. Finally… Your Hypothesis Go Here
  13. 13. 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
  14. 14. 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
  15. 15. 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
  16. 16. Business Model… Start with the Pieces
  17. 17. 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
  18. 18. Problem/Opportunity Why Are You in Business?
  19. 19. + Pain Points in Inter-District Development of Curricula
  20. 20. Recognize Your Market Type Can Save a Ton of Dollars
  21. 21. Market Type? • Existing Market • Resegment a Niche • Resegment on Low Cost • New Market
  22. 22. 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
  23. 23. 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
  24. 24. How Big is It? So if You Succeed Do I Care?
  25. 25. 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
  26. 26. 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)
  27. 27. 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
  28. 28. Distribution Channel How Does Your Product Get to Your Customer?
  29. 29. + 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
  30. 30. 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
  31. 31. Demand Creation How Do You Drive Demand Into Your Channel?
  32. 32. + 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
  33. 33. 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)
  34. 34. Financial Assumptions What are the Ten Numbers that Matter?
  35. 35. 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
  36. 36. Business Model How Do The Pieces Work Together?
  37. 37. 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)
  38. 38. 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
  39. 39.    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)
  40. 40. 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/
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