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Game Changing Business Models - V2! - with case examples - Competitive Advantage for Startups

The document outlines insights from Michael J. Skok on creating disruptive business models in startups, focusing on identifying core value, leveraging innovation, and designing for competitive advantage. It emphasizes the importance of partnering strategically and utilizing co-creation and open source as tools for business growth. Various examples are provided, illustrating successful business model transformations and the strategic use of multipliers and levers to enhance value delivery.

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Harvard innovation lab : Michael J Skok : Startup Secrets : Business Model Hi Hi Harvard innovation lab #innovationlab @mjskok #startupsecrets www.mjskok.com START UP SECRETS An insider’s guide to unfair competitive advantage Disruptive Business Models to build Value MICHAEL J SKOK North Bridge Venture Partners twitter: @mjskok mjskok.com 1
Harvard innovation lab : Michael J Skok : Startup Secrets : Business Model Hi www.mjskok.com #innovationlab @mjskok #startupsecrets Startup Secrets - Series • Sep 11: Perfect Pitch • Oct 11: Value Proposition • Oct 16: Company Formation • Nov 13: Business Model • Dec 4: Go-To-Market Strategy 2
Harvard innovation lab : Michael J Skok : Startup Secrets : Business Model Hi www.mjskok.com #innovationlab @mjskok #startupsecrets Introductions & Case Examples • Established – Google • Startup – Acquia – Demandware • Not for profit – One Laptop Per Child – Diagnostics For All (on the web) 3
Harvard innovation lab : Michael J Skok : Startup Secrets : Business Model Hi www.mjskok.com #innovationlab @mjskok #startupsecrets Agenda 1. Finding a Disruptive Business Model 2. Focusing on CORE differentiation 3. Multiply and Leverage it with innovation 4. Designing for high value Other side of the coin – GTM – next session - Eg Segmentation, Channels etc 4
Harvard innovation lab : Michael J Skok : Startup Secrets : Business Model Hi www.mjskok.com 5 #innovationlab @mjskok #startupsecrets Business Model: How do you make money? What is your model for • Creating • Delivering • Harnessing VALUE? 5
Harvard innovation lab : Michael J Skok : Startup Secrets : Business Model Hi www.mjskok.com #innovationlab @mjskok #startupsecrets Tonight Let’s get creative and think specifically about startups! 6
Harvard innovation lab : Michael J Skok : Startup Secrets : Business Model Hi www.mjskok.com #innovationlab @mjskok #startupsecrets Business Model as a Disruptor • Why? – Time to market – Market adoption – Sustainability • Connecting the dots for you as a founder … – Spend – Cash efficiency – Your ownership – Valuation 7
Harvard innovation lab : Michael J Skok : Startup Secrets : Business Model Hi www.mjskok.com #innovationlab @mjskok #startupsecrets Perfect Startup Storm Disruptive Business Model Disruptive New Market Technolog & GTM y 8
Harvard innovation lab : Michael J Skok : Startup Secrets : Business Model Hi www.mjskok.com #innovationlab @mjskok #startupsecrets How can your Business Model… • Change the game? • Rewrite the rules? New Game • Cause an innovator’s dilemma New playing field New boundaries • Be as disruptive New rules as your technology? YOU choose players 9
Harvard innovation lab : Michael J Skok : Startup Secrets : Business Model Hi www.mjskok.com #innovationlab @mjskok #startupsecrets Ex 1: Symantec - 20 years ago (!) Symantec Antivirus for Mac (SAM) Best seller – Licensed Product Norton Antivirus for PC (NAV) How to change the game Best seller – Subscription Service 10
Harvard innovation lab : Michael J Skok : Startup Secrets : Business Model Hi www.mjskok.com #innovationlab @mjskok #startupsecrets Results? • Dramatic! • Game changing – Flipped the model on it’s head • Competitors caught off guard – Predictable profitable business model • Led to solution leadership vs. battle: “Data Security” – Customer need met more effectively – More value extracted – 1.5x product / seat => 2.6x 11
Harvard innovation lab : Michael J Skok : Startup Secrets : Business Model Hi www.mjskok.com #innovationlab @mjskok #startupsecrets Ex 2: European Software Publishing • Off balance sheet Publisher of US products – Investment in Management, Sales, Marketing, Support, Translation & Localization • Acquired back by US corp when profitable – Pooling of interest – Non dilutive – Growing earnings 12
Harvard innovation lab : Michael J Skok : Startup Secrets : Business Model Hi www.mjskok.com #innovationlab @mjskok #startupsecrets Results? • Win/win/win – Customers = better local product, support, services – Publishers = accelerated, off balance sheet setup of profitable business – Shareholders = 97X return on original investment • Non technology disruptive business model – Economies of scale – Pooling of interests (tax) – Time shifting expense => Accretive outcome 13
