Technology Venture Creation (ELEC5701)                                             SEPT12assert(CPA < LTV) - the most impo...
Personal experience from startups           OEM        Channel              Enterprise     Consumer                       ...
assert(CPA < LTV)    Even if you could build Twitter/Instagram - in     Australia you’d never get it funded.    Aussie V...
(Ye olde) Funding Model for:Web 1.0, Enterprise S/W, Deep IP, Rockstar Founders      X                                    ...
Lean but not starving -                       revenue is a the best deodorantBEWARE: Of Market Changes, Slow Execution, To...
How to avoid the“trough of despair”?                       Ideas?david DOT jones AT gmail DOT com | skype://djinoz | Cell:...
Revenue is a deodorant      david DOT jones AT gmail DOT com | skype://djinoz | Cell:+61 412 683 111 | @djinoz
Your Product is not your product(Ash Muraya)           The         Actual             Customer         Product            ...
Product vs Sales MatrixProduct needs selling, strong sales piece.                 Product sells itself, strong sales piece...
assert(CPA < LTV)The Metrics you need:• Customer lifetime value (LTV sometimes CLV)• Average revenue per user (per month/y...
The Basic Math•   LTV = ARPU x Average Lifetime of a Customer –    the Cost to Serve them (COGS)•   Where ARPU = Average R...
assert(CPA < LTV)    Engines of Growth•   Paid•   Sticky•   Viral                Credit: Ries                http://www.st...
assert(CPA < LTV)        Paid Engine of GrowthEnterprise spam/virus cloud solution that filters emailARPU: $200 per monthC...
assert(CPA < LTV)     Sticky Engine of GrowthSame solution, but more sticky by offering “archiving”ARPU: $200 per monthCus...
assert(CPA < LTV)    Retention & Churn•   LEAKY BUCKET is the enemy of LTV•   Particularly devastating in Consumer/Social•...
assert(CPA < LTV)        LTV’s in startups•   How can you possibly know LTV at the start?•   Everything in Dave McClures A...
assert(CPA < LTV)        Viral Engine of GrowthAdd a Default Footer: “Filtered by Mail Filter X”ARPU: $200 per monthCustom...
Tip of the day: NONE OF THAT MATTERS       david DOT jones AT gmail DOT com | skype://djinoz | Cell:+61 412 683 111 | @dji...
Validation Tip of the day:Look them deeply in the eye and ask for money             david DOT jones AT gmail DOT com | sky...
Validation Tip of the day:Look them deeply in the eye and ask for money             Because if you can’t get to product/ma...
The Business Model drives the Business PlanProduct Focus: Core UtilityCompany Focus: Right Business ModelThe “right” busin...
david DOT jones AT gmail DOT com | skype://djinoz | Cell:+61 412 683 111 | @djinoz
The Business Model Canvas     david DOT jones AT gmail DOT com | skype://djinoz | Cell:+61 412 683 111 | @djinoz
david DOT jones AT gmail DOT com | skype://djinoz | Cell:+61 412 683 111 | @djinoz
david DOT jones AT gmail DOT com | skype://djinoz | Cell:+61 412 683 111 | @djinoz
david DOT jones AT gmail DOT com | skype://djinoz | Cell:+61 412 683 111 | @djinoz
ThreatMetrix early BM (fail)                         Big Data                         aggregation                         ...
ThreatMetrix 2008-2011                              Per                              Transaction                          ...
Summary: Benefits of BM Canvas • Won’t stop you being deluded • Won’t stop you arguing black==white BUT • Surfaces assumpt...
Drill-in Example 1  Key Partners  Who are our Key Partners?  Who are our key suppliers?  Which Key Resources are we acquir...
Drill-in Example 2Cost StructureWhat are the most important costs inherent in our business model?Which Key Resources are m...
Questions?   david DOT jones AT gmail DOT com | skype://djinoz | Cell:+61 412 683 111 | @djinoz
Paper MVP vs Hacked MVPThe jury is still out but hacked MVPgives more accurate CustDev feedback                        dav...
Focus or FailIf you have limited resources and cash reserves then focus is yourmost valuable discipline – if your hypothes...
Ye Olde Startup Funding Model(too early to talk about but I know your thinking about it)    Market                        ...
