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10 business models that can make you $$ and 3 that can kill you

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Understand the difference between sales & marketing methods, pricing, business models and financial models.

Use this financial model components to get your Startup Financial Model venture ready.

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10 business models that can make you $$ and 3 that can kill you

  1. 1. Copyright DKParker, LLC 2016 10 Business Models (+3 that can fail) Dave Parker @DaveParkerSEA www.dkparker.com/blog Dave@dkparker.com http://AddSlideShare
  2. 2. Copyright DKParker, LLC 2016 Agenda  About Dave Methods – Marketing, Sales & Pricing  10 Business Models  3 that can fail  Financial Models  Q&A – Your ideas
  3. 3. Copyright DKParker, LLC 2016 About Dave  5X founder, Board Member and (former) VC, SVP Programs at UP Global (Startup Weekend + Startup America)  CEO – Code Fellows, code school based in Seattle  Husband, Dad & Husky  Startup Week Lead Organizer Nov 14-18 – 150 FREE events
  4. 4. Copyright DKParker, LLC 2016 Context Matters
  5. 5. Copyright DKParker, LLC 2016 Three Methods + Two Models  Marketing Methods – how you get customers to FIND you  Sales Methods – how you SELL your product.  Pricing Methods – how to price your product  Business Models – are the way to monetize, including key metrics  Financial Models – include revenue and expenses. Used for both forecast and actual results
  6. 6. Copyright DKParker, LLC 2016 Marketing & Sales Terms The following apply regardless of business models  Cost of Customer Acquisition (CAC)  Lifetime value of Customer (LTV)  12 month calculation (36 for mature businesses)  LTV:CAC Ratio >5X  Time to close sale  How does this change with product/market maturity?  Churn/Retention
  7. 7. Copyright DKParker, LLC 2016 Marketing Channels and Metrics What are your core assumptions for marketing?  Track all Marketing by channel and $$ spend  Paid, SEO, etc.  Cost to create leads (traffic)  Cost (effort) and % convert to prospects  Cost (effort) and % convert to customers
  8. 8. Copyright DKParker, LLC 2016 OrganicSearch PaidSearch WordofMouth SalesCalls PR Miracles!
  9. 9. Copyright DKParker, LLC 2016 Sales Methods  Web Direct – Advertising and conversion based sales, sales support?, requires customers to search and find  Direct – internal sales people (Inside or Outside), # of deals/Month, salary + commissions  Distribution/Channel Sales – Indirect or external, <# of deals/Month, no Salary, just commission <Mindshare. Fulfill demand, don’t create demand  White Label Sales/Licensing – infrastructure or license sales, long sales cycle, few but targeted customers  Retail – Product on shelves - N/A
  10. 10. Copyright DKParker, LLC 2016 Known Market Unknown Market Low Price Point High Price Point Known Search Words Unknown Search words Web Direct ✔ ✔ ✔ Direct ✔ ✔ ✔ ✔ ✔ Indirect ✔ ✔ ✔ Licensing ✔ ✔ Retail
  11. 11. Copyright DKParker, LLC 2016 Pricing Methods  What do you need to charge to cover:  Cost of build  Cost of Sale  Profit Expectation = Cash flow  Value based pricing – don’t start too low  One time or recurring?  Test, test, test
  12. 12. Copyright DKParker, LLC 2016 Business Models – Pick ONE!
  13. 13. Copyright DKParker, LLC 2016
  14. 14. Copyright DKParker, LLC 2016 1. Subscription  Example: Salesforce , Box, Spotify  Use: B2C & B2B  Key Metrics  Average Revenue Per User (ARPU)  Conversion ratio – e.g. trial to purchase  Churn  Challenges: MVP won’t be enough to be Kick Ass Product  Notes: Highest multiple, forecastable revenue
  15. 15. Copyright DKParker, LLC 2016 2. Commerce  Example: Amazon, AmazonSupply  Use: B2C & B2B  Key Metrics:  Wholesale or cost of goods sold  Average Margin %  Average Basket  Commerce – Physical Goods- Wholesale, cost of goods, retail, average margin, physical good  Notes: Can mature into marketplace
  16. 16. Copyright DKParker, LLC 2016 3. Productize a Service  Your offerings is generally complex and requires services to deploy  Gross margin on Services >35%  Product development comes with services  Use: B2C & B2B  Examples: Moz, service company convert to tools.  Challenges – difficult to make the transition away from services
