Business Model Workshop: the Startup Metrics

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Third lecture in a workshop on business model generation and technology startups. Focuses on metrics.

Published in: Business, Technology

Business Model Workshop: the Startup Metrics

  1. 1. Business Model WorkshopThe Startup Metrics Keith McGreggor Director of VentureLab @ ...
  2. 2. How do you know you have product / market fit?
  3. 3. METRICS
  4. 4. VanityMETRICS
  5. 5. VanityMETRICS
  6. 6. innovationLean Startup Methodology
  7. 7. Agile Development
  8. 8. MVPMinimum Viable Product
  9. 9. MVP Minimum Viable Product HIGH LOW FIDELITYFIDELITY Built to LEARN Not to SELL
  10. 10. Moneyball! ActionableMETRICS
  11. 11. the Pipeline $$$
  12. 12. METRICSAARRR
  13. 13. the Pirate Metrics Acquisition Activation Retention Referral Revenue 13
  14. 14. acquisition activation retention revenue referral
  15. 15. the Business Model Canvas
  16. 16. ChannelsCustomer Relationships 16
  17. 17. Channels
  18. 18. How does your product get to customers?How do you deliver value?
  19. 19. © 2012 Steve Blank
  20. 20. Physical vs Virtual Channels
  21. 21. Channels VirtualProducts Physical Virtual Physical 21
  22. 22. Channels VirtualProducts Food Clothing Horses Cars Physical Radios ... Virtual Physical 22
  23. 23. Channels Insurance Stocks & Bonds Virtual Shrinkwrapped Software ...Products Food Clothing Horses Cars Physical Radios ... Virtual Physical 23
  24. 24. Channels Insurance Stocks & Bonds Virtual Shrinkwrapped Software ...Products Books (Amazon) Food Movies (Netflix) Clothing Shoes (Zappos) Horses Consumer Cars Physical Electronics Radios ... ... Virtual Physical 24
  25. 25. Channels Facebook friends Insurance Twitter feeds Stocks & Bonds Google searches Virtual ETrade stocks Shrinkwrapped ... Software ...Products Books (Amazon) Food Movies (Netflix) Clothing Shoes (Zappos) Horses Consumer Cars Physical Electronics Radios ... ... Virtual Physical 25
  26. 26. How Do You Want Your Product to Get to Your Customer? ü From You Directly ü Through a Distributor ü Retail Stores ü Wholesalers ü Bundled with other goods or services 27
  27. 27. Web  Channels 28
  28. 28. Physical  Channels 29
  29. 29. How Does Your Customer Want toBuy Your Product from your Channel? ü Same day ü Delivered and installed ü Downloaded ü Bundled with other products ü As a service ü … 30
  30. 30. Types  of  ChannelsDirect Indirect Licensing – OEM – VAR – Reseller – Distributor 31
  31. 31. Distribution Complexity Global Systems Evangelists Systems Integrators WANs MainframesMarketing Complexity lu me Direct Sales r Vo Minis g he Hi LANs VARs PC Servers d ed Desktop PCs e Ad Retail alu rV Printers ig he Keyboards H Web, Telesales Service Technicians Toner Solution Complexity 32
  32. 32. How  Do  the  Economics  Work  in   Different  Sales  Channel?
  33. 33. How  Are  Channels  Compensated? – Commission – Percentage of sales price – Discounted pre-purchase 34
  34. 34. Channel  Economics:  “Direct”  Sales List Your Revenue Price End Consumer DiscountsCost of Goods Profit + SG&A + R&D(Supply Chain)Selling: Cost of Sales, which includes salaries, advertising expenses, rent, and allexpenses and taxes directly related to producing and selling productGeneral: General operating expenses and taxes that are directly related to thegeneral operation of the company, but dont relate to the other two categoriesAdministration: Executive salaries and general support and all associated taxesrelated to the overall administration of the company 35