New, New Angel Funding Model                                           Naval                                          Ange...
assert(CPA &lt; LTV)  - the most important line of code (AKA Startup Metrics for Convicts-2012)
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assert(CPA &lt; LTV) - the most important line of code (AKA Startup Metrics for Convicts-2012)

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My annual 2012 "startup metrics for pirates" talk for Matt Barrie's Technology Venture Creation class.
Not too much different from 2011 except:
a) I added a matrix from Thiel's recent similar
b) added "engines of growth" examples to be clearer.

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  • Slide #1 comment 10/01/12
  • There is not a deep pool of Australian startup that reach IPO that is profitable for more than a few select investors. Therefore, the Seed/Angel/VC scene is limited – however if companies are building for: Sustainable permanence Tradesale exit These are great outcomes that build an ecosystem of success and attract investors.
  • But….shortage of cash and small customer base means that aussie upstarts don’t evolve when the market changes. There is a point in time where agility/adaption is required because often Aussies startups are first or early to market (good innovators) but often don’t have the financial framework to win the sprint or the marathon.
  • Agility vs schizophrenic
  • A business model describes the rationale of how an organization creates, delivers, and captures value
  • Agility vs schizophrenic
  • assert(CPA &lt; LTV) - the most important line of code (AKA Startup Metrics for Convicts-2012)

    1. 1. Technology Venture Creation (ELEC5701) SEPT12assert(CPA < LTV) - the most important line of codeDavid Joneshttp://slideshare.net/djinoz/@djinoz david DOT jones AT gmail DOT com | skype://djinoz | Cell:+61 412 683 111 | @djinoz
    2. 2. Personal experience from startups OEM Channel Enterprise Consumer EmU Tech200020032004200620092011/2012 High Touch Low Touch
    3. 3. assert(CPA < LTV)  Even if you could build Twitter/Instagram - in Australia you’d never get it funded.  Aussie VCs will look at 150+ deals/year but fund 2-5 companies  Aussie angel increasing but still conservative and sparse.  2012 Update: Maybe Blackbird is a game- changer  Corollary: Aussie startups don’t have luxury of unlimited venture, so frame your “Business Models” from the beginning.
    4. 4. (Ye olde) Funding Model for:Web 1.0, Enterprise S/W, Deep IP, Rockstar Founders X Australia: Not a great track record here david DOT jones AT gmail DOT com | skype://djinoz | Cell:+61 412 683 111 | @djinoz
    5. 5. Lean but not starving - revenue is a the best deodorantBEWARE: Of Market Changes, Slow Execution, Too Few Customers…a common “underfunded aussie story”. X Trough of Despair david DOT jones AT gmail DOT com | skype://djinoz | Cell:+61 412 683 111 | @djinoz
    6. 6. How to avoid the“trough of despair”? Ideas?david DOT jones AT gmail DOT com | skype://djinoz | Cell:+61 412 683 111 | @djinoz
    7. 7. Revenue is a deodorant david DOT jones AT gmail DOT com | skype://djinoz | Cell:+61 412 683 111 | @djinoz
    8. 8. Your Product is not your product(Ash Muraya) The Actual Customer Product Acquisition & Monetization david DOT jones AT gmail DOT com | skype://djinoz | Cell:+61 412 683 111 | @djinoz
    9. 9. Product vs Sales MatrixProduct needs selling, strong sales piece. Product sells itself, strong sales piece. This is a sales-driven company. This is ideal. Product sells itself, no sales effort. Product needs selling, no sales effort. Does not exist. You have no revenue. Credit: Thiel http://blakemasters.tumblr.com/post/22405055017/peter-thiels-cs183-startup-class-9-notes-essay david DOT jones AT gmail DOT com | skype://djinoz | Cell:+61 412 683 111 | @djinoz