Harvard innovation lab : Michael J Skok : Startup Secrets : Business Model Hi www.mjskok.com #innovationlab @mjskok #startupsecrets Sample Models • Shared ownership (Zipcar) • Flash sales (Vente Privee) • Crowd sourcing (uTest) • Lead Gen (Mint.com) • Virtual goods/currencies (Tapjoy) • Combinations – Acquia -OSS, SaaS – AirBnB - Commission on P2P rentals – Demandware - SaaS, success based rev share – Groupon - broker, revshare – Spotify -adbased, freemium 14
Harvard innovation lab : Michael J Skok : Startup Secrets : Business Model Hi www.mjskok.com #innovationlab @mjskok #startupsecrets Business Model- Sample Questions • Process or Product? • Software or Services? • Open or Proprietary? • Content or Data? • Freemium or Premium? • Subscription or License? 15
Harvard innovation lab : Michael J Skok : Startup Secrets : Business Model Hi www.mjskok.com #innovationlab @mjskok #startupsecrets What is your CORE value? First key question Your Capabilities Of CORE Focus on it! Really Exceptional Value 16
Harvard innovation lab : Michael J Skok : Startup Secrets : Business Model Hi www.mjskok.com #innovationlab @mjskok #startupsecrets Cut to the CORE! Where is your CORE value? • Software/other technology • Data • Content • Service, support COR • User network E Disruptively monetize it! – To your competitive advantage – Where are others most vulnerable? 17
Harvard innovation lab : Michael J Skok : Startup Secrets : Business Model Hi www.mjskok.com #innovationlab @mjskok #startupsecrets Google – Ex 1 Apps • Google Apps vs. Microsoft office – What is the C.O.R.E for each ? • Software, Data, Advertising ? • Don’t compete head-on – MS Office = enterprise market – Google Apps = consumer market – Free vs $500 license – Simple vs Complicated – 80% solution vs Professional Tool 18
Harvard innovation lab : Michael J Skok : Startup Secrets : Business Model Hi www.mjskok.com #innovationlab @mjskok #startupsecrets Google - Competing with Market Leaders How can you compete with a market leader who has 80% to 90% market share? 1. Don’t compete head-on 2. Innovators Dilemma – go for low end 3. Disruptive technology, business model, or market approach 4. Examples: Gmail, Google Apps, Chrome 19
Harvard innovation lab : Michael J Skok : Startup Secrets : Business Model Hi www.mjskok.com #innovationlab @mjskok #startupsecrets Google – Ex 2 - Mobile • Apple vs. Google – What is the C.O.R.E for each ? • Hardware, Software, Content ? • Others in Ecosystem – Samsung, HTC • Alternative approaches – Amazon 20
Harvard innovation lab : Michael J Skok : Startup Secrets : Business Model Hi www.mjskok.com #innovationlab @mjskok #startupsecrets Android vs iPhone Who is winning? Why? Is technology the difference? Apple, Google, & Microsoft strategies – Always play to your strength – Apple Mac, Google Search, Microsoft Windows 21
Harvard innovation lab : Michael J Skok : Startup Secrets : Business Model Hi www.mjskok.com #innovationlab @mjskok #startupsecrets Android vs iPhone Disrupt the market leader – Apple disrupted carriers and manufacturers • Verizon, Sprint, Nokia, Motorola, RIM, Symbian – Android allowed them to fight back Disruptive business model – Android is free – Advertising business model – Search, Maps, Local, Wallet, YouTube 22
Harvard innovation lab : Michael J Skok : Startup Secrets : Business Model Hi www.mjskok.com #innovationlab @mjskok #startupsecrets Business Models Matter ! Don Dodge Google dondodge@google.com 23
Harvard innovation lab : Michael J Skok : Startup Secrets : Business Model Hi www.mjskok.com #innovationlab @mjskok #startupsecrets Creating Value 24
Harvard innovation lab : Michael J Skok : Startup Secrets : Business Model Hi www.mjskok.com #innovationlab @mjskok #startupsecrets Startup Secret: Co-creating Value • Be Open and Extensible (eg Software APIs) – Enabling external multipliers to your value – Building on yourself – Eating your own cooking – Being your own customer • Open Source – Leverage through community – Make the customer the product manager • Scratching their own itch 25
Harvard innovation lab : Michael J Skok : Startup Secrets : Business Model Hi www.mjskok.com #innovationlab @mjskok #startupsecrets Startup Secret: Co-creating Value • Be Open and Extensible (eg Software APIs) – Enabling external multipliers to your value – Building on yourself – Eating your own cooking – Being your own customer • Open Source – Leverage through community – Make the customer the product manager • Scratching their own itch 26
Dries Buytaert Founder and project lead Drupal Co-founder and CTO Acquia http://buytaert.net :: @Dries
1 out of 50 websites in the world 10,000+ modules 300,000+ downloads/month 1.5M unique visitors/month FREE
Open Source is not just a software license, it is also a development model 1,000 people contributed to Drupal 7
Open Source Collaboration Community Innovation