  17. 17. Copyright DKParker, LLC 2016 4. Transaction Fees/Rental  Example: 99Designs, KickStarter, Elance, Chugg  Use: B2C & B2B  Key Metrics  Average transaction revenue  Fee % per transaction  Number of transactions  Challenges: Margins are small (15%), need efficiency  Notes: Don’t start too low
  18. 18. Copyright DKParker, LLC 2016 5. Lead Generation  Example: Mint.com, AllStarDirectories, NetQuote  Use: B2C & B2B  Key Metrics  Cost to generate traffic  % conversion of form data  Price per lead  Challenges: Highly competitive, barrier of entry is low  Notes: Conversion rates average 0.06%
  19. 19. Copyright DKParker, LLC 2016 6. Gaming  Example: King.com/Candy Crush  Use: B2C Only  Key Metrics:  Downloads  % play  Average in app purchase  Challenges – tends to be “hit driven business”  Notes: use in first 21 days is a predictor of success
  20. 20. Copyright DKParker, LLC 2016 7. Marketplaces  Example: eBay, Alibaba  Use: B2C & B2B  Key Metrics  Average Transaction Amount  Number of Monthly Transactions  Commission %  Challenges: two sided market places require you start with one side, value to seller & Product market fit (x2)  Notes: critical mass or marketplace required
  21. 21. Copyright DKParker, LLC 2016 8. Advertising/Search  Example: Google, Facebook  Use: B2B – advertisers pay, users are free  Key Metrics  Traffic  Click  Avg. revenue/click  Challenges – Scale, need >1M uniques/month to consider the option
  22. 22. Copyright DKParker, LLC 2016 9. New Media  Example: SnapChat, WhatsApp  Use: B2C only  Key Metrics:  K-Factor (Viral Co-efficient)  Network effect of inviting others to join  Challenges – K-Factor is hard. Little revenue until scale  Notes: Everyone wants to! Not happening in B2B
  23. 23. Copyright DKParker, LLC 2016 10. Combinations  Combinations business models happen for two reasons  You don’t know which model is right  At scale you can expand revenue sources  Examples: Hardware sensors + software services to create data analytics  Challenges – most require scale or at least traction
  24. 24. Copyright DKParker, LLC 2016 Three that could cost you everything!
  25. 25. Copyright DKParker, LLC 2016 Three at Scale – Not Launch 1. Multi-sided Marketplaces – Etsy – create products and customers 2. Big Data – PatientsLikeMe is emerging, but requires massive data in advance = massive cash 3. Panels – Toluna, precise groups of customer service research
  26. 26. Copyright DKParker, LLC 2016 Financial Models
  27. 27. Copyright DKParker, LLC 2016 Financial Models Components  Assumptions – from above, converts into #s on forecast  Marketing spend, conversion  Sales – who and how much  Pricing  Product timing, services required  Expenses  Staff  Ops  Build in “Sensitivity Analysis” vs hard coding, plan for time & Product changes
  28. 28. Copyright DKParker, LLC 2016 Example: Subscription Model What can you know or at least estimate?  Price per/sub/month  Marketing spend to estimate Customer Acquisition Cost – CAC  By channel, e.g. $1000 buys you how much traffic  Converts to trials  Converts to paid  Churn %  Time to close the sale
  29. 29. Copyright DKParker, LLC 2016 Example: Subscription Model 2  Expenses  Timing and budget for staff  Department level budget (Cost of Sales vs. G&A)  Fully burdened expenses (taxes, benefits)  Never a % of revenue  Charts  Simplified for your presentation  Used as Forecast and Actual – living document  When you showed it four months ago investor will ask
  30. 30. Copyright DKParker, LLC 2016 Six Financial Model Fails 1. Not knowing your key metrics 2. Top down vs. bottom up revenue 3. Not using accounting terms 4. $100M in 3-5 years (knowing anything in 3-5 years is a guess) 5. Not scaling expenses with revenues 6. Not connecting financial plan to story narrative
  31. 31. Copyright DKParker, LLC 2016 A good financial model shows you were thoughtful and disciplined – but it’s still WRONG
  32. 32. Copyright DKParker, LLC 2016 Want a copy of the Subscription Model? Go to www.VentureReadyModels.com
  33. 33. Copyright DKParker, LLC 2016 Q&A – Your Models
  34. 34. Copyright DKParker, LLC 2016 dave@dkparker.com www.dkparker.com @DaveParkerSEA

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