assert(CPA < 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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assert(CPA < LTV) - the most important line of code (AKA Startup Metrics for Convicts-2012)
- 1. Technology Venture Creation (ELEC5701) SEPT12 assert(CPA < LTV) - the most important line of code David Jones http://slideshare.net/djinoz/ @djinoz david DOT jones AT gmail DOT com | skype://djinoz | Cell:+61 412 683 111 | @djinoz
- 2. Personal experience from startups OEM Channel Enterprise Consumer EmU Tech 2000 2003 2004 2006 2009 2011/ 2012 High Touch Low Touch
- 4. 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.
- 5. (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
- 6. Lean but not starving - revenue is a the best deodorant BEWARE: 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
- 7. How to avoid the “trough of despair”? Ideas? david DOT jones AT gmail DOT com | skype://djinoz | Cell:+61 412 683 111 | @djinoz
- 8. Revenue is a deodorant david DOT jones AT gmail DOT com | skype://djinoz | Cell:+61 412 683 111 | @djinoz
- 9. 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
- 10. Product vs Sales Matrix Product 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
- 11. 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
- 12. 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
- 13. 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
- 14. assert(CPA < LTV) Paid Engine of Growth Enterprise spam/virus cloud solution that filters email ARPU: $200 per month Customers on average stay with you for 18 months. Margin after channel partners and operational costs is 50% The LTV is = 200 * 18 * 50% = $1800 You use Google Adwords to acquire users is $500 So you are $1300 ahead But 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
- 15. assert(CPA < LTV) Sticky Engine of Growth Same solution, but more sticky by offering “archiving” ARPU: $200 per month Customers on average stay with you for 36 months. Margin after channel partners and operational costs is 50% The LTV is = 200 * 36 * 50% = $3600 You use Google Adwords to acquire users is $500 So 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
- 16. 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
- 17. 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
- 18. assert(CPA < LTV) Viral Engine of Growth Add a Default Footer: “Filtered by Mail Filter X” ARPU: $200 per month Customers on average stay with you for 36 months. Margin after channel partners and operational costs is 50% The LTV is = 200 * 36 * 50% = $3600 You use Google Adwords to acquire users is $100 So you are $3500 ahead OK, 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
- 19. Tip of the day: NONE OF THAT MATTERS david DOT jones AT gmail DOT com | skype://djinoz | Cell:+61 412 683 111 | @djinoz
- 20. 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
- 21. 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
- 22. The Business Model drives the Business Plan Product Focus: Core Utility Company Focus: Right Business Model The “right” business model takes iteration. But this BM framework prescribes what activities 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
- 23. david DOT jones AT gmail DOT com | skype://djinoz | Cell:+61 412 683 111 | @djinoz
- 24. The Business Model Canvas david DOT jones AT gmail DOT com | skype://djinoz | Cell:+61 412 683 111 | @djinoz
- 25. david DOT jones AT gmail DOT com | skype://djinoz | Cell:+61 412 683 111 | @djinoz
- 26. david DOT jones AT gmail DOT com | skype://djinoz | Cell:+61 412 683 111 | @djinoz
- 27. david DOT jones AT gmail DOT com | skype://djinoz | Cell:+61 412 683 111 | @djinoz
- 28. ThreatMetrix early BM (fail) Big Data aggregation Confere & combine nces Security Security Vendors Vendors Ummm? (2-sided market problem) BotNet Detection BizDev will make CERTS Security Banks? you more & incident/in secure eComme Governm 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
- 29. 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 BizDev Geo Data Provider e Cloud s Payment Banks Service Software Processors Security Credit Card Data 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
- 30. 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
- 31. 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
- 32. Drill-in Example 2 Cost Structure What 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 scale Economies of scope david DOT jones AT gmail DOT com | skype://djinoz | Cell:+61 412 683 111 | @djinoz
- 33. Questions? david DOT jones AT gmail DOT com | skype://djinoz | Cell:+61 412 683 111 | @djinoz
- 34. Paper MVP vs Hacked MVP The jury is still out but hacked MVP gives more accurate CustDev feedback david DOT jones AT gmail DOT com | skype://djinoz | Cell:+61 412 683 111 | @djinoz
- 35. Focus or Fail If you have limited resources and cash reserves then focus is your most 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
- 36. 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
- 37. New, New Angel Funding Model Naval AngelList @djinoz david@dealsta.com.au
Editor's Notes
- 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