Drupal and Open Source is a catalyst for - “Creative destruction” Changes how we develop “Creative Destruction” software - Changes how we build websites - Changes a multi-billion dollar industry - Open Source enables business model innovation Joseph Schumpeter Joseph Schumpenter, - Bonus: allows to do well, Economist, 1883-1950 and do good
Harvard innovation lab : Michael J Skok : Startup Secrets : Business Model Hi www.mjskok.com #innovationlab @mjskok #startupsecrets Delivering & Capturing Value 33
Harvard innovation lab : Michael J Skok : Startup Secrets : Business Model Hi www.mjskok.com #innovationlab @mjskok #startupsecrets Startup Secret: Multipliers & Levers Multiply and Leverage your CORE Multipliers: Levers: • Increase revenue • Reduce time • Increase reach • Reduce costs • Increase coverage Multipliers • Reduce resources Levers CORE 34
Harvard innovation lab : Michael J Skok : Startup Secrets : Business Model Hi www.mjskok.com #innovationlab @mjskok #startupsecrets Drupal, Open Source Multiplies AND Leverages CORE •Multipliers: •Levers: • Added functionality • Community • Community reach development • Community marketing Multipliers Levers CORE 35
Harvard innovation lab : Michael J Skok : Startup Secrets : Business Model Hi www.mjskok.com #innovationlab @mjskok #startupsecrets Startup Secret: Multipliers & Levers Examples in Software Multiplier Examples: Lever Examples: • Sales & Marketing • Sales & Marketing – Tiered Pricing – Web – Freemium – Inside – Channel partners – Inbound • Product – Viral – Slippery products * • Product, Support Multipliers – “Russian Doll” – Offshoring Packaging * CORE Levers – Outsourcing – Technology stacks – Crowdsourcing – Co-creation * – Technology stacks * Covered herein 36
Harvard innovation lab : Michael J Skok : Startup Secrets : Business Model Hi www.mjskok.com #innovationlab @mjskok #startupsecrets Get Multipliers & Levers working together! • Strategies that enable Multipliers and Levers to work together around your CORE are the real winners 37
Harvard innovation lab : Michael J Skok : Startup Secrets : Business Model Hi www.mjskok.com #innovationlab @mjskok #startupsecrets Acquia Mary Jefts, CFO Fastest growing software company in the US 38
Acquia At A Glance • Provider of cloud-based solutions/support for enterprises using the open source product, Drupal • 2000+ customers • 250+ employees • 150% 4 year CAGR • Global operations • Highly predictable and repeatable model • Land and expand strategy PROPRIETARY AND CONFIDENTIAL - do not redistribute
Acquia Business Model • Drupal is FREE • It is also Open Source • So how do you make money from FREE and Open IP? 1. Create valuable products and services around the CORE of Drupal 2. Use FOSS as multiplier and a lever in R&D, sales and marketing
Acquia products around Drupal CORE Professional Drupal Services Training Drupal Enterprise Site Factory Gardens Acquia Managed Deployments Cloud Acquia Drupal Management Suite Network CONTENT COMMUNITY COMMERCE
Free and Open Source Software (FOSS) • As a multiplier AND a lever - in R&D, sales and marketing Example Multipliers: Example Levers: • Upsell value added • Target installed base products & services • Expand usage through • Cloud & SaaS partners Multipliers Levers CORE
Harvard innovation lab : Michael J Skok : Startup Secrets : Business Model Hi www.mjskok.com #innovationlab @mjskok #startupsecrets Strategic Partnership EG: “Whole Product” Strategic Partnership Multipliers: Levers: • Increase revenue • Reduce time to market through fuller Services • Reduced dev costs solution Multipliers Application s Lever • Increase reach CORE Database through their sales Storage force, channel etc. • Credibility Integrate your CORE into their technology stack 43
Harvard innovation lab : Michael J Skok : Startup Secrets : Business Model Hi www.mjskok.com #innovationlab @mjskok #startupsecrets What makes a partner strategic? • Symbiotic multipliers & levers (win-win) + Product + Distribution + other • 1+1 > 2 in joint market leverage – Ousting competitors, driving share • Can create potential exit 44
Harvard innovation lab : Michael J Skok : Startup Secrets : Business Model Hi www.mjskok.com #innovationlab @mjskok #startupsecrets An ideal ideal (win-win) Strategic Partner Example What You Get What They Get • Complete your • Competitive advantage “WHOLE Product” • Interested ARPU - Increase Value (LTV) • Time to Market • Channels to reach YOUR target customer - Reduce Selling Cost (CAC) • Credibility 45
Harvard innovation lab : Michael J Skok : Startup Secrets : Business Model Hi www.mjskok.com #innovationlab @mjskok #startupsecrets Devil in the Deal tails For example • Co-sell – who is incented? • Resell – who is supporting? • OEM – what is your upsell? Traps to Avoid! • Co-dependent risk • Dependence on other startups 46
Harvard innovation lab : Michael J Skok : Startup Secrets : Business Model Hi www.mjskok.com #innovationlab @mjskok #startupsecrets One more thing… 47
