Value Propositions and Billion Dollar Startup Club

1. A/Prof Jeffrey Funk Division of Engineering and Technology Management National University of Singapore For information on value propositions for specific startups and established firms, see http://www.slideshare.net/Funk97/presentations. For information on technology change, see http://www.slideshare.net/Funk98/presentations.

2.  Value from products and services ◦ Benefits ◦ Features ◦ Good experiences  And they want value that matches their ◦ Wants ◦ Needs  And they want more value than substitutes provide Give me value! Fish don’t need a bicycle

3. Products Must Provide More Value than do Substitutes

4.  Simple examples ◦ E-commerce is based on different concept than brick and mortar stores ◦ Smart phones are based different concept (browser, apps, mail) than are previous phones (voice and messages)  Other examples ◦ Drones, wearable health, augmented reality, smart devices ◦ Cloud computing, Big Data, Internet of Things ◦ Social networking, online games, YouTube ◦ Apps to book taxis, order groceries, reserve rooms, make payments, and do messaging

5.  Hard to say  It’s kind of like good art ◦ I know it when I see it  Or kind of like beauty ◦ Its all in the beholder  Can we do better than this? ◦ Can we better explain a good value proposition? ◦ So that we can look for and develop good value propositions?

6. Time Performance Is it really so simple? Or is a new value proposition more complicated? Slowdown Acceleration The Conventional Wisdom

7.  How different are value propositions of old and new technologies? ◦ Can dimensions of performance be defined? ◦ If so, was there a change in one, two, three, or more dimensions?  What about customers, who are they? ◦ From the customer’s perspective, did the new technology change or require a large change in their behavior?

8.  Investigate value propositions of new technologies currently being implemented, ones that are having a large impact on our world  Examples of these value propositions can be found in members of Billion Dollar Startup Club  For each member, consider new and old technologies: ◦ What is change in technology? ◦ Who are the customers? ◦ What is change in value proposition?  Are the VPs different in one or multiple dimensions?  Do the VPs change or require changes in user behavior?

9.  Global Startups (sometimes called Unicorns) ◦ valuations over $1 Billion ◦ still private (no IPO yet) ◦ have raised money in past four years ◦ at least one venture capital firm as investor  122 firms as of 25 September 2015 ◦ With 21 other startups that recently exited (IPOs, acquisitions or decreasing value), total of 143 firms  High valuations mean investors believe these firms offer something valuable, unique, hard to copy  Some of them will ◦ lead to “creative destruction” ◦ have $100 Billion plus market capitalizations in the future, like the strongest hi-tech startups: Apple, Google, Amazon, and Microsoft

10. Company Latest Valuation Total Equity Funding Last Valuation Uber $51.0 billion $7.4 billion August 2015 Xiaomi $46.0 billion $1.4 billion December 2014 Airbnb $25.5 billion $2.3 billion June 2015 Palantir $20.0 billion $1.6 billion October 2015 Snapchat $16.0 billion $1.2 billion May 2015 Didi Kuaidi $16.0 billion $4.0 billion September 2015 Flipkart $15.0 billion $3.0 billion April 2015 SpaceX $12.0 billion $1.1 billion January 2015 Pinterest $11.0 billion $1.3 billion February 2015 Dropbox $10.0 billion $607 million January 2014 WeWork $10.0 billion $969 million June 2015 Lufax $9.6 billion $488 million March 2015 Theranos $9.0 billion $400 million June 2014 Spotify $8.5 billion $1.0 billion April 2015 DJI $8.0 billion $105 million May 2015 Zhong An Online $8.0 billion $934 million June 2015 Meituan $7.0 billion $1.1 billion January 2015 Square $6.0 billion $495 million August 2014 Stripe $5.0 billion $290 million July 2015 ANI Technologies (Ola Cabs) $5.0 billion $903 million September 2015 Snapdeal $5.0 billion $911 million August 2015 Stemcentrx $5.0 billion $250 million September 2015 Zenefits $4.5 billion $596 million May 2015 Cloudera $4.1 billion $670 million March 2014 Dianping $4.0 billion $1.4 billion March 2015 The Top 25 Firms as of 25 September, 2015

