Business Model for Startups

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/

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Business Model for Startups

by steve blank

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