    10. 10. assert(CPA < LTV)The Metrics you need:• Customer lifetime value (LTV sometimes CLV)• Average revenue per user (per month/year), or ARPU• Retention rate (monthly, decay function), or r• Churn (the opposite of Retention!)• Average customer lifetime, which is 1 / (1-r)• Cost per customer acquisition, or CPA• Retention cost (customer support, 3rd parties, ops costs) Credit: Thiel http://blakemasters.tumblr.com/post/22405055017/peter-thiels-cs183-startup-class-9-notes-essay david DOT jones AT gmail DOT com | skype://djinoz | Cell:+61 412 683 111 | @djinoz
    11. 11. The Basic Math• LTV = ARPU x Average Lifetime of a Customer – the Cost to Serve them (COGS)• Where ARPU = Average Revenue Per User and Average Lifetime of a Customer = 1/Churn Rate. david DOT jones AT gmail DOT com | skype://djinoz | Cell:+61 412 683 111 | @djinoz
    12. 12. assert(CPA < LTV) Engines of Growth• Paid• Sticky• Viral Credit: Ries http://www.startuplessonslearned.com/2008/09/three-drivers-of-growth-for-your.html david DOT jones AT gmail DOT com | skype://djinoz | Cell:+61 412 683 111 | @djinoz
    13. 13. assert(CPA < LTV) Paid Engine of GrowthEnterprise spam/virus cloud solution that filters emailARPU: $200 per monthCustomers on average stay with you for 18 months.Margin after channel partners and operational costs is 50%The LTV is = 200 * 18 * 50% = $1800You use Google Adwords to acquire users is $500So you are $1300 aheadBut not sticky if Google release free email with filtering (low switch cost) Credit: Thiel http://blakemasters.tumblr.com/post/22405055017/peter-thiels-cs183-startup-class-9-notes-essay david DOT jones AT gmail DOT com | skype://djinoz | Cell:+61 412 683 111 | @djinoz
    14. 14. assert(CPA < LTV) Sticky Engine of GrowthSame solution, but more sticky by offering “archiving”ARPU: $200 per monthCustomers on average stay with you for 36 months.Margin after channel partners and operational costs is 50%The LTV is = 200 * 36 * 50% = $3600You use Google Adwords to acquire users is $500So you are $3100 ahead Credit: Thiel http://blakemasters.tumblr.com/post/22405055017/peter-thiels-cs183-startup-class-9-notes-essay david DOT jones AT gmail DOT com | skype://djinoz | Cell:+61 412 683 111 | @djinoz
    15. 15. assert(CPA < LTV) Retention & Churn• LEAKY BUCKET is the enemy of LTV• Particularly devastating in Consumer/Social• Punters leave before you monetise them• Enterprise tends to be stickier because of corporate dynamics. david DOT jones AT gmail DOT com | skype://djinoz | Cell:+61 412 683 111 | @djinoz
    16. 16. assert(CPA < LTV) LTV’s in startups• How can you possibly know LTV at the start?• Everything in Dave McClures AARRR • (Acquisition, Activation, Retention, Referral Revenue)• In consumer measure rates: • crossing free to paid • In-app purchase rates david DOT jones AT gmail DOT com | skype://djinoz | Cell:+61 412 683 111 | @djinoz
    17. 17. assert(CPA < LTV) Viral Engine of GrowthAdd a Default Footer: “Filtered by Mail Filter X”ARPU: $200 per monthCustomers on average stay with you for 36 months.Margin after channel partners and operational costs is 50%The LTV is = 200 * 36 * 50% = $3600You use Google Adwords to acquire users is $100So you are $3500 aheadOK, not a killer viral engine but you get the idea – just a non-Facebook example ;) Credit: Thiel http://blakemasters.tumblr.com/post/22405055017/peter-thiels-cs183-startup-class-9-notes-essay david DOT jones AT gmail DOT com | skype://djinoz | Cell:+61 412 683 111 | @djinoz
    18. 18. Tip of the day: NONE OF THAT MATTERS david DOT jones AT gmail DOT com | skype://djinoz | Cell:+61 412 683 111 | @djinoz
    19. 19. Validation Tip of the day:Look them deeply in the eye and ask for money david DOT jones AT gmail DOT com | skype://djinoz | Cell:+61 412 683 111 | @djinoz
    20. 20. Validation Tip of the day:Look them deeply in the eye and ask for money Because if you can’t get to product/market fit you will never get to sustained ARPU 1.You will never get initial purchases 2.If you do, the leaky bucket has a big hole. david DOT jones AT gmail DOT com | skype://djinoz | Cell:+61 412 683 111 | @djinoz
    21. 21. The Business Model drives the Business PlanProduct Focus: Core UtilityCompany Focus: Right Business ModelThe “right” business model takes iteration.But this BM framework prescribes whatactivities you SHOULD focus on(the business plan being covered by Ryan Junee) david DOT jones AT gmail DOT com | skype://djinoz | Cell:+61 412 683 111 | @djinoz