Harvard innovation lab : Michael J Skok : Startup Secrets : Business Model Hi www.mjskok.com #innovationlab @mjskok #startupsecrets Designing for success… • Product feeds the business model… – User experience – Supportability – Maintenance, updates (= lifecycle) – Upgrades – Upsells • Leads to 2 startup secrets – Russian Dolls & SLIPPERY products 48
Harvard innovation lab : Michael J Skok : Startup Secrets : Business Model Hi www.mjskok.com #innovationlab @mjskok #startupsecrets Friction Free, SLIPPERY products • Simple • Low to no initial cost Gain • Installs easily Pain • Proves value quickly • Plays well with others Think of how this improves • Easy to use the Gain/Pain Ratio in our Value Proposition • ROI is obvious Workshop • Y customers can’t live without it 49
Harvard innovation lab : Michael J Skok : Startup Secrets : Business Model Hi www.mjskok.com #innovationlab @mjskok #startupsecrets What makes Drupal SLIPPERY? • Simple: Update your site from the browser • Low to no initial cost: free • Installs easy: Windows/Mac installers + SaaS • Proves value quickly: Distributions + Start using immediately • Plays well with others: Lots of integrations with other platforms • Easy to use: Web-based • ROI is obvious: Better, faster, cheaper • Your customers can’t live without: flexibility and 50
Harvard innovation lab : Michael J Skok : Startup Secrets : Business Model Hi www.mjskok.com #innovationlab @mjskok #startupsecrets Startup Secret: Build a Russian Doll! • Multi purpose strategy – Packaging – Pricing – Distribution – And more … 51
Harvard innovation lab : Michael J Skok : Startup Secrets : Business Model Hi www.mjskok.com #innovationlab @mjskok #startupsecrets Incent Free 52
Harvard innovation lab : Michael J Skok : Startup Secrets : Business Model Hi www.mjskok.com #innovationlab @mjskok #startupsecrets Freemium … Limited Free 53
Harvard innovation lab : Michael J Skok : Startup Secrets : Business Model Hi www.mjskok.com #innovationlab @mjskok #startupsecrets OEM Solution… Personal Limited Free 54
Harvard innovation lab : Michael J Skok : Startup Secrets : Business Model Hi www.mjskok.com #innovationlab @mjskok #startupsecrets Premium … Workgroup Personal Limited Free 55
Harvard innovation lab : Michael J Skok : Startup Secrets : Business Model Hi www.mjskok.com #innovationlab @mjskok #startupsecrets Sales enabler … Corporate Workgroup Personal Limited Free 56
Harvard innovation lab : Michael J Skok : Startup Secrets : Business Model Hi www.mjskok.com #innovationlab @mjskok #startupsecrets Adoption … Enterprise Corporate Workgroup Personal Limited Free 57
Harvard innovation lab : Michael J Skok : Startup Secrets : Business Model Hi www.mjskok.com #innovationlab @mjskok #startupsecrets Startup Secret: Russian Doll Packaging “Addiction before Adoption” Gives you, your partners & your customers: • Digestible starting point • Upsell Options • Channel Flexibility … and more 58
Harvard innovation lab : Michael J Skok : Startup Secrets : Business Model Hi www.mjskok.com #innovationlab @mjskok #startupsecrets Startup Secret: Russian Doll Packaging “Addiction before Adoption” Acquia example = increasing LTV “Land & Expand” Upsell LTV On- / Cross $400 board Sell $300 $200 Acquire $100 $0 59
Harvard innovation lab : Michael J Skok : Startup Secrets : Business Model Hi www.mjskok.com #innovationlab @mjskok #startupsecrets Putting it all together Create, Deliver & Harness Value 60
Harvard innovation lab : Michael J Skok : Startup Secrets : Business Model Hi www.mjskok.com #innovationlab @mjskok #startupsecrets Basic Startup Model • Lifetime Value of Customer (LTV) • Cost of Acquiring Customer (CAC) LTV ~3x > CAC Multipliers Levers CORE 62
Harvard innovation lab : Michael J Skok : Startup Secrets : Business Model Hi www.mjskok.com #innovationlab @mjskok #startupsecrets % of Revenue spent… • Example: – Phases of a software company Development Target Gross Margin 80% R&D 100%+ 15% Sales & Marketing 10% G&A 45% Profit (Loss) -100% 20% 63
Target Business Model - Demandware 2010 Q4 2010 2011 Q4 2011 Target Revenue 100% 100% 100% 100% 100% Cost of Revenue 40% 36% 35% 28% 30% Gross Margin 60% 64% 65% 72% 70% R&D 17% 14% 20% 15% 12% Sales and Marketing 30% 27% 35% 30% 25% G&A 11% 9% 11% 11% 8% Operating Income 3% 15% (1)% 16% 25% (Loss) Copyright 2012 Demandware, Inc. – CONFIDENTIAL | 65
Target Business Model: Acquia 62% 62% 61% 51% 53% L/T Model 48% 53% 43% based on 48% 29% 29% 44% 21% 21% 19% 19% 25% profitable 43% 50% 15% subscription 43% 65% 45% 45% 44% 44% 35% based 19% 19% 14% 14% 11% 11% 11% 11% 10% software company
Harvard innovation lab : Michael J Skok : Startup Secrets : Business Model Hi www.mjskok.com #innovationlab @mjskok #startupsecrets What makes for a GREAT business model? • Repeatable • Scalable – with leverage • Profitable / Sustainable • Predictable • Valuable 67