  35. 35. Channel  Economics:  Resellers List Your Revenue Price End Consumer DiscountsCost of Goods Profit + SG&A + R&D Reseller(Supply Chain) 36
  36. 36. Channel  Economics:  Distributors/Resellers List Your Revenue Price End Consumer EU Discounts DistributorCost of Goods Profit + SG&A + Reseller(Supply Chain) R&D 37
  37. 37. The  Channel  as  a  Customer– Some products are embedded in others (OEM)– Some products are resold by others (VARs)– Some products are distributed by others– Who’s the customer? 38
  38. 38. Channel  Economics:  OEM  or  IP  Licensing List Your Revenue Price End Consumer EU Discounts Distributor Distributor Cost of Goods Master (Supply Profit + SG&A + R&D Reseller Chain) Cost of Goods Profit + SG&A + Reseller (Supply R&D Chain)Your  Product  Becomes  Your  Customer’s  Cost  of  Goods 39
  39. 39. How  Are  Channels  MoKvated  or  Incented?– Money! – what makes them the most?– Training– Marketing to the channel– SPIF (Sales Performance Incentive Fund) • pay the channel’s sales rep a bonus 40
  40. 40. CustomerRelationships
  41. 41. How do you Get, Keep and Grow Customers?
  42. 42. Priming the Engine 44
  43. 43. Customer Archetypes Drive Get/Keep/GrowWhat’s their role?How this person is evaluated / promoted /compensated?Who are they?Buyer’s namePosition / title / age / sexHow do they buy?Discretionary budget (name of budget andamount)What matters to them?What motivates them? Lab Manager: BrianWho influences them?What do they read/who do they listen to?
  44. 44. Creating Demand 46
  45. 45. Paid Demand Creation Activities “Paid” Media Public Relations Advertising Trade Shows Webinars Email marketing On-line SEM Biz Dev
  46. 46. Free Demand Creation Activities “Earned” Media Publications in journals Conference speeches/papers Educational seminars Public relations Blogging / Sharable content Social Media Communities
  47. 47. Physical & Web Mobile Are DifferentPhysicalWeb/Mobile
  48. 48. Physical 50
  49. 49. Customer RelationshipsPhysical Products – Get Customers © 2012 Steve Blank
  50. 50. Customer RelationshipsPhysical Products – Get Customers CAC = Customer Acquisition Cost
  51. 51. Sales Complexity High Touch Field Sales No Touch Light TouchFreemium Inside Field Sales Self-Ser vice Inside Sales Sales with SE’s vs $0- $50 – $1,000 - $3,000 - $25,000 – $75,000 – $10 $200 $2,000 $8,000 $75,000 $200,000 Customer Acquisition Cost
  52. 52. Customer RelationshipsPhysical Products – Keep Customers
  53. 53. Customer RelationshipsPhysical Products – Keep Customers Attrition/Churn
  54. 54. Customer RelationshipsPhysical Products – Grow Customers
  55. 55. Customer RelationshipsPhysical Products – Get/Keep/Grow LTV = Customer Lifetime Value
  56. 56. Web/Mobile 58
  57. 57. Customer RelationshipsWeb/Mobile Products– Get Customers
  58. 58. Web/Mobile Products– Get Customers CPM = cost per thousand hits
  59. 59. Web/Mobile Products– Get Customers CPA = Cost per Action
  60. 60. SaaS Products– Get Customers Registered Visitors Raw Leads Qualified Leads Inside Sales Closed Deal Organic  Traffic,  SEM,  Other  Paid   Sources
  61. 61. Web/Mobile Products– Keep Customers
  62. 62. Customer RelationshipsWeb/Mobile Products– Grow Customers
  63. 63. Customer RelationshipsWeb/Mobile Products Get/Keep/Grow
  64. 64. SaaS Example 66
  65. 65. Paid Demand @ $1500 / 1k Clicks = $1.50 per Visitor Google Adwords Organic Traffic @ $0.00 = $0.00 per Visitor 67
  66. 66. Paid Demand = $1.50 / Visitor 50% 50% Organic Traffic = $0.00 / Visitor 68
  67. 67. Cost per Visitor = $0.75 69
  68. 68. Cost per Visitor = $0.75 Visitor to Raw Lead 3% 70
  69. 69. Cost per Visitor = $0.75 Visitor to Raw Lead Raw to Qualified Lead 3% 20% 71
  70. 70. Cost per Visitor = $0.75 Visitor to Raw Lead Raw to Qualified Lead 3% 20% 0.75 Qualified Lead Cost = = $125 0.03 * 0.20 72
  71. 71. Cost per Visitor = $0.75 Visitor to Raw Lead Raw to Qualified Lead Qualified Lead to Closed Deal 3% 20% 10% 0.75 Closed Deal Cost = = $1250 0.03 * 0.20 * 0.10 73
  72. 72. Cost per Visitor = $0.75 Marketing Cost Sales Cost Visitor to Raw Lead Raw to Qualified Lead Qualified Lead to Closed Deal 3% 20% 10% Marketing Cost = $1250 Sales Cost = ? 74
  73. 73. Visitors Sales Cost 1,667 Raw Leads (RLC) Qualified Leads (QLC) 50 Closed Deals (CDC) 10 1 Sales Cost = (1,667 * RLC) + (50 * QLC) + (10*CDC) 75
  74. 74. Visitors Sales Cost 1,667 Raw Leads $2.00 Qualified Leads $20.00 50 Closed Deals $200.00 10 1 Sales Cost = (1,667 * $2.00) + (50 * $20. 00) + (10 * $200. 00) = $3,334 + $1,000 + $2,000 = $6,334 76
  75. 75. Customer Acquisition Cost (CAC) 3% 20% 10%CAC = $1,250 + $6,334 = $7,584 Marketing Cost Sales Cost 77
  76. 76. Lifetime Value of a Customer (LTV) LTV = ? 78
  77. 77. Lifetime Value of a Customer (LTV) Average Revenue Per User (ARPU) Total Revenue ARPU = Customers 79
  78. 78. Lifetime Value of a Customer (LTV) Average Revenue Per User (ARPU) Total Revenue Revenue - CostARPU = Gross Margin = Customers Revenue 80
  79. 79. Lifetime Value of a Customer (LTV) LTV = ARPU * Gross Margin not quite... 81
  80. 80. Churn leavechurn = stay 82
  81. 81. Lifetime Value of a Customer (LTV) ARPU * Gross Margin LTV = Churn 83
  82. 82. Lifetime Value of a Customer (LTV) Suppose ARPU = $500 per month & Gross Margin = 40% & Churn = 1% per month 1% $500 * 0.4 LTV = 0.01 = $20,000 84
  83. 83. CAC = $1,250 + $6,334 = $7,584 Marketing Cost Sales Cost ARPU Gross Margin $500 * 0.4 LTV = 0.01 = $20,000 Churn 85
  84. 84. Balancing CAC/LTV in a SaaS model LTV > 3x CAC Months  to   recover  CAC < 12 months Required  for  Capital  Efficiency
  85. 85. What Investors are Looking ForA  well  balanced  business  model MoneKzaKon (LTV) Cost  to Acquire  a Customer (CAC)
  86. 86. The Balancing Act • Viral effects • Inbound Marketing • Free or Freemium • Open Source • Free Trials • Touchless conversion • Inside Sales • Channels • Strategic partnershipsCost  to  Acquire  a  Customer   MoneKzaKon (CAC) (LifeTime  Value  LTV) • Scalable Pricing • Cross Sell/Upsell • Product line expansion • Lead Gen for 3rd parties
  87. 87. The Balancing Act • Viral effects • Inbound Marketing • Free or Freemium • High Churn Rates • Open Source • Low customer • Free Trials satisfaction • Touchless conversion • Inside Sales • Channels • Strategic partnershipsCost  to  Acquire  a  Customer   MoneKzaKon (CAC) (LifeTime Value LTV) • Field Sales • Scalable Pricing • Cross Sell/Upsell • Outbound Marketing • Product line expansion • Lead Gen for 3rd parties
  88. 88. Customer RelationshipsWeb/Mobile Products– Keep Customers © 2012 Steve Blank
  89. 89. Churn• 1%  to  2.5%  churn  per  month  is  acceptable  • Higher  than  that,  you  are  filling  a  leaky  bucket –Need  to  understand  why  you  have  low  customer   saNsfacNon  and  address  the  problem
  90. 90. the equation that matters... infrastructure offer customers activities relationships partners value segments prop. resources channels financial COST < REVENUE
  91. 91. ... is this one: CAC << LTV acquisition activation retention revenue CAC LTV referral
  92. 92. CAC << LTV if and COST < REVENUEthen COMPANY!

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