CableBone - CLSC final present (aug 2013)

CONFIDENTIAL - Property of CableBone Inc
CLSC Final Presentation
August 2013

Who are we?

Elevator Pitch
Tired of your electronic device
cables and headphones getting
tangled? CableBone's products
help you keep all your cables
organized!

Elevator Pitch
Or more simply,
we help turn this...

Elevator Pitch
...into this!

What did we think coming into
CLSC?

Hypothesis
1. People want a way to easily store their headphones and
usb cables when not in use
2. Semi-customizable products are preferred to support
people's lifestyle
3. "Made in USA" can help separate us from imports
4. Non-mechanical nature will be more durable and thus
increase value to customer
5. We can sell these direct to customers, as well as
indirectly through other eCom sites and traditional retail.
There could also be an opportunity as a promotional item.

Business Model Canvas
Original canvas
● Children and
Adults who use
USB and/or
headphone
cables
● Companies
looking for a
new, unique
product for
corporate
branding
● Direct -
Cablebone.com
● Direct -
Traditional
advertising
● Product
ambassadors
● Direct to
customer
● Through
distribution
● Corporate
marketing
● Easily store USB
and/or headphone
cables when not
in use
● Individuality
through semi-
custom product
Note:
Green = part of original
Blue = new addition
● Easy to use
● Reliable
● Customization
● Value
● Website
● Manufacturing, w
arehousing and
distribution
capabilities
● Direct and indirect
billing capabilities
● Manufacturing
● Distribution
● Ambassadors /
Customer
Referrals
● Distribution
● Packaging
● Advertising
● Manufacturing
● Overhead
● Product sale
(direct or indirect)

What did we learn from CLSC?
(explained through the BMC as we went through class)

First, we validated that there was a problem to solve, how big the
problem was, and who we could solve a problem for...
● Children and
Adults who use
USB and/or
headphone
cables
● Companies
looking for a
new, unique
product for
corporate
branding
● Direct -
Cablebone.com
● Direct -
Traditional
advertising
● Product
ambassadors
● Direct to
customer
● Through
distribution
● Corporate
marketing
and/or headphone
cables when not
in use
● Individuality
through semi-
custom product
Note:
Green = part of original canvas Blue = new addition
● Easy to use
● Reliable
● Customization
● Value
● Website
arehousing and
distribution
capabilities
● Manufacturing
● Distribution
● Ambassadors /
Customer
Referrals
● Distribution
● Packaging
● Advertising
● Manufacturing
● Overhead
● Product sale

Problem Validation Experiments
• 45 people interviewed
• 88 additional people surveyed (we wanted more
data to validate our TAM and SAM)
...what did we find?

Everyone uses electronic devices...
• The average person carries 4
personal electronic devices (ie.
cellular phone, portable music
player or portable video player)
• Headphones are the most
common accessory (75%
penetration among personal
electronic devices)

...and use their devices frequently...
• Users reach for just their smartphone
on average 150 times per day
o Approximately 9% to 18% of those
interactions involve a headphone
and/or USB cable

...but need a solution.
• Along with our
devices, we have
on average 5 sets
of cables to
charge/interact
with our devices
(typically USB
cables) and 2 sets
of headphones.
• For most users, a way to store these cables so that they are
easy to find and ready to use is a problem...we typically
through them in our gym bag, purse or briefcase hoping for
the best, only to find them as knotted balls right when we
need them.

Additional things we learned
• People are degrading their listening experience to
avoid pain
o One interviewee buys bulk amounts of cheap
headphones on eBay just so they can throw
them away when they get tangled
• People try various ways to store cables, from twist
ties to ‘black magic’ (ie hoping for the best).
• Customer age and sex were less important in
defining the customer, since people across the
population use electornic devices and cables.

Additional things we learned
• New value propositions we discovered:
o Cable management while using headphones
o Helping people find their headphones
o Incentivizing children (who increasingly have
electronic devices of their own) to use the
CableBone to keep their own cables organized

We felt our pain points and potential market were validated, so we
updated our canvas, and turned our attention towards an MVP...
● Children and
Adults who use
USB and/or
headphone
cables
● Companies
looking for a
new, unique
product for
corporate
branding
● Direct -
Cablebone.com
● Direct -
Traditional
advertising
● Product
ambassadors
● Direct to
customer
● Through
distribution
● Corporate
marketing
and/or headphone
cables when not in
use
● Individuality
through semi-
custom product
Note:
● Easy to use
● Reliable
● Customization
● Value
● Website
arehousing and
distribution
capabilities
● Manufacturing
● Distribution
● Ambassadors /
Customer
Referrals
● Distribution
● Packaging
● Advertising
● Manufacturing
● Overhead
● Product sale
● Cable management
while using an
electronic device
● Helping users find
their headphones
● Reward system
that parents can
use to motivate
children to keep
cables organized

The CableBone MVP
• The MVP was sketched (and re-
sketched several times) on a piece
of paper.
• Once I had what I thought was a
good design, I poured Plaster of
Paris into a shoebox and carved a
basic mold. A few hours later, with
some meltable wax, we were
testing our first MVP for basic fit
and function.

The CableBone MVP
• Once dimensions on the first wax MVP were tightened
up, a complete schematic was made.
• The schematic was then sent to a local 3D printer to
make an MVP that we could get in front of customers for
Value Proposition interviews

Biggest challenge for our MVP
• During our Problem Validation interviews, we
measured pain severity on a scale by asking
interviewees to select how much time it takes them to
currently get their headphones ready for use:
1. Less than 1 minute
2. 1 to 2 minutes
3. 3 minutes or more
• Average pain amongst all interviewed was 1.14
○ Despite a low average severity, pain does happen
frequently
○ Problem recognition and pain severity increased
as the interviewee had more cables (not
necessarily more devices)

• This was a pivot-vs-persevere point - either people are
annoyed but not in pain, or they ignore their pain because
they don't know of any solution.
• We reviewed our interactions with customers, and noted
that many of the actions we saw illustrated that pain may
be higher than customers perceive:
a. People threw headphones away when knotted
b. For many who thought it took them less than a minute
to untie knotted headphones, when we gave them a
knotted pair to untie, it sometimes took more than a
minute. Even if they got it untangled in under a
minute, it reminded them how much they dislike the
experience.

• We decided to persevere and treat our pain as
something that would grow when customers were
made aware of it and saw that there was a
solution for it (similar to how Apple saw customers
pain in getting music onto digital players and
launched the iTunes store).

...with an MVP in hand, we re-engaged potential customers to test
our Value Proposition
● Children and
Adults who use
USB and/or
headphone
cables
● Companies
looking for a
new, unique
product for
corporate
branding
● Direct -
Cablebone.com
● Direct -
Traditional
advertising
● Product
ambassadors
● Direct to
customer
● Through
distribution
● Corporate
marketing
and/or headphone
cables when not in
use
● Individuality
through semi-
custom product
Note:
● Easy to use
● Reliable
● Customization
● Value
● Website
arehousing and
distribution
capabilities
● Manufacturing
● Distribution
● Ambassadors /
Customer
Referrals
● Distribution
● Packaging
● Advertising
● Manufacturing
● Overhead
● Product sale
while using an
electronic device
their headphones
● Reward system
that parents can
use to motivate
children to keep
cables organized

Value Proposition Experiments
• 5 people interviewed
o 3 people from ‘Problem Validation’ interviews
were re-engaged
o 1 interview was with our recently added
mentor, Michael Koss (CEO of Koss
Headphones).
o A second interview was with Michael Koss Jr,
(Director of Marketing for Koss Headphones).
...what did we find?

Organizational value was clear...
• Interviewees saw a CableBone
with a headphone on it, and
they all thought it would
definitely keep their cables
organized
• Understanding how to use the
CableBone is somewhat
intuitive, but they all required
one demonstration to teach
them the best way to use the
device

...as were add-on values.
• All interviewees agreed that a non-mechanical nature
made a safer and more durable product
• The ‘Made in USA’ aspect can be a differentiator
when the overall product has value to the customer
(i.e. we can't really charge more because it is made
in the USA, but customers would choose ours vs an
import if we were in the same price category)
• High interest, including higher propensity to
pay, amongst all interviewees for products that
support their personality (ie sports
teams, fundraisers, personal life events, etc).

We discovered a new value...
• According to the NPD group, consumers expect
their earbuds and in-ear headphones to last
between 8-12 months
o We saw this expectation play-out in our
interviews, with customers buying cheaper
headphones
• For customers who want to enjoy their music more
with better headphones, but are afraid to do so
because they may break or lose them, CableBone
could enable people to enjoy their music more by
removing the fear of breaking them in a bag.

...found that one idea did not add value...
• Originally, we envisioned that
the CableBone would be
packaged in a clear case
(hoping that the high-end
packaging would increase the
perceived value)
● Feedback suggested that the
case has little long-term
value in its current form
● Given that the case costs as
much as the product, we
removed the case for now.

...and confirmed our price point.
• Competitive units sell for between $5 and $20
o Our mentor advised us that the average retail
price of earbuds and in-ear headphones is
roughly $19.00, so that retail price for
CableBone should be between $5 and $10.
• All interviewees were willing to pay $10 for a
CableBone.
o Those who had a lower pain level, typically
wanted to pay $10 for one that had a relevant
team/cause affiliation, while those with a higher
pain level would be willing to pay $10 for a
standard black unit.

With our MVP validated and our customer profile understood, we
shifted to obtaining customers and getting a CableBone to them...
● Children and
Adults who use
USB and/or
headphone
cables
● Companies
looking for a
new, unique
product for
corporate
branding
● Direct -
Cablebone.com
● Direct -
Traditional
advertising
● Product
ambassadors
● Direct to
customer
● Through
distribution
● Corporate
marketing
and/or headphone
cables when not in
use
● Individuality
through semi-
custom product
Note:
● Easy to use
● Reliable
● Customization
● Value
● Website
arehousing and
distribution
capabilities
● Manufacturing
● Distribution
● Ambassadors /
Customer
Referrals
● Distribution
● Packaging
● Advertising
● Manufacturing
● Overhead
● Product sale
while using an
electronic device
their headphones
● Reward system
that parents can
use to motivate
children to keep
cables organized

Get Customers
We set out at first to build the tools needed to drive
people to our website and build awareness...

Paid Search & SEO
● We used our limited understanding of SEO to try and build
our web search ranking.
○ There are a lot of relevant products, blogs, reviews, etc
that come up through organic search (ie cord
wrap, headphone management, etc), which confirms
customer interest in the category.
● Google Adwords was also used to test several keywords:
○ Initial adwords campaign saw a CTR of 0.1% with a CPC
of $1.05 in avg position of 4.4
○ Highly targeted words (ie competitive product names or
very specific keywords) had their CTR jump up to
between 0.4% and1.34%, avg CPC between $0.75 and
$1.5 and avg ranking between 1 and 2

Keep Customers
Once customers were at our website, we needed to
quickly educate them and get them to purchase...

Customer Education
● In the ‘Value Proposition’ interviews, we learned that showing
customers how to properly use the CableBone (so that it
operates quickly and effectively) is key to them seeing the
value.
● A homemade video was put together to show customers in
60 seconds how easy and effective the CableBone was:

Website - Original
● In June, our original website was
setup in a vertical fashion to
allow for scrolling on mobile
devices with smaller screens
○ 6 total pages
○ Homepage featured social
media, videos, pictures, text
and a CTA
● Google Analytics stats for original
website
○ 84% of visitors were new
○ 78% bounce rate
○ 1.61 pages per visit
○ Avg duration (m:sec) 00:56
○ 86% from a desktop

Website - A/B testing
● In July, new website ideas were
tested under A/B situations
○ All websites were reduced
to only 1 page to drive
simplicity
● First test was to see if a video
encouraged higher CTA
(signing up for launch
notification) amongst people we
interviewed during ‘Problem
Validation’
○ Site with video had a 5%
better conversion rate than
without, confirming
feedback from interviews

● Second test changed the
CTA to a purchase
option, and tested the
layout of the webpage to
see which one generated
more clicks
○ Variant with newsletter
below CTA had 8%
better conversion
● Received feedback that
putting the price on the
main page would be good
● Second test is now the
main webpage

● Google Analytics stats for
new website
○ 91% of visitors were new
○ 83% bounce rate
○ Avg duration (m:sec)
01:17
○ 77% from a desktop
● While the new site has a
higher bounce rate, it drives
more new eyeballs, engages
viewers longer and reaches
more mobile customers
(higher chance of being
closer to pain point)

Our first sale
While running our second A/B
test, two important
milestones happened:
● We received our first order
on cablebone.com from
one of our original
interviewees!
● Amazon.com notified us
that they would like to stock
and distibute CableBones

Operations
With an understanding of paid search and website
optimization to create awareness, and our first order
in hand, we moved to figuring out how we could
supply the demand we were creating…
… which lead us to our first leap-of-faith: Production

Production
• When creating our MVP, we found that we could
create decent quality product using a local 3D
printer
o Challenge with 3D printers are:
 They do not use the correct material, so the
look and feel for customers is not accurate
 It is expensive (each unit costs $35)
• With our first order in hand, and faith that we had
the understanding to create more sales in the
future, we invested into production capabilities
(specifically, injection molds).

Basic Cost Structure
The manufacturer we are using provides the following cost structure:
• CableBone - $1.95
• Packaging - $0.0 (eCom) to $2.00 (retail)
• Mold Depreciation - $0.1
• Transportation from factory to distribution point - $0.52
Standard Unit Costs - $2.57 to $4.57
● Custom units add:
○ Assembly - $0.2
○ Color - $0.4 or less
○ Logo - $0.5 or less
Notes
● Above CableBone prices are at 1k EAU. Estimate $0.50 savings
at 5k and $1.0 savings at 10k
● Only fixed costs not accounted for is web hosting

Operations
With production costs and capabilities verified, the
final step was to analyze distribution channels (so
we know where to push all the sales leads that come
from the awareness we create)...

Distribution
• CableBone can be sold:
o Direct to consumer through cablebone.com
o Indirectly through product ambassadors on college
campuses and at sporting events
o Indirectly through distribution in e-commerce or
traditional retail channels
o Indirectly as corporate-branding
● Feedback indicated that potential customers would be
willing to acquire the product through any of these
channels
○ Need across all channels is awareness, and since
we have much higher marketing complexity than
product complexity, product evangelists are key

Direct Distribution - Cablebone.com
• MSRP - $9.99
• Product (CableBone w/o pkg) - $2.57
• Freight - $1.09
• Selling fees - $1.80
Margin per Unit - $4.53
Notes
● Warehousing is done internally at this point (est
external cost: $2.55/pc @1k, $2.22 @ 5k and $2.06
@ 10k)

Indirect Distribution - eCom
• MSRP - $9.99
• eCom margin - 30%
o Cost to e-Com - $7.00
• Product (CableBone w/o pkg) - $2.57
• Freight to eCom warehouse - $0.52
• Co-Op, DA and Terms - $1.33
Notes
● This is the business case for Amazon.com.
● Would want to display team colors, which will lower margin
by approximately $0.5/ pc.

Indirect Distribution - Ambassadors
• MSRP - $9.99
• Ambassador commission - 25%
o Sale price - $7.50
• Product (CableBone w/ pkg) - $3.50
• Freight - $1.09
Notes
● Warehousing is done internally at this point (est external
cost: $2.55/pc @1k, $2.22 @ 5k and $2.06 @ 10k)

Indirect Distribution - Retail
• MSRP - $9.99
• Retail margin - 50%
o Cost to retailer - $5.00
• Product (CableBone w/ pkg) - $3.50
• Freight to retailer warehouse - $0.52
• Co-Op, DA and Terms - $0.05
Notes
● If I go through a wholesaler, they will require $0.50 to $0.75
● Retail is a very tough play until enough awareness is built
for the channel to drive significant volumes

What's next

With our business model validated, what do we need to do from
here?
● Children and
Adults who use
USB and/or
headphone
cables
● Companies
looking for a
new, unique
product for
corporate
branding
● Direct -
Cablebone.com
● Direct -
Traditional
advertising
● Product
ambassadors
● Direct to
customer
● Through
distribution
● Corporate
marketing
and/or headphone
cables when not in
use
● Individuality
through semi-
custom product
Note:
● Easy to use
● Reliable
● Customization
● Value
● Website
arehousing and
distribution
capabilities
● Manufacturing
● Distribution
● Ambassadors /
Customer
Referrals
● Distribution
● Packaging
● Advertising
● Manufacturing
● Overhead
● Product sale (direct or indirect)
while using an
electronic device
their headphones
● Reward system
that parents can
use to motivate
children to keep
cables organized
● Opportunity to let someone else manufacture
and/or distribute CabeBone and simply pay
CableBone Inc a royalty

Are we on track for positive LTV?
To decide on next steps, we want to check our CAC to
determine what needs to be done next to maximize
our LTV:
• 17% of traffic from paid search with an avg CPC of
$1.05
• 15% of conversion for web visitors to paid customer
• We need approximately 7 visitors for every 1
sale, with $1.25 in advertising per sale
• @ 100 units sold per month direct through
cablebone.com
o Total CAC = $125
o LTV = $453

How we can improve our LTV?
In order to enhance our LTV, we need to:
1. Maximize organic search and viral referral
capabilities
2. Drive economies of scale into production and
operations
3. Sell a customer more than one CableBone (or
other items) once they are on our website

1. Maximize organic search and viral referral capabilities
○ Encourage social-sharing of news and product ‘Likes’
○ Run short-term awareness campaigns on
Bing, Pandora, Metro advertising and other relevant media
○ Customer reviews through facebook and Amazon Vine
○ Contact blogs in the personal electronics and headphones
world about reviews/posts
○ Beta-test ambassadors on a few college campuses
○ Create a full featured website with all SEO and tracking
opportunities (I created the current using Unbounce)
○ Professionally re-create our first video and create a second
to show the CableBone can be used while using your
electronic device to keep longer cables tamed (YouTube
search)

2. Drive economies of scale into production and
operations
○ Look to turn all eyeballs into sales by making the product
as widely available as possible:
■ Utilize the marketing power of Amazon by completing
product setup so it is available on Amazon.com
■ Continue to also fulfill sales directly from
CableBone.com throuh eBay.
○ Keep ears open for Strategic Alliances that can reduce
production, marketing and/or distribution costs

3. Sell a customer more than one CableBone (or
other items) once they are on our website
○ Research complimentary product ideas
○ See if there are any joint-business opportunities

Conclusion
In sum, the CLSC has helped us to turn the Lean
Startup concept from a list of somewhat foreign
concepts in a book into reality. Breaking the mold of
the traditional ’Build in Secrecy’ model, while not
easy at first, has allowed us to enjoy much quicker
and more in-depth learning.
While the CableBone was a concept we had in mind
when we entered the competition, the lessons
learned have allowed us to measure ‘bullets’ instead
of hoping on one ‘cannon ball’, and we are optimistic
and confident about where CableBone can go!

Contact

CableBone - CLSC final present (aug 2013)

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