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Game-Changing Business Models

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Startup Secrets presents a lecture on how to build a game-changing business model for your unique startup. Business models can be just as disruptive as technology!

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Game-Changing Business Models

  1. 1. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models Game-Changing Business Models startupsecrets.com
  2. 2. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models Workshops Full descriptions of each at startupsecrets.com 1. What’s Your Roadmap to Success? 2. Building a Compelling Value Proposition 3. Turning Products into Companies 4. Culture, Mission and Vision 5. Hiring A+ Talent 6. Game-Changing Business Models 7. Go to Market Strategies 8. Getting Behind the Perfect Investor Pitch 9. Funding Strategies to go the Distance 10. Have You Got What It Takes? 11. Mastering Mutual Mentorship
  3. 3. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models Introductions & Case Examples  Established • Google  Startup • Acquia • Demandware  Not-for-profit • One Laptop Per Child • Diagnostics For All (on the web) 3
  4. 4. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models Agenda 1. Finding a Disruptive Business Model 2. Focusing on CORE differentiation 3. Multiply and Leverage it with innovation 4. Designing for high value 4
  5. 5. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models What is your model for: • Creating • Delivering • Harnessing VALUE? 5 5 Business Model: How Do You Make Money?
  6. 6. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models Today Let’s get creative and think specifically about startups! 6
  7. 7. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models Business Model as a Disruptor  Why? • Time to market • Market adoption • Sustainability  Connecting the dots for you, as a founder: • Spend • Cash efficiency • Your ownership • Valuation 7
  8. 8. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models The Perfect Startup Storm 8 Disruptive Business Model Disruptive Technology New Market & GTM
  9. 9. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models How can your Business Model…  Change the game?  Rewrite the rules?  Cause an innovator’s dilemma  Be as disruptive as your technology? 9 New Game New playing field New boundaries New rules YOU choose players
  10. 10. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models Symantec Antivirus for Mac (SAM) Best seller – Licensed Product Norton Antivirus for PC (NAV) How to change the game Best seller – Subscription Service Example 1: Symantec – Many Years Ago! 10
  11. 11. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models  Dramatic!  Game changing • Flipped the model on it’s head  Competitors caught off guard • Predictable profitable business model  Led to solution leadership vs. battle: “Data Security” • Customer need met more effectively • More value extracted • 1.5 product / seat => 2.6x 11 Results?
  12. 12. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models  Off balance sheet Publisher of US products • Investment in Management, Sales, Marketing, Support, Translation & Localization  Acquired back by US corporation when profitable • Pooling of interest • Non-dilutive • Growing earnings  Symantec example Win / Win 12 Example 2: European Software Publishing
  13. 13. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models  Win / win / win • Customers = better local product, support, services • Publishers = accelerated, off balance sheet setup of profitable business • Shareholders = 97x return on original investment  Non-technology disruptive business model • Economies of scale • Pooling of interests (tax) • Time shifting expense → Accretive outcome 13 Results?
  14. 14. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models  Shared ownership (Zipcar)  Flash sales (Vente Privee)  Crowd sourcing (uTest)  Lead Gen (Mint.com)  Virtual goods/currencies (Tapjoy)  Combinations • Acquia - OSS, SaaS • AirBnB - Commission on P2P rentals • Demandware - SaaS, success based rev share • Groupon - broker, revshare • Spotify -adbased, freemium 14 Sample Models
  15. 15. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models  Process or Product?  Software or Services?  Open or Proprietary?  Content or Data?  Freemium or Premium?  Subscription or License? 15 Business Model – Sample Questions
  16. 16. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models First key question! What is Your CORE Value? 16 Capabilities Of Really Exceptional Value Focus on it! C.O.R.E. Value
  17. 17. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models Where is your CORE value?  Software/other technology  Data  Content  Service, support  User network Disruptively monetize it! • To your competitive advantage • Where are others most vulnerable? 17 CORE Cut to the CORE!
  18. 18. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models  Google Apps vs. Microsoft office • What is the C.O.R.E for each?  Software, Data, Advertising?  Don’t compete head-on • Microsoft Office = enterprise market • Google Apps = consumer market • Free vs. $500 license • Simple vs. Complicated • 80% solution vs. Professional Tool 18 Example 1: Apps
  19. 19. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models How can you compete with a market leader who has 80% to 90% market share? 1. Don’t compete head-on 2. Innovators Dilemma – go for low end 3. Disruptive technology, business model, or market approach 4. Examples: Gmail, Google Apps, Chrome 19 Competing with Market Leaders
  20. 20. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models  Apple vs. Google • What is the C.O.R.E for each?  Hardware, Software, Content?  Others in Ecosystem • Samsung, HTC  Alternative approaches • Amazon 20 Example 2: Mobile
  21. 21. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models Who is winning? Why? Is technology the difference? Apple, Google, & Microsoft strategies • Always play to your strength • Apple Mac, Google Search, Microsoft Windows 21 Android vs. iPhone
  22. 22. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models Disrupt the market leader • Apple disrupted carriers and manufacturers  Verizon, Sprint, Nokia, Motorola, RIM, Symbian • Android allowed them to fight back Disruptive business model • Android is free • Advertising business model • Search, Maps, Local, Wallet, YouTube 22 Android vs. iPhone
  23. 23. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models Business Models Matter! 23 Don Dodge dondodge@google.com
  24. 24. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models Creating Value
  25. 25. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models 25 Startup Secret! Co-Creating Value  Be Open and Extensible (e.g., Software APIs) • Enabling external multipliers to your value • Building on yourself • Eating your own cooking • Being your own customer
  26. 26. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models  Be Open and Extensible (e.g., Software APIs) • Enabling external multipliers to your value • Building on yourself • Eating your own cooking • Being your own customer  Open Source • Leverage through community • Make the customer the product manager  Scratching their own itch 26 Startup Secret! Co-Creating Value
  27. 27. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models Dries Buytaert Founder and Project Lead Drupal Co-Founder and CTO Acquia http://buytaert.net @Dries 27
  28. 28. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models Meet Dries 12 years ago when he started work on Drupal ... 28 Compiler books Collection of stamps Chess board Assembly books All furniture is from IKEA Student dorm in Antwerp where I started Drupal
  29. 29. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models 1 out of 50 websites in the world 10,000+ modules 300,000+ downloads/month 1.5M unique visitors/month FREE 29
  30. 30. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models 71 of the World's Top 100 Universities Use Drupal 30
  31. 31. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models 1. Freedom to run the program 2. Freedom to study the program 3. Freedom to modify the program 4. Freedom to re-distribute the program 31 Open Source is a Software License
  32. 32. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models Drupal Wins Because it is Less Expensive … Yet Technically Superior! 32
  33. 33. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models Open Source Collaboration 33
  34. 34. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models 3,800 people contributed to Drupal 8 Open Source is not just a software license, it is also a development model 34
  35. 35. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models Open Source Collaboration Community 35
  36. 36. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models 36
  37. 37. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models Open Source Collaboration Community Innovation 37
  38. 38. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models Technically Superior 38
  39. 39. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models “Creative Destruction” Joseph Schumpeter 39 Joseph Schumpenter Economist, 1883-1950 Drupal and Open Source are Catalysts for “Creative Destruction” - Changes how we develop software - Changes how we build websites - Changes a multi-billion dollar industry - Open Source enables business model innovation - Bonus: allows people to do well, and do good
  40. 40. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models Delivering & Capturing Value
  41. 41. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models Multiply and Leverage your CORE Multipliers: • Increase revenue • Increase reach • Increase coverage Levers: • Reduce time • Reduce costs • Reduce resources CORE Levers Multipliers Startup Secret! Multipliers and Levers 41
  42. 42. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models Multipliers: • Added functionality • Community reach Levers: • Community development • Community marketing CORE Levers Multipliers Multiply AND Leverages CORE Drupal and Open Source 42
  43. 43. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models Multiplier Examples: • Sales & Marketing – Tiered Pricing – Freemium – Channel partners • Product – Slippery products * – “Russian Doll” Packaging * – Technology stacks Lever Examples: • Sales & Marketing – Web – Inside – Inbound – Viral • Product, Support – Offshoring – Outsourcing – Crowdsourcing – Co-creation * – Technology stacks * Covered in this presentation Examples in Software: CORE Levers Multipliers 43 Startup Secret! Multipliers and Levers
  44. 44. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models  Strategies that enable Multipliers and Levers to work together around your CORE are the real winners 44 Get Multipliers and Levers Working Together!
  45. 45. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models Acquia
  46. 46. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models • Provider of cloud-based solutions and support for enterprises using the open source product Drupal • 2000+ customers • 250+ employees • 150% 4 year CAGR • Global operations • Highly predictable and repeatable model • Land and expand strategy 46 Acquia at A Glance
  47. 47. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models Acquia Business Model  Drupal is FREE  It is also Open Source  So how do you make money from FREE and Open IP? 1. Create valuable products and services around the CORE of Drupal 2. Use FOSS as multiplier and a lever in R&D, sales and marketing 47
  48. 48. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models Acquia Products Around Drupal CORE C OMMU N ITY C OMMER C EC ON TEN T Enterprise Site FactoryDrupal Gardens Managed DeploymentsAcquia Cloud Drupal Management SuiteAcquia Network Drupal Training Professional Services 48
  49. 49. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models As a multiplier AND a lever (in R&D, sales, marketing, and more) 49 Example Multipliers: • Upsell value added products & services • Cloud & SaaS Example Levers: • Target installed base • Expand usage through partners CORE Levers Multipliers Free and Open Source Software (FOSS)
  50. 50. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models One More Thing… 50
  51. 51. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models  Product feeds the business model: • User experience • Supportability • Maintenance, updates (= lifecycle) • Upgrades • Upsells  Leads to two startup secrets: • Russian Dolls and SLIPPERY products 51 Designing for Success…
  52. 52. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models • Simple • Low to no initial cost • Installs easily • Proves value quickly • Plays well with others • Easy to use • ROI is obvious • Your customers can’t live without it Think of how this improves the Gain/Pain Ratio in our Value Proposition Workshop Gain Pain 52 Startup Secret! Friction Free, SLIPPERY Products
  53. 53. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models  Simple: Update your site from the browser  Low to no initial cost: free  Installs easy: Windows/Mac installers + SaaS  Proves value quickly: Distributions + Start using immediately  Plays well with others: Lots of integrations with other platforms  Easy to use: Web-based  ROI is obvious: Better, faster, cheaper  Your customers can’t live without: flexibility and extensibility 53 What makes Drupal SLIPPERY?
  54. 54. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models  Multi purpose strategy • Packaging • Pricing • Distribution • And more! 54 Startup Secret! Build a Russian Doll
  55. 55. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models Incent 55 Free
  56. 56. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models Freemium 56 Limited Free
  57. 57. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models OEM Solution 57 Limited Personal Free
  58. 58. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models Premium 58 Limited Personal Workgroup Free
  59. 59. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models Sales Enabler 59 Limited Personal Workgroup Corporate Free
  60. 60. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models Free Adoption 60 Limited Personal Workgroup Corporate Enterprise
  61. 61. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models “Addiction before Adoption” Gives you, your partners and your customers:  Digestible starting point  Up-sell Options  Channel Flexibility …and more 61startupsecrets.com Startup Secret! Build a Russian Doll
  62. 62. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models Acquire On-board Upsell / Cross Sell Acquia example = increasing LTV “Land & Expand” 62 $0 $100 $200 $300 $400 2009 2010 2011 2012(e) LTV “Addiction before Adoption” Startup Secret! Build a Russian Doll
  63. 63. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models Create, Deliver and Harness Value Putting it All Together 63
  64. 64. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models  Lifetime Value of Customer (LTV)  Cost of Acquiring Customer (CAC) 64 CORE Levers Multipliers LTV ~3x > CAC Basic Startup Model
  65. 65. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models  Repeatable  Scalable – with leverage  Profitable / Sustainable  Predictable  Valuable 65 What makes for a GREAT business model?
  66. 66. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models Development Target Gross Margin 80% R&D 100%+ 15% Sales & Marketing 10% G&A 45% Profit (Loss) -100% 20% 66 • Example: – Phases of a software company Percent of Revenue Spent
  67. 67. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models Expenses as Percentage of Revenue 62% 61% 53% 43%48% 29% 21% 19% 43% 50% 45% 44% 19% 14% 11% 11% L/T Model based on profitable subscription based software company 62% 48% 43% 19% 51% 29% 65% 14% 11% 45% 21% 53% 44% 19% 44% 11% 10% 35% 15% 25% 67
  68. 68. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models • Today: – 70% of all bookings are renewable subscriptions – 30% are consulting services (key differentiator) – 85%+ annual renewal rate for non-project work • Long-term Model: – 80% renewable subscriptions – 20% consulting services – 90% annual renewal rate for non-project work Highly Predictable and Repeatable Financial Model 68
  69. 69. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models New Geographies New Partners New Verticals Potential M&A Cross-sell Up-sell New Sites New Products New Customers Existing Customers Result: Disruptive Business Model for Continued Growth Total Revenue 69
  70. 70. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models Valuable
  71. 71. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models 2013 Revenue Multiples Median 5.2x Valuations - SaaS 71
  72. 72. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models 2012-2013 Revenue Growth Valuations - SaaS 2013 Revenue Multiples Median 5.2x 72
  73. 73. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models Valuations - SaaS 73
  74. 74. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models Valuations - SaaS 74
  75. 75. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models Retention (Renewal) 75
  76. 76. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models 14x leverage! Upsell 76
  77. 77. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models  Lifetime Value of Customer (LTV)  Cost of Acquiring Customer (CAC) 77 CORE Levers Multipliers LTV ~3x > CAC Basic Startup Model
  78. 78. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models The Model Refined – Enabling Retention & Upsell  Lifecycle Value of Customer (LCV)  Cost of Acquiring & Re-Engaging Customer (CARC) 78 CORE Levers Multipliers Re-Trial Up-sell
  79. 79. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models Re-engagement Costs  Must be included in CARC  Example: • Support • Customer Service • Professional Services 79
  80. 80. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models Connecting it to Gain/Pain  They are two views of the same principle: • Customer view = Gain/Pain • Vendor view = LCV/CARC 80 CORE Levers Multipliers Re-Trial Up-sell
  81. 81. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models Start as You Plan to Finish... 81
  82. 82. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models A Typical Product Lifecycle But it doesn’t have to be this way ! 82 See Try Buy Fly Die Long, costly (CAC), slow payback, short lifetime value (LTV)
  83. 83. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models Adding Retention and Upsell 83 See Try Buy Fly Die Re-TrialUp-sell Extended Lifecycle Long, costly (CAC), slow payback, EXTENDED lifetime value (LTV)
  84. 84. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models Web Self service On demand SaaS Subscription Open source A Disruptive and Valuable Lifecycle See Try Buy Fly Die Up-sell Extended Lifecycle Re-Trial Up-sell Extended Lifecycle Short, low cost (CARC), quick payback, extended lifecycle value (LCV) 84 Re-Trial
  85. 85. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models Applied to Software  Installed by IT  Customized  Infrequent upgrades  Proprietary  License 85 1990+ 2010+  On demand, SaaS  Web based  Self service  Open Source  Subscription Web Self service On demand SaaS Subscription Open source Up-sell Extende d Lifecycl e Up-sell Extende d Lifecycl e short, low cost (CAC), quick payback, EXTENDED lifetime value (LTV) Re-Trial …a fundamentally disruptive and more valuable business model!
  86. 86. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models Demandware Pre-IPO
  87. 87. 94
  88. 88. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models Summary  Disruptive Business Model – as significant as Technology  Focus on CORE differentiation  Multiply and Leverage it with innovation like:- • Co-Creation • Strategic Partners • Russian Doll Packaging • And Friction Free, SLIPPERY products  Design for high value using LCV & CARC 98
  89. 89. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models info@startupsecrets.com
  90. 90. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models Game-Changing Business Models startupsecrets.com

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