    22. 22. david DOT jones AT gmail DOT com | skype://djinoz | Cell:+61 412 683 111 | @djinoz
    23. 23. The Business Model Canvas david DOT jones AT gmail DOT com | skype://djinoz | Cell:+61 412 683 111 | @djinoz
    24. 24. david DOT jones AT gmail DOT com | skype://djinoz | Cell:+61 412 683 111 | @djinoz
    25. 25. david DOT jones AT gmail DOT com | skype://djinoz | Cell:+61 412 683 111 | @djinoz
    26. 26. david DOT jones AT gmail DOT com | skype://djinoz | Cell:+61 412 683 111 | @djinoz
    27. 27. ThreatMetrix early BM (fail) Big Data aggregation Confere & combine nces Security Security Vendors Vendors Ummm? (2-sided market problem) BotNet Detection BizDev will makeCERTS Security Banks? you more& incident/in secure eCommeGovernm fection rce? data Business White Label Telcos Developm OEM in ent Security Products Super Super Talented Talented Large Data Flat Monthly Security Program Staff Processing Reqs Can this Scale? Fee (peril of mers (boil the ocean OEM) problem) david DOT jones AT gmail DOT com | skype://djinoz | Cell:+61 412 683 111 | @djinoz
    28. 28. ThreatMetrix 2008-2011 Per Transaction Webinars/De Research/ Assessment DM mos/Evals Conferences eCommerce Data Close/Custo Center Marketing Realtime Support mer Service Evangelism SaaS Fraud Social & Awareness Device Protection for Dating Intelligenc eCommerce BizDevGeo DataProvider e Clouds Payment Banks Service Software ProcessorsSecurity Credit CardData Customer Companies Transactions Resellers in are accretive new Territories Super Super Large Data Upfront Processing Reqs Talented Talented Purchase Autorenew Program Security Transaction mers Staff Blocks david DOT jones AT gmail DOT com | skype://djinoz | Cell:+61 412 683 111 | @djinoz
    29. 29. Summary: Benefits of BM Canvas • Won’t stop you being deluded • Won’t stop you arguing black==white BUT • Surfaces assumptions • Structures dependencies • Scopes debate • Use it to test the logic of a new activity david DOT jones AT gmail DOT com | skype://djinoz | Cell:+61 412 683 111 | @djinoz
    30. 30. Drill-in Example 1 Key Partners Who are our Key Partners? Who are our key suppliers? Which Key Resources are we acquiring from partners? Which Key Activities do partners perform? motivations for partnerships: Optimization and economy Reduction of risk and uncertainty Acquisition of particular resources and activities david DOT jones AT gmail DOT com | skype://djinoz | Cell:+61 412 683 111 | @djinoz
    31. 31. Drill-in Example 2Cost StructureWhat are the most important costs inherent in our business model?Which Key Resources are most expensive?Which Key Activities are most expensive?is your business more:Cost Driven (leanest cost structure, low price value proposition,maximum automation, extensive outsourcing)Value Driven ( focused on value creation, premium value proposition)sample characteristics:Fixed Costs (salaries, rents, utilities)Variable costs Economies of scaleEconomies of scope david DOT jones AT gmail DOT com | skype://djinoz | Cell:+61 412 683 111 | @djinoz
    32. 32. Questions? david DOT jones AT gmail DOT com | skype://djinoz | Cell:+61 412 683 111 | @djinoz
    33. 33. Paper MVP vs Hacked MVPThe jury is still out but hacked MVPgives more accurate CustDev feedback david DOT jones AT gmail DOT com | skype://djinoz | Cell:+61 412 683 111 | @djinoz
    34. 34. Focus or FailIf you have limited resources and cash reserves then focus is yourmost valuable discipline – if your hypothesis wrong at least you “fail fast” Don’t let Perfect be the Enemy of the Good (picture credit: Mick Liubinskas/Pollenizer) david DOT jones AT gmail DOT com | skype://djinoz | Cell:+61 412 683 111 | @djinoz
    35. 35. Ye Olde Startup Funding Model(too early to talk about but I know your thinking about it) Market Team Product Market Team Product @djinoz david@dealsta.com.au
    36. 36. New, New Angel Funding Model Naval AngelList @djinoz david@dealsta.com.au

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