11. Category U.S. Europe China India Other Total Software 38 1 2 41 E-Commerce 12 3 9 2 2 28 Consumer Internet 18 6 7 2 4 37 Financial 7 4 3 1 15 Hardware 7 2 1 10 Bio-tech, bio- electronics 7 1 8 Energy 2 2 Space 1 1 Retail 1 1 Total 92 14 22 6 9 143 Number of Startups, by Category and Country Most are Internet Related (121) Note: the descriptions by the Wall Street Journal and other sources were used to redefine some of the startups and to combine smaller categories into larger categories

12. 0 5 10 15 20 25 30 before 2001 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Number of Startups Founded by Year and Category software consumer internet e-commerce financial hardware

13.  Starting with E-commerce ◦ Followed by financial, consumer Internet, software, and bio-tech/electronic startups  What is change in technology?  What is change in value propositions? ◦ Are the VPs different in one or multiple dimensions? ◦ Do the VPs change or require changes in user behavior?  What about customers, are they different?

14. Common Characteristics for all of them Customers: Mostly young and female Value Proposition: Lower price, more selection, convenience Dimensions: Price, convenience, selection, number of returns Change in User Behavior: online vs. visit to physical store Sub- Category Access Num ber Names of Firms Change in technology Clothing and Access- ories Desktop 5 Zalando, Global Fashion Group, Lazada, Gilt Groupe, JustFab Internet based Mobile 4 Vancl, Mogujie, LaShou, Fanatics Internet based, mobile Broad Variety of Products Mobile 7 Koudai Shopping, JD.com, Quikr, Flipkart, Snapdeal, Coupang, Contextlogic Internet based, mobile Furniture, Interior Design Desktop 4 Home24, FarFetch, Wayfair, Honest Co, Internet based Mobile 1 Fab Internet based, mobile Other Products (focused) Desktop 3 Warby Parker, Pluralsight, WeWork Internet based Other Products (focused) Mobile 2 Beibei, Blue Apron Internet based, mobile Discount coupons Mobile 2 Meituan, Coupons.doc Internet based, mobile Changes in Technology, Customers, Value Propositions, and Dimensions for E-commerce Startups

15.  Customers ◦ Tech-savvy users ◦ Young fashionable iPhone users  Value Propositions involve at least two performance (non-price) dimensions, maybe three ◦ Price ◦ Convenience ◦ Selection ◦ Number of returns  Large change in user behavior ◦ Not visiting physical stores ◦ Searching and purchasing products online

16. Sub- Category Numb er Names of Firms Change in technology Customers Peer-to peer lending 5 Lufax, Prosper Marketplace, Social Finance, Funding Circle, Lending Club Internet and big data Businesses and individuals who can’t get loans from banks Mobile payment 4 Stripe, One97 Communications, Adven, Square Mobile phone Consumers at bricks and mortar stores Other 6 Powa Klarna Zhong an Online Hanhua Financial Credit Karma Sunrun Internet, Big Data Websites Consumers, Websites Consumers Businesses Consumers Consumers Changes in Technology and Customers for Financial Startups

17. Sub- Category Names of Firms Changes in Value Proposition Dimen- sions Change in User Behavior Peer-to peer lending Lufax, Prosper Marketplace, Social Finance, Funding Circle, Lending Club Lower rates than loan sharks More convenient doing online than visiting banks Rates, time and effort to obtain loan, transaction costs Obtain loans online instead of banks Mobile payment Stripe, One97 Communications, Adven, Square Faster, more convenient Transaction speed and cost (rate) Pay with mobile phones instead of cash or cards E-commerce payment Powa and Klarna Lower fees than credit card or Paypal Simpler method for shoppers Fees, Time and effort to receive payment, Small change from credit card or Paypal Other Powa Klarna Zhong an Online, Hanhua Financial, Credit Karma, Lower fees for insurance online, lower rates for credit guarantees to businesses, credit scores for individuals, leasing solar cells Rates, Time and effort to obtain insurance, etc. Do online instead of through bricks and mortar Changes in Value Propositions, Dimensions, and User Behavior for Financial Startups

18.  Customers ◦ Businesses and individuals who can’t get loan from bank ◦ Tech-savvy users of mobile payment services  Value Propositions involve one or two performance (non-price) dimensions ◦ Price (rates or fees) ◦ Time and effort of user  Large change in user behavior ◦ Not visiting banks for loans or credit guarantees, instead doing online ◦ Paying with mobile phones instead of cash or card ◦ Consumers obtain credit scores (not done before) ◦ New web sites can exist because new forms of E- commerce payments exist

19. Sub- Category Numb er Names of Startups Change in technology Customers Ride Sharing 7 Uber, Didi Dache, Kuaidi Dache, Ola Cabs, Lyft, Grabtaxi, BlaBla Car App based Final users and drivers Food Delivery 5 Delivery Hero, Zomato, Instacart, Hello Fresh, Ele.me App based Final users, deliverers Audio and Video 6 Spotify, Shazam, Pinterest (Internet), Snapchat, KIK Interactive, Tango App-or Internet based Consumers Games 5 Kabam, Garena Online, Fan Duel, Draft Kings, Legendary Entertainment Digital tech Consumers Social Networking 5 Eventbrite (App), NextDoor (App), Lamabang, Vox Media, Houzz Internet based Special customers Hotels 2 Airbnb, Tujia App- based Users, owners Health Care 2 Oscar Healthcare, ZocDoc Internet based Final users and doctors Other 4 Rocket Internet, Yello Mobile, APUS, BuzzFeed, Dianping Internet Various Changes in Technology and Customers for Consumer Internet Startups

20. Category Names of Startups Changes in Value Propositions Ride Sharing Uber, Didi Dache, Kuaidi Dache, Ola Cabs, Lyft, Grabtaxi, BlaBla Car Easier to use app than call Enables new drivers Food Delivery Delivery Hero, Zomato, Instacart, Hello Fresh, Ele.me Convenience of delivery and of app over desktop. Part time work for drivers Audio and Video Spotify, Shazam, Pinterest (Internet), Snapchat, KIK Interactive, Tango (changes in VP refer to specific startups) Acquire music cheaply, legally; identify music; personal media platform; disappearing pics; share music etc. on messaging, video and voice calling Games Kabam, Garena Online, Fan Duel, Draft Kings, Legendary Entertainment Online game platform for Kabam and Garena, new types of games from FD and DK. LE provides digital movies Social Networking Eventbrite (App), NextDoor (App), Lamabang, Vox Media, Houzz Special networks for interior design, neighborhoods, event planning, mothers, sports blogs Hotels Airbnb, Tujia Enables non-hotels to become hotels. For users, new types of hotels Health Care Oscar Healthcare, ZocDoc Platforms that link users to doctors and health care Other Rocket Internet, Yello Mobile, APUS, BuzzFeed, Dianping (VP changes refer to specifc startups) Builds online startups, shopping platform, android customizer, viral news, restaurant search Changes in Value Proposition for Consumer Internet Startups

21. Category Names of Startups Dimensions (in addition to price) Ride Sharing Uber, Didi Dache, Kuaidi Dache, Ola Cabs, Lyft, Grabtaxi, BlaBla Car Transport time for final users Greater utilization for drivers Food Delivery Delivery Hero, Zomato, Instacart, Hello Fresh, Ele.me Accuracy of delivery time and transaction time/costs for final users Greater utilization for drivers Audio and Video Spotify, Shazam, Pinterest (Internet), Snapchat, KIK Interactive, Tango (Dimensions refer to specific startups) Number, quality of songs; accuracy and speed of identifying music; number of pins; number of options and privacy levels; video quality and security Games Kabam, Garena Online, Fan Duel, Draft Kings, Legendary Entertainment Number and complexity of games, players per game; resolution and realism of movie Social Networking Eventbrite (App), NextDoor (App), Lamabang, Vox Media, Houzz Size of network, speed of recalculating connections, transaction costs Hotels Airbnb, Tujia Number of hotels, price, transaction cost Health Care Oscar Healthcare, ZocDoc Cost of insurance, number of doctors, ease of making doctor appointment, cost of online consultation Other Rocket Internet, Yello Mobile, APUS, BuzzFeed, Dianping Various Changes in Dimensions for Consumer Internet Startups

22. Category Names of Startups Changes in User Behavior Ride Sharing Uber, Didi Dache, Kuaidi Dache, Ola Cabs, Lyft, Grabtaxi, BlaBla Car Large for drivers, not for riders Food Delivery Delivery Hero, Zomato, Instacart, Hello Fresh, Ele.me Food comes to user, not user goes to food Audio and Video Spotify, Shazam, Pinterest (Internet), Snapchat, KIK Interactive, Tango Few changes Games Kabam, Garena Online, Fan Duel, Draft Kings, Legendary Entertainment Changes to multi-player games and new ones Social Networking Eventbrite (App), NextDoor (App), Lamabang, Vox Media, Houzz New way of socializing and communicating Hotels Airbnb, Tujia Staying in new types of hotels, renting out your house Health Care Oscar Healthcare, ZocDoc Individual healthcare, make appointments online, online consultations Other Rocket Internet, Yello Mobile, APUS, BuzzFeed, Dianping Various Changes in User Behavior for Consumer Internet Startups

23.  Customers ◦ Tech-savvy iPhone users ◦ Young and fashionable  For value propositions, much greater variety than in previous categories ◦ Unique value propositions for each sub-category and often for each startup  For many sub-categories, one or two performance (non-price) dimensions ◦ Time for ride sharing, food delivery, doctor appointments ◦ Complexity of games, number of simultaneous players ◦ Higher resolution and realism of digital movies ◦ Variety of hotels and music  For other sub-categories, more dimensions and thus more complex ◦ Social networking ◦ Personal media and messaging platforms

24.  Large changes in user behavior for many startups  Ride sharing ◦ Large changes for drivers but not users  Large changes for ◦ food delivery – receive food instead of going to food ◦ hotels – staying in private homes, not just hotels ◦ health care – access to more doctors and online consultations ◦ games – play online with others ◦ social networking – new form of interaction  Smaller changes for ◦ audio and video ◦ digital movies

25. Sub- Category Numb er Names of Startups Change in technology Customers Enterprise Software (S/W) 14 Shopify, Apttus, Coupa, Qualtrics, Deem, Zenefits, Automattic, CloudFlare, Slack, InsideSales.com, Sprinklr, AppDynamics, Medalia, Domo Cloud, Big Data for some Companies Security S/W 5 Tanium, Good Technology, Lookout, Okta, Zscaler Cloud Web sites Database, data storage 6 Nutanix, Simplivity, PureStorage, MarkLogic, MongoDB, Actifio Cloud, Big Data Companies Big Data S/W and Services 4 Palantir, Mu Sigma, Cloudera, Hortonworks Cloud, Big Data Companies Online Ads 3 InMobi, AppNexus, IronSource Cloud Websites Cloud storage 2 Dropbox, Box Cloud Companies, consumers Software Dev Tools 2 Twilio, Github Cloud Companies Other Tools 5 DocuSign, Evernote, New Relic, MuleSoft, Jasper Cloud Companies, consumers Changes in Technology and Customers for Software Startups

26. Changes in Value Proposition, Dimensions, and User Behavior for Software Startups Sub- Category Changes in Value Proposition Dimensions Changes in User Behavior Enterprise Software (S/W) Lower cost, particularly lower initial cost Initial and recurring costs, security, speed, updating new features Few Security Software Better security of devices, apps, web sites, etc. Initial and recurring costs, scan speed and accuracy Few Database, data storage Virtualization, unstructured data, mgmt. of copy data Initial, recurring costs; data variety, storage efficiency Broader variety of data is utilized, e.g., unstructured Big Data S/W and Services New data analysis and services Initial and recurring costs, speed, data variety Online Ad Software Provide relevant ads on web sites and phones; Iron Source facilitates adware Initial and recurring costs, advertising optimization Few Cloud storage Access from any device, sharing Initial and recurring costs, speed More sharing for among consumers Software Dev Tools Collaborative s/w development Initial and recurring costs, speed Few Other Tools Elec signature, note taking, monitor web applications, integration, IoT Initial and recurring costs, legality, ease of use, speed Many changes for some

27.  Customers ◦ Mostly companies, both bricks and mortar, and pure websites ◦ Some consumers (e.g., cloud storage and tools)  For value propositions, much less variety and much fewer number of dimensions than in previous categories ◦ Initial and recurring costs are key dimensions for enterprise software (low or no initial costs) ◦ Speed, feature updating, storing and processing unstructured data are also important for some software

28.  Change in User Behavior; much fewer changes than for other categories  Exceptions ◦ Big Data software and services enable users to become more analytical ◦ New form of database software also facilitate greater analytics ◦ Cloud storage promotes sharing among consumers ◦ Electronic signatures and note taking may cause changes in consumer behavior

29. Name of Startup Change in technology Customers Changes in Value Proposition Xiaomi Smart phone consumers Access Internet and mail through phone browser and apps DJI Computer controlled aircraft Movie producers, police, farmers Cheaper than helicopters or small planes for filming, recording, monitoring Jawbone Electronic controls and sensors Health conscious consumers Monitor and analyze fitness and health metrics Magic Leap Augmented Reality Consumers Superimposes image over reality. Provide better games, entertainment Infinidat Parallel architecture magnetic storage Web sites Higher storage than does previous architectures Razer High resolution optical sensors Hard-core gamers Faster and more precise movements for better gaming performance Beats Electronics Noise-cancelling, audio electronics Music lovers Superior audio quality headphones GoPro Various electronics Extreme sports Durable cameras for extreme sports Nest Labs Smart thermostat Homeowners, utility companies Better temperature control by learning user behavior, detecting empty rooms Mobileye Collision avoidance with motion detection algorithms Car owners Senses cars and lane boundaries for safer and perhaps autonomous driving for lower cost than multiple lasers Change in Technology, Customers, and Value Proposition for Hardware Startups

30. Name of Startups Dimensions (in addition to price) Change in User Behavior Xiaomi Processor speed, memory capacity, display and camera resolution, battery time, connectivity Use phone for browsing, not just voice, messaging DJI Weight, speed, distance, carrying load, connectivity Little change Jawbone Weight, variety of fitness metrics, connectivity Monitor health care Magic Leap Realism, lag time, resolution, New entertainment Infinidat Capacity, capacity utilization, uptime, energy usage, access time Small Razer Precision, smoothness, speed, durability Small Beats Electronics Frequency response, driver diameter, input power, sensitivity, battery time Small GoPro Resolution, speed, shock and water (depth) resistance, storage capacity, angle of view, battery time, connectivity Record extreme sporting activities Nest Labs Ease of reading and adjusting, time to temp, connectivity, motion detection accuracy Small Mobileye Speed and range of detection, dark limit, dynamic range Small Dimensions and Change in User Behavior for Hardware Startups

31.  Customers ◦ Mostly consumers: Tech-savvy iPhone users for Xiaomi, Jawbone, Magic Leap, Razer, Beats Electronics, GoPro ◦ Some enterprises: DJI (movie production), Infinidat (websites), Nest (utility companies), Mobileye (automobile companies)  For value propositions, much greater variety and much larger number of dimensions than in previous categories ◦ All of them have at least 3 dimensions of performance, most at least 5

32.  Changes in user behavior; large changes for many ◦ Xiaomi – browsing via search engine and apps ◦ DJI – drones for movie production, agriculture, etc. ◦ Jawbone – new form of health care ◦ Magic Leap – new form of entertainment ◦ GoPro – recording extreme sports ◦ Nest – large changes for utility companies but little for consumers  Small changes for ◦ Infinidat – magnetic storage ◦ Razer – gaming mouse ◦ Beats Electronics – headphone ◦ Mobileye – vision assistance

33. Name of Startup Change in Tech or Science Custom ers Changes in Value Proposition Moderna Thera- peutics Messenger RNA Therapeutics Drug suppliers Faster cheaper way to produce proteins in cells, in order to reduce drug development costs for cancer treatments and vaccines Stem- centrix Stem cells and their molecular markers Drug suppliers Target stem cells to provide faster, cheaper path towards developing cancer drugs Adaptive BioTech- nologies Immuno-oncology therapeutics, DNA sequencing Drug suppliers and labs Immuno-sequencing platform provides faster and cheaper path towards developing drugs that treat infectious diseases and cancers CureVaC Messenger RNA Therapeutics Drug suppliers Faster cheaper way to produce proteins in cells, in order to reduce drug development costs for cancer treatments and vaccines Theranos Micro-fluidics Hospitals, patients Faster, cheaper, and more accurate way of doing diagnostic tests Intarcia Implanted diabetes pump Patients Faster, cheaper, less intrusive, more effective way to deliver drugs to diabetes patients Proteus Dig Heal. Smart pill Hospitals, patients Faster, cheaper, less intrusive, and more effective way to deliver drugs to patients 23andMe DNA services Patients Faster, cheaper way to perform DNA tests for ancestry info and susceptibility to diseases Changes in Technology/Science, Customers and Value Propositions for Bio-Tech and Bio-Electronic Startups

34. Name of Startup Dimensions Changes in User Behavior Moderna Therapeutics Cost and speed of growing proteins and of developing effective drugs from these proteins Enables new drugs, i.e., open innovationStem-centrix Cost and speed of developing effective drugs for treating cancers Adaptive Bio Technologies Cost and speed of developing effective drugs that stimulate effective immune response against cancer CureVaC Cost and speed of growing proteins and of developing effective drugs from these proteins Theranos Speed, cost, accuracy of diagnostic tests Visit drug store, not doctor Intarcia Size and cost of pump. Surgical cost of implanting. Control and effectiveness of drug. Effect on diabetes. Comfort of patient Replace injections with implant Proteus Digital Health Consistency of drug taking by patients and thus health care costs. Effectiveness, cost, and pain of drugs Small 23andMe Speed, cost, and accuracy of DNA tests. Accuracy of implications for ancestry and susceptibility to diseases Large Changes in Dimensions and User Behavior for Bio-Tech and Bio-Electronic Startups

35.  Customers ◦ Drug companies are customers of bio-tech value propositions (example of open innovation) ◦ Hospitals and patients are customers for products and services (bio-electronics and DNA tests)  For value propositions, much more variety and much larger number of dimensions than in previous categories ◦ Dimensions for bio-tech research involve potential for research and thus path-oriented dimensions ◦ Many dimensions for bio-electronic and DNA tests

36.  Change in User Behavior  For bio-tech ◦ Likely big changes for drug companies as they pursue different paths for research, products, and services  For products and services (bio-electronics and DNA tests) ◦ Smaller changes than for bio-tech, but still large ◦ Theranos – visit drug store, not doctor or hospital ◦ DNA tests – influence patient and doctor decisions ◦ Implant – changes behavior of diabetic

37.  Customers were different for many categories ◦ Companies were primary customers for software, bio- tech, and some financial ◦ Young tech-savvy people were primary customers for many consumer products (consumer Internet, e- commerce) and some financial  A single performance dimension was relevant for very few startups. Most depended on multiple dimensions ◦ Many depended on three or more dimensions ◦ Furthermore, many of the value propositions were hard to define in terms of dimensions

38.  Representing change with curves (e.g., S- curves) is highly misleading  Most value propositions involve multiple dimensions  Firms and entrepreneurs need to go beyond dimensions and think holistically about value propositions Too simple!!!!

39.  Changes in user behavior were caused by many of the value propositions ◦ New ways to purchase clothing, furniture, and other items (i.e., e-commerce) ◦ New ways to obtain groceries and meals ◦ New types of games and other entertainment ◦ New ways to obtain health care ◦ New ways to obtain loans ◦ New types of jobs were created by some value propositions

40. More than Two Dimensions One or Two Dimensions Small Change Large Change in User Behavior in User Behavior Number of Dimensions and Changes in User Behavior For Billion Dollar Startups Some consumer Internet startups (8) Most hardware startups (8) All E-Commerce startups (26) Most consumer Internet startups (29) A few hardware startups (2) All bio-tech/bio-electronic startups (8) Most software startups (32) Online financial services (15) Some software startups (9)

41.  Firms and entrepreneurs need to think about value propositions and technologies that change the way users do things  The value propositions and technologies should change the way ◦ consumers live their lives, including the way they eat, commute, and enjoy their lives ◦ companies do their processes and make money

Value Propositions and Billion Dollar Startup Club

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