Highly Predictable and Repeatable Financial Model • Today: - 70% of all bookings are renewable subscriptions - 30% are consulting services (key differentiator) - 85%+ annual renewal rate for non-project work • Long-term Model: - 80% renewable subscriptions - 20% consulting services - 90% annual renewal rate for non-project work
Overall Result: Disruptive Business Model for Acquia’s Continued Growth New Existing Customers Customers New Geographies Cross-sell Up-sell New Partners New Sites New Verticals New Products Potential M&A
Harvard innovation lab : Michael J Skok : Startup Secrets : Business Model Hi www.mjskok.com #innovationlab @mjskok #startupsecrets What makes you valuable? Many factors, but some play more of a role than others in your business model… (with thanks to Goldman Sachs) 70
Harvard innovation lab : Michael J Skok : Startup Secrets : Business Model Hi www.mjskok.com #innovationlab @mjskok #startupsecrets Valuations – SaaS 2013 Revenue Multiples Median 5.2x 2012-2013 Revenue Growth 71
Harvard innovation lab : Michael J Skok : Startup Secrets : Business Model Hi www.mjskok.com #innovationlab @mjskok #startupsecrets Valuations – SaaS 2013 Revenue Multiples Median 5.2x 2012-2013 Revenue Growth 72
Harvard innovation lab : Michael J Skok : Startup Secrets : Business Model Hi www.mjskok.com #innovationlab @mjskok #startupsecrets Valuations – SaaS 73
Harvard innovation lab : Michael J Skok : Startup Secrets : Business Model Hi www.mjskok.com #innovationlab @mjskok #startupsecrets Valuations – SaaS 74
Harvard innovation lab : Michael J Skok : Startup Secrets : Business Model Hi www.mjskok.com #innovationlab @mjskok #startupsecrets An important refinement • Retention • Upsell 75
Harvard innovation lab : Michael J Skok : Startup Secrets : Business Model Hi www.mjskok.com #innovationlab @mjskok #startupsecrets Retention 76
Harvard innovation lab : Michael J Skok : Startup Secrets : Business Model Hi www.mjskok.com #innovationlab @mjskok #startupsecrets Upsell 14 x leverage! 77
Harvard innovation lab : Michael J Skok : Startup Secrets : Business Model Hi www.mjskok.com #innovationlab @mjskok #startupsecrets Basic Startup Model • Lifetime Value of Customer (LTV) • Cost of Acquiring Customer (CAC) LTV ~3x > CAC Multipliers Levers CORE 78
Harvard innovation lab : Michael J Skok : Startup Secrets : Business Model Hi www.mjskok.com #innovationlab @mjskok #startupsecrets The Model Refined – Enabling Retention & Upsell • Lifecycle Value of Customer (LCV) • Cost of Acquiring & Re-Engaging Customer (CARC) Multipliers Levers Up-sell CORE Re-Trial 79
Harvard innovation lab : Michael J Skok : Startup Secrets : Business Model Hi www.mjskok.com #innovationlab @mjskok #startupsecrets Re-engagement Costs • Must be included in CARC • Example: – Support – Customer Service – Professional Services 80
Harvard innovation lab : Michael J Skok : Startup Secrets : Business Model Hi www.mjskok.com #innovationlab @mjskok #startupsecrets Connecting it to Gain/Pain • They are two views of the same principle: – Customer view = Gain/Pain – Vendor view = LCV/CARC Multipliers Levers Up-sell CORE Re-Trial 81
Harvard innovation lab : Michael J Skok : Startup Secrets : Business Model Hi www.mjskok.com #innovationlab @mjskok #startupsecrets Build for a long lifetime… 82
Harvard innovation lab : Michael J Skok : Startup Secrets : Business Model Hi www.mjskok.com #innovationlab @mjskok #startupsecrets A typical product lifecycle But it doesn’t have to be this way ! Long, costly (CAC), slow payback, EXTENDED lifetime value (LTV) See Try Buy Fly Die 83
Harvard innovation lab : Michael J Skok : Startup Secrets : Business Model Hi www.mjskok.com #innovationlab @mjskok #startupsecrets Adding Retention and Upsell Extended Up-sell Lifecycle Re-Trial Long, costly (CAC), slow payback, EXTENDED lifetime value (LTV) See Try Buy Fly Die 84
Harvard innovation lab : Michael J Skok : Startup Secrets : Business Model Hi www.mjskok.com #innovationlab @mjskok #startupsecrets A disruptive & valuable lifecyle Subscription SaaS On demand Self service Up-sell Extended Extended Up-sell Re-Trial Lifecycle Lifecycle Re-Trial Open source Web short, low cost (CARC), quick payback, extended lifecycle value (LCV) See Try Buy Fly Die 85
Harvard innovation lab : Michael J Skok : Startup Secrets : Business Model Hi www.mjskok.com #innovationlab @mjskok #startupsecrets Applied to Software 1990+ 2010+ • Installed by IT  Web based • Customized  Self service • Infrequent upgrades  On demand, SaaS • Proprietary  Open Source • License  Subscription Subscription SaaS On demand Self service Extende Extende d Up-sell d Re-Trial Up-sell …a fundamentally disruptive & more valuable Open source Lifecycl e Lifecycl e Web business model short, low cost (CAC), quick payback, EXTENDED lifetime value (LTV) 86
Harvard innovation lab : Michael J Skok : Startup Secrets : Business Model Hi www.mjskok.com #innovationlab @mjskok #startupsecrets Case example – Demandware (NYSE:DWRE) See the full case example here http://www.mjskok.com/resources/business-model Demandware is presented as an example of a company that leveraged it’s SaaS technology disruption with a fundamentally different business model to it’s competitors, creating innovation on demand for it’s customer and making partners out them with a shared success model. 87
Demandware business model – simplified summary  Create: Development plus LINK partnerships – Traditional R&D with leverage from LINK partners for whole product  Deliver: SaaS – On Demand Commerce Innovation NOT Infrastructure  Harness: % of GMV payment – Shared success with customers Copyright 2012 Demandware, Inc. – CONFIDENTIAL | 88
Commerce Innovation. Not Infrastructure. See the full case example here http://www.mjskok.com/resources/business-model
Harvard innovation lab : Michael J Skok : Startup Secrets : Business Model Hi www.mjskok.com #innovationlab @mjskok #startupsecrets Summary • Disruptive Business Model – as significant as Technology • Focus on CORE differentiation • Multiply and Leverage it with innovation like:- – Co-Creation – Strategic Partners – Russian Doll Packaging – And Friction Free, SLIPPERY products • Design for high value using LCV & CARC 90
Harvard innovation lab : Michael J Skok : Startup Secrets : Business Model Hi www.mjskok.com #innovationlab @mjskok #startupsecrets Startup Secrets - Series • Sep 11: Perfect Pitch • Oct 11: Value Proposition • Oct 16: Company Formation • Nov 13: Business Model • Dec 4: Go-To-Market Strategy 91
Harvard innovation lab : Michael J Skok : Startup Secrets : Business Model Hi Hi Harvard innovation lab #innovationlab @mjskok #startupsecrets www.mjskok.com START UP SECRETS An insider’s guide to unfair competitive advantage Business Model MICHAEL J SKOK North Bridge Venture Partners twitter: @mjskok mjskok.com 92

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Game Changing Business Models - V2! - with case examples - Competitive Advantage for Startups

  • 1.
    Harvard innovation lab: Michael J Skok : Startup Secrets : Business Model Hi Hi Harvard innovation lab #innovationlab @mjskok #startupsecrets www.mjskok.com START UP SECRETS An insider’s guide to unfair competitive advantage Disruptive Business Models to build Value MICHAEL J SKOK North Bridge Venture Partners twitter: @mjskok mjskok.com 1
  • 2.
    Harvard innovation lab: Michael J Skok : Startup Secrets : Business Model Hi www.mjskok.com #innovationlab @mjskok #startupsecrets Startup Secrets - Series • Sep 11: Perfect Pitch • Oct 11: Value Proposition • Oct 16: Company Formation • Nov 13: Business Model • Dec 4: Go-To-Market Strategy 2
  • 3.
    Harvard innovation lab: Michael J Skok : Startup Secrets : Business Model Hi www.mjskok.com #innovationlab @mjskok #startupsecrets Introductions & Case Examples • Established – Google • Startup – Acquia – Demandware • Not for profit – One Laptop Per Child – Diagnostics For All (on the web) 3
  • 4.
    Harvard innovation lab: Michael J Skok : Startup Secrets : Business Model Hi www.mjskok.com #innovationlab @mjskok #startupsecrets Agenda 1. Finding a Disruptive Business Model 2. Focusing on CORE differentiation 3. Multiply and Leverage it with innovation 4. Designing for high value Other side of the coin – GTM – next session - Eg Segmentation, Channels etc 4
  • 5.
    Harvard innovation lab: Michael J Skok : Startup Secrets : Business Model Hi www.mjskok.com 5 #innovationlab @mjskok #startupsecrets Business Model: How do you make money? What is your model for • Creating • Delivering • Harnessing VALUE? 5
  • 6.
    Harvard innovation lab: Michael J Skok : Startup Secrets : Business Model Hi www.mjskok.com #innovationlab @mjskok #startupsecrets Tonight Let’s get creative and think specifically about startups! 6
  • 7.
    Harvard innovation lab: Michael J Skok : Startup Secrets : Business Model Hi www.mjskok.com #innovationlab @mjskok #startupsecrets Business Model as a Disruptor • Why? – Time to market – Market adoption – Sustainability • Connecting the dots for you as a founder … – Spend – Cash efficiency – Your ownership – Valuation 7
  • 8.
    Harvard innovation lab: Michael J Skok : Startup Secrets : Business Model Hi www.mjskok.com #innovationlab @mjskok #startupsecrets Perfect Startup Storm Disruptive Business Model Disruptive New Market Technolog & GTM y 8
  • 9.
    Harvard innovation lab: Michael J Skok : Startup Secrets : Business Model Hi www.mjskok.com #innovationlab @mjskok #startupsecrets How can your Business Model… • Change the game? • Rewrite the rules? New Game • Cause an innovator’s dilemma New playing field New boundaries • Be as disruptive New rules as your technology? YOU choose players 9
  • 10.
    Harvard innovation lab: Michael J Skok : Startup Secrets : Business Model Hi www.mjskok.com #innovationlab @mjskok #startupsecrets Ex 1: Symantec - 20 years ago (!) Symantec Antivirus for Mac (SAM) Best seller – Licensed Product Norton Antivirus for PC (NAV) How to change the game Best seller – Subscription Service 10
  • 11.
    Harvard innovation lab: Michael J Skok : Startup Secrets : Business Model Hi www.mjskok.com #innovationlab @mjskok #startupsecrets Results? • Dramatic! • Game changing – Flipped the model on it’s head • Competitors caught off guard – Predictable profitable business model • Led to solution leadership vs. battle: “Data Security” – Customer need met more effectively – More value extracted – 1.5x product / seat => 2.6x 11
  • 12.
    Harvard innovation lab: Michael J Skok : Startup Secrets : Business Model Hi www.mjskok.com #innovationlab @mjskok #startupsecrets Ex 2: European Software Publishing • Off balance sheet Publisher of US products – Investment in Management, Sales, Marketing, Support, Translation & Localization • Acquired back by US corp when profitable – Pooling of interest – Non dilutive – Growing earnings 12
  • 13.
    Harvard innovation lab: Michael J Skok : Startup Secrets : Business Model Hi www.mjskok.com #innovationlab @mjskok #startupsecrets Results? • Win/win/win – Customers = better local product, support, services – Publishers = accelerated, off balance sheet setup of profitable business – Shareholders = 97X return on original investment • Non technology disruptive business model – Economies of scale – Pooling of interests (tax) – Time shifting expense => Accretive outcome 13
  • 14.
    Harvard innovation lab: Michael J Skok : Startup Secrets : Business Model Hi www.mjskok.com #innovationlab @mjskok #startupsecrets Sample Models • Shared ownership (Zipcar) • Flash sales (Vente Privee) • Crowd sourcing (uTest) • Lead Gen (Mint.com) • Virtual goods/currencies (Tapjoy) • Combinations – Acquia -OSS, SaaS – AirBnB - Commission on P2P rentals – Demandware - SaaS, success based rev share – Groupon - broker, revshare – Spotify -adbased, freemium 14
  • 15.
    Harvard innovation lab: Michael J Skok : Startup Secrets : Business Model Hi www.mjskok.com #innovationlab @mjskok #startupsecrets Business Model- Sample Questions • Process or Product? • Software or Services? • Open or Proprietary? • Content or Data? • Freemium or Premium? • Subscription or License? 15
  • 16.
    Harvard innovation lab: Michael J Skok : Startup Secrets : Business Model Hi www.mjskok.com #innovationlab @mjskok #startupsecrets What is your CORE value? First key question Your Capabilities Of CORE Focus on it! Really Exceptional Value 16
  • 17.
    Harvard innovation lab: Michael J Skok : Startup Secrets : Business Model Hi www.mjskok.com #innovationlab @mjskok #startupsecrets Cut to the CORE! Where is your CORE value? • Software/other technology • Data • Content • Service, support COR • User network E Disruptively monetize it! – To your competitive advantage – Where are others most vulnerable? 17
  • 18.
    Harvard innovation lab: Michael J Skok : Startup Secrets : Business Model Hi www.mjskok.com #innovationlab @mjskok #startupsecrets Google – Ex 1 Apps • Google Apps vs. Microsoft office – What is the C.O.R.E for each ? • Software, Data, Advertising ? • Don’t compete head-on – MS Office = enterprise market – Google Apps = consumer market – Free vs $500 license – Simple vs Complicated – 80% solution vs Professional Tool 18
  • 19.
    Harvard innovation lab: Michael J Skok : Startup Secrets : Business Model Hi www.mjskok.com #innovationlab @mjskok #startupsecrets Google - Competing with Market Leaders How can you compete with a market leader who has 80% to 90% market share? 1. Don’t compete head-on 2. Innovators Dilemma – go for low end 3. Disruptive technology, business model, or market approach 4. Examples: Gmail, Google Apps, Chrome 19
  • 20.
    Harvard innovation lab: Michael J Skok : Startup Secrets : Business Model Hi www.mjskok.com #innovationlab @mjskok #startupsecrets Google – Ex 2 - Mobile • Apple vs. Google – What is the C.O.R.E for each ? • Hardware, Software, Content ? • Others in Ecosystem – Samsung, HTC • Alternative approaches – Amazon 20
  • 21.
    Harvard innovation lab: Michael J Skok : Startup Secrets : Business Model Hi www.mjskok.com #innovationlab @mjskok #startupsecrets Android vs iPhone Who is winning? Why? Is technology the difference? Apple, Google, & Microsoft strategies – Always play to your strength – Apple Mac, Google Search, Microsoft Windows 21
  • 22.
    Harvard innovation lab: Michael J Skok : Startup Secrets : Business Model Hi www.mjskok.com #innovationlab @mjskok #startupsecrets Android vs iPhone Disrupt the market leader – Apple disrupted carriers and manufacturers • Verizon, Sprint, Nokia, Motorola, RIM, Symbian – Android allowed them to fight back Disruptive business model – Android is free – Advertising business model – Search, Maps, Local, Wallet, YouTube 22
  • 23.
    Harvard innovation lab: Michael J Skok : Startup Secrets : Business Model Hi www.mjskok.com #innovationlab @mjskok #startupsecrets Business Models Matter ! Don Dodge Google dondodge@google.com 23
  • 24.
    Harvard innovation lab: Michael J Skok : Startup Secrets : Business Model Hi www.mjskok.com #innovationlab @mjskok #startupsecrets Creating Value 24
  • 25.
    Harvard innovation lab: Michael J Skok : Startup Secrets : Business Model Hi www.mjskok.com #innovationlab @mjskok #startupsecrets Startup Secret: Co-creating Value • Be Open and Extensible (eg Software APIs) – Enabling external multipliers to your value – Building on yourself – Eating your own cooking – Being your own customer • Open Source – Leverage through community – Make the customer the product manager • Scratching their own itch 25
  • 26.
    Harvard innovation lab: Michael J Skok : Startup Secrets : Business Model Hi www.mjskok.com #innovationlab @mjskok #startupsecrets Startup Secret: Co-creating Value • Be Open and Extensible (eg Software APIs) – Enabling external multipliers to your value – Building on yourself – Eating your own cooking – Being your own customer • Open Source – Leverage through community – Make the customer the product manager • Scratching their own itch 26
  • 27.
    Dries Buytaert Founder andproject lead Drupal Co-founder and CTO Acquia http://buytaert.net :: @Dries
  • 28.
    1 out of50 websites in the world 10,000+ modules 300,000+ downloads/month 1.5M unique visitors/month FREE
  • 29.
    Open Source isnot just a software license, it is also a development model 1,000 people contributed to Drupal 7
  • 31.
  • 32.
    Drupal and OpenSource is a catalyst for - “Creative destruction” Changes how we develop “Creative Destruction” software - Changes how we build websites - Changes a multi-billion dollar industry - Open Source enables business model innovation Joseph Schumpeter Joseph Schumpenter, - Bonus: allows to do well, Economist, 1883-1950 and do good
  • 33.
    Harvard innovation lab: Michael J Skok : Startup Secrets : Business Model Hi www.mjskok.com #innovationlab @mjskok #startupsecrets Delivering & Capturing Value 33
  • 34.
    Harvard innovation lab: Michael J Skok : Startup Secrets : Business Model Hi www.mjskok.com #innovationlab @mjskok #startupsecrets Startup Secret: Multipliers & Levers Multiply and Leverage your CORE Multipliers: Levers: • Increase revenue • Reduce time • Increase reach • Reduce costs • Increase coverage Multipliers • Reduce resources Levers CORE 34
  • 35.
    Harvard innovation lab: Michael J Skok : Startup Secrets : Business Model Hi www.mjskok.com #innovationlab @mjskok #startupsecrets Drupal, Open Source Multiplies AND Leverages CORE •Multipliers: •Levers: • Added functionality • Community • Community reach development • Community marketing Multipliers Levers CORE 35
  • 36.
    Harvard innovation lab: Michael J Skok : Startup Secrets : Business Model Hi www.mjskok.com #innovationlab @mjskok #startupsecrets Startup Secret: Multipliers & Levers Examples in Software Multiplier Examples: Lever Examples: • Sales & Marketing • Sales & Marketing – Tiered Pricing – Web – Freemium – Inside – Channel partners – Inbound • Product – Viral – Slippery products * • Product, Support Multipliers – “Russian Doll” – Offshoring Packaging * CORE Levers – Outsourcing – Technology stacks – Crowdsourcing – Co-creation * – Technology stacks * Covered herein 36
  • 37.
    Harvard innovation lab: Michael J Skok : Startup Secrets : Business Model Hi www.mjskok.com #innovationlab @mjskok #startupsecrets Get Multipliers & Levers working together! • Strategies that enable Multipliers and Levers to work together around your CORE are the real winners 37
  • 38.
    Harvard innovation lab: Michael J Skok : Startup Secrets : Business Model Hi www.mjskok.com #innovationlab @mjskok #startupsecrets Acquia Mary Jefts, CFO Fastest growing software company in the US 38
  • 39.
    Acquia At AGlance • Provider of cloud-based solutions/support for enterprises using the open source product, Drupal • 2000+ customers • 250+ employees • 150% 4 year CAGR • Global operations • Highly predictable and repeatable model • Land and expand strategy PROPRIETARY AND CONFIDENTIAL - do not redistribute
  • 40.
    Acquia Business Model •Drupal is FREE • It is also Open Source • So how do you make money from FREE and Open IP? 1. Create valuable products and services around the CORE of Drupal 2. Use FOSS as multiplier and a lever in R&D, sales and marketing
  • 41.
    Acquia products aroundDrupal CORE Professional Drupal Services Training Drupal Enterprise Site Factory Gardens Acquia Managed Deployments Cloud Acquia Drupal Management Suite Network CONTENT COMMUNITY COMMERCE
  • 42.
    Free and OpenSource Software (FOSS) • As a multiplier AND a lever - in R&D, sales and marketing Example Multipliers: Example Levers: • Upsell value added • Target installed base products & services • Expand usage through • Cloud & SaaS partners Multipliers Levers CORE
  • 43.
    Harvard innovation lab: Michael J Skok : Startup Secrets : Business Model Hi www.mjskok.com #innovationlab @mjskok #startupsecrets Strategic Partnership EG: “Whole Product” Strategic Partnership Multipliers: Levers: • