In this interactive talk designed for first time entrepreneurs, we explore the three basic classes of business models: Transaction based, subscription based and advertising based. We explore why recurring revenue streams are important, and go into a deep dive about the Atlassian case study as an example of a successful SaaS business. We conclude by looking at the basic components of a 5 year forecast model with examples drawn from different types of industries.

1. STARTIAP 2016
BUILD A STARTUP IN FOUR WEEKS
Elaine Chen
Business models 101
January, 2016

2. What are you leaving with today
• A list of possible business models relevant to
your venture
• Everything you need to know to hallucinate a
5-year forecast for your venture (hopefully)
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3. Before we begin:
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“FREE” IS NOT A BUSINESS MODEL
WhatsApp, FB, Twitter are anomalities. Why won’t you do the hard work now and play to win?
>40 out of 940
companies funded
by America’s most
elite accelerator
are woth more
than $100M (4%)

4. Read this in your spare time
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5. But really, it’s very simple
• 3 classes of approaches
– Transaction based
– Subscription based
– Advertising based
• One factor that drives the LTV/COCA ratio
– One and done versus recurring revenue stream
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6. Some examples
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Transactional Subscription Ad-based

7. Common wisdom
• Simple is beautiful
– You are building a hypothesis of what works, so you
can test in the field. Complexity will befuddle you.
• Ad based is hard
– Ad-based needs scale, scale needs awareness,
awareness needs time and money startups don’t have
– Most investors will be skeptical
• One and done is hard
– Recurring revenue stream creates much needed
sanity in the chaos of a startup
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8. Why is one and done hard?
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Source: David Skok’s 2015 SaaS survey infographic

9. Anything can be made recurring
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10. Ways to get to a recurring business model
• Gillette Razor blades, transactional
• Keurig K-cups, transactional
• Uber, transactional
• Amazon Subscribe-and-save, subscription
• Industrial automation field service plans, subscription
• Industrial automation field repair, transactional
• C-space – subscription
• LinkedIn – subscription (true freemium)
• Atlassian –subscription (pseudo-freemium)
• Rackspace – subscription (no freemium)
• AWS – metered transactional
• …
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11. Workshop activity: Business Models
Enumerate all the business models you can think
of that is relevant to your venture and classify
them by the 3 approaches (transactional,
subscription, ad-based). Think about ways to
maximize life time value. See if you can come up
with a recurring revenue model.
Pick the one you think works best and explain why.
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12. Sharing!
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13. Case study: Atlassian
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• Market leading software dev and mgmt tools
• Profitable for 10 years, 48.5% growth YOY ‘15
• Revenue $320M in 2015
• IPO late 2015 – Valued at $5.8B
• 48,000 paying corporate customers
• >5m active users
• 864 customers spent $50,000+
• Great customer retention (Cisco, Kroger, Verizon
were customers since 2003)

14. “Pseudo-freemium”
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15. Pricing tiers
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16. It’s not all self service, but close
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17. Simple template: B2C SaaS
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Y1 Y2 Y3 Y4 Y5
Average
annual
subscription
fee per user
($$)
# New users
this year
%Churn
# Install base
this year (=
#new + #old
last year –
churn)
Revenue this
year ($$)

18. Example forecast: Product +
subscription (e.g. traditional MCAD)
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19. Example forecast: Consumer
electronics – connected device
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20. Example forecast: B2B SaaS
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21. Example forecast: Consumer marketplace
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22. End
Questions?
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