The Art & Science of Bootstrapping

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General Assembly London presentation, outlining the top tips and lessons from our experience building Mixcloud

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The Art & Science of Bootstrapping

  1. 1. THE ART & SCIENCEOF BOOTSTRAPPINGNico PerezCo-founder, Mixcloud
  2. 2. AGENDA 2‣ PART 1: GETTING STARTED ‣ PART 2: THINKING ABOUT BUSINESS MODELS‣ 1. Bootstrapping Mixcloud ‣ 8. Revenue‣ 2. Your founding team ‣ EXERCISE INTERLUDE‣ 3. User and market research ‣ 9. Costs‣ 4. Your first office ‣ 10. Profits‣ 5. The (minimum viable) product‣ 6. Know when to outsource‣ 7. (Alternative) FundingEXERCISE INTERLUDE
  3. 3. THE ART & SCIENCE OF BOOTSTRAPPING 3 INTERACTIVE
  4. 4. INTRODUCTION 4NICO PEREZCO-FOUNDER, MIXCLOUD‣ Mentor at The Founder Institute‣ Young Advisor to EU Vice President on Digital Agenda‣ Masters in Engineering from Cambridge‣ RSA Fellow
  5. 5. INTRODUCTION 5NICO PEREZCO-FOUNDER, MIXCLOUD‣ DJing for +10 years‣ Radio presenter at University‣ Music and radio fan
  6. 6. 6WHY?
  7. 7. BOOTSTRAPPING MIXCLOUD 7THE THIRD WAY
  8. 8. THE ART & SCIENCE OF BOOTSTRAPPING 81.BOOTSTRAPPINGMIXCLOUD
  9. 9. what is Mixcloud?platform for DJs & radio presenters= expert, curated content
  10. 10. THE ART & SCIENCE OF BOOTSTRAPPING 102.YOUR FOUNDINGTEAM
  11. 11. YOUR FOUNDING TEAM 11START SMALL+ SKILLSWAP
  12. 12. YOUR FOUNDING TEAM 12HIRE SLOW
  13. 13. THE ART & SCIENCE OF BOOTSTRAPPING 133.USER ANDMARKETRESEARCH
  14. 14. USER AND MARKET RESEARCH 14RESEARCH = MARKETINGONLINE TOOLSREAL WORLD
  15. 15. USER AND MARKET RESEARCH 15RESEARCH = MARKETINGONLINE TOOLSREAL WORLD
  16. 16. THE ART & SCIENCE OF BOOTSTRAPPING 164.YOUR FIRSTOFFICE
  17. 17. 18
  18. 18. THE ART & SCIENCE OF BOOTSTRAPPING 205.THE MINIMUMVIABLE PRODUCT
  19. 19. THE MINIMUM VIABLE PRODUCT 21Launch earlyFail fastValidate assumptionsAnalyse - GA, A/B, multivariate
  20. 20. THE MINIMUM VIABLE PRODUCT 22 “if you’re not embarrassed when you ship your first version you waited too long” - Mat Mullenweg, founder of Wordpress
  21. 21. THE ART & SCIENCE OF BOOTSTRAPPING 236.KNOW WHEN TOOUTSOURCE
  22. 22. KNOW WHEN TO OUTSOURCE 24• outsource the content creation• outsource the editorial• outsource the community management• outsource the ad sales
  23. 23. THE ART & SCIENCE OF BOOTSTRAPPING 257.(ALTERNATIVE)FUNDING
  24. 24. FUNDING 26
  25. 25. THE ART & SCIENCE OF BOOTSTRAPPING 27EXERCISEINTERLUDE
  26. 26. EXERCISE INTERLUDE 28Basic P&L Cash balanceRevenue- Cost of sales= Gross profit- Overheads= Net profit
  27. 27. The simple modelRevenue – Direct costs = Gross profitAds ServersFreemium LicensesServices Customer acquisitionE-commerceGross Profit – Overheads = EBITDA Salaries Rent
  28. 28. EXERCISE bit.ly/npbootstrappltemplate 30Basic P&L model calculationUnique visitors = Start at 10000, grows 20% per month. On average 5 page views per unique visitorRevenue = Ad based. £7 CPM (per 1000 impressions). But doesn’t kick in till after 12 months on projectCost of sales = Server costs increase by £10 for every 1000 unique visitorsOverheads = Salaries = 0 until breakeven (ignore rent etc)Questions:1. How long till breakeven?2. How much do you need in the bank?3. Assuming all net profit divided equally, how long till 3 founders on £24k/year salaries
  29. 29. EXERCISE INTERLUDE 31 bit.ly/npbootstrapplanswer
  30. 30. LESSON 32 COMPOUND INTEREST IS YOUR FRIEND
  31. 31. THE ART & SCIENCE OF BOOTSTRAPPING 33PART 2BUSINESS MODELS
  32. 32. PART 2: BUSINESS MODELSRevenue - Models - Checking assumptions - Tips from Mixcloud - Challenges - Mix/single streams - Ad space models - Transactional modelsCosts - Customer acquisition - Conversion funnels - Social + partnerships - People costsProfits
  33. 33. THE ART & SCIENCE OF BOOTSTRAPPING 358.BUSINESS MODELREVENUE
  34. 34. Revenue Models • A tool for forecasting • Built on (realistic?) assumptions • Verifications help
  35. 35. Tip: Check your assumptions • Market data • Will it work? What has worked historically? • Building in sensitivity +/- %
  36. 36. Mixcloud assumptionsTraditional radio ad spend moving online (Google, Spotify, TargetSpot)Ads: Display vs Audio vs SponsorshipFreemium (Premium Accounts Subscription)E-commerce (Affiliate sales)
  37. 37. Content challenges• What type of content are consumers willing to pay for and how?• How do brands fit into the picture?• You don’t need all the answers
  38. 38. Think about: Revenue Stream Mix • Multiple streams or concentrate on one? B2C vs B2B? • Who pays (asymmetric vs symmetric)? • Mixcloud: Ads + freemium plan
  39. 39. Mixcloud Example: The Online Radio/Music Space Consumer pays PIRACY! Specialist Mass market Mixcloud Someone else pays
  40. 40. Ad-funded content: Challenges and ideas • Fragmentation of media -> blog / audio ad networks? • UGC vs Professional • Paid search (ROI) vs display. Brand awareness? • Self serve advertising… for rich media?
  41. 41. THE ART & SCIENCE OF BOOTSTRAPPING 43EXERCISEINTERLUDE
  42. 42. EXERCISE 44How many revenue sources and example sitescan you come up with in the following categories:AdvertisingCommerceSubscriptionPeer to PeerTransaction ProcessingLicensingDataMobileGaming
  43. 43. Revenue model ideasAdvertising Commerce Subscription • Display Ads - ex. Yahoo! • Retailing - ex. Zappos • Software as a Service (SAAS) - ex. Salesforce • Search Ads - ex. Google • Marketplace - ex. Etsy • Service as a Service - ex. Shopify • Text Ads - ex. Google • Crowdsourced Marketplace - ex. Threadless • Content as a Service - ex: Spotify, Netflix • Video Ads - ex. Hulu • Excess Capacity Markets - Uber, AirBnB • Infrastructure/Platform As A Service - ex. AWS • Audio Ads - ex. Pandora • Vertically Integrated Commerce - ex. Warby Parker • Freemium SAAS - ex. Dropbox • Promoted Content - ex. Twitter, Tumblr • Aggregator - ex. Lastminute.com • Donations - ex. Wikipedia • Paid content links - ex. Outbrain • Flash Sales:  Gilt Groupe, Vente Privee • Sampling - ex Birchbox • Recruitment Ads - ex. LinkedIn • Group buying - ex. Groupon • Membership Services - ex Amazon Prime • Lead Generation - ex. MoneySuperMarket, ZocDoc • Digital goods / downloads - ex. iTunes • Support and Maintenance - ex 10gen, Red Hat • Affiliate Fees - ex. Amazon Affiliate Program • Virtual goods - ex. Zynga • Paywall - ex. NYTimes • Classifieds - ex. Craiglist • Training - ex. Cloudera (??), -> Coursera • Voice and video-conferencing - ex. Uberconference • Featured listings - e.g. Yelp, Super Pages; • Pay what you want - ex. Radiohead • Email Ads - as done by Yahoo, MSN • Commission - ex. SharesPost Peer to Peer • Ad Retargeting - ex. Criteo  • Commission per order - ex. Seamless, GrubHub • Peer-to-Peer Lending - ex. Lending Club, • Real-time Intent Ad Delivery • Auction - ex. eBay • Peer-to-Peer Gambling - ex. BetFair • Location-based offers - ex/ Foursquare • Reverse Auction - ex Priceline • Peer-to-peer buying - ex Etsy • Sponsorships / Site Takeovers -  ex. Pandora • Barter for services ex. SwapRight • Peer-to-peer insurance/home/car - ex (??) • Peer-to-peer computing (CrasPlan storage, or SETI@home) • Peer-to-peer service - ex. Mechanical Turk, TaskRabbit • Peer-to-peer Mobile WiFi/Tethering - ex (??)
  44. 44. And many more bit.ly/npbootstrapmodelsTransaction processing Data • Merchant Acquiring - ex. PayPal (Online / Offline), Stripe (Online), Square (Offline) • User data - ex. BlueKai • Intermediary - ex. IP Commerce (POS 2.0), CardSpring • Business data - ex. Duedil • Acquiring Processing - ex. Paymentech • User intelligence - ex. Yougov • Bank Transfer - ex. Dwolla • Search Data - ex. Chango • Bank Depository Offering - ex. Simple, Movenbank (spread on average deposits) • Real-time Consumer Intent Data - ex. Yieldbot • Bank Card Issuance - ex. Simple (interchange fee per transaction) • Benchmarking services - ex. Comscore • Fullfilment - ex. Amazon • Market research - ex. GLG • Messaging - ex. Peer-to-Peer SMS, IM, Group Messaging • Telephony - ex. termination/origination in public telephony networks (skype out/in) Mobile • Telephony - ex. termination/origination within private telephony cloud (e.g. native skype) • Paid App Downloads - ex. WhatsApp • Payment Gateways: Mobile -ex. Braintree • In-app purchases - ex. Zynga Poker • Platform Monetization ("Tax") - Facebook Credits; iO6 30% cut. • In-app subscriptions - ex. NY Times app • Advertising - ex. Flurry, AdMobLicensing • Digital-to-physical - ex. Red Stamp, Postagram • Per Seat License - ex. Sencha • Per Device/Server License - ex. QlikView Gaming • Per Application instance - ex. Adobe Photoshop • Freemium - Free to play w/ virtual currency - ex. Zynga • Per Site License - ex. Private cloud on internal infrastructure • Subscription-  ex. World of Warcraft • Patent Licensing - ex. Qualcomm • Premium - ex. xBox games • Brand Licensing - ex. Sesame Street • DLC - (Downloadable Content)  - ex. Call of Duty • Indirect Licensing - ex. Apple Volume Purchasing • Ad Supported - ex - addictinggames.com
  45. 45. But 4 main categories 1. Ad funded 2. Freemium 3. Services/Licensing 4. E-commerce
  46. 46. Freemium/Transactional Models “We believe the future business model for social games will be primarily transactions… consumers play for free supported by advertising but have the option to pay for virtual items and premium features” Kristian @ Playfish, July 2008
  47. 47. Freemium Model Learnings and Tips Distribution platforms Don’t force them to pay Access not ownership Gaming as a service, not product “Virtual goods have a value that’s very tangible… maximised around social emotion and social expression” - Sebastian, COO Quality control on ads
  48. 48. THE ART & SCIENCE OF BOOTSTRAPPING 509.BUSINESS MODELCOSTS
  49. 49. What you can controlRevenue – Direct costs = Gross profitAds ServersFreemium LicensesServices Customer acquisitionE-commerceGross Profit – Overheads = EBITDA Salaries Rent
  50. 50. What you can controlRevenue – Direct costs = Gross profitAds ServersFreemium LicensesServices Customer acquisitionGross Profit – Overheads = EBITDA Salaries Rent
  51. 51. Customeracquisition costs:• SEO• Affiliates• Advertising / PPC• PR• Viral
  52. 52. Make it more SocialDestination -> DistributionSharing what you love (via Facebook, Twitter, blogs, etc)Mixcloud helps tell friends what you are listening to 25
  53. 53. Conversion funnel + Viral loop(see also Dave McClure on metrics bit.ly/npbootstrapmetrics) ! ! ! ! ! ! ! ! Visitor ! ! ! ! Registered user 18% Integrate with FB + Twitter <20% Invite friends 10%
  54. 54. Social lessons & tips from Mixcloud • Do you have a “social object”? • Convert users -> marketers • Build features and processes to help them do this • Reduce cost per acquisition
  55. 55. Mixcloud <3 partnerships
  56. 56. Biggest cost = Biggest Asset • Headcount -> burn rate • Equity/Debt financing vs self funding • Short term revenue vs long term potential
  57. 57. THE ART & SCIENCE OF BOOTSTRAPPING 609.BUSINESS MODELPROFITS
  58. 58. Profits • Offset past losses against profits (get good accountant) • Re-invest to help scale • Reward contributors -> Fred Wilson equity blog post: bit.ly/npbootstrapequity
  59. 59. What we covered Revenue - Models - Checking assumptions - Tips from Mixcloud - Challenges - Mix/single streams - Ad space models - Transactional models Costs - Customer acquisition - Conversion funnels - Social + partnerships - People costs Profits
  60. 60. 5 Questions tothink about- What type of model(s)?- Trust assumptions?- Who pays?- Social object?- How long till breakeven?
  61. 61. In business:“If it doesn’t make dollars it doesn’t make sense”But passion/love drives Bootstrappers
  62. 62. LAST THOUGHT 65 QUESTION
  63. 63. nico@mixcloud.com @nicoperez
  64. 64. THE ART & SCIENCE OF BOOTSTRAPPING 68Q&A
  65. 65. PHOTO CREDITS 69http://www.flickr.com/photos/T/1540007749/http://www.flickr.com/photos/thomashawk/228228018/http://www.flickr.com/photos/8078381@N03/3279725831/http://www.flickr.com/photos/9948354@N08/763399258/http://www.flickr.com/photos/emry/369409914http://www.flickr.com/photos/rietje/3719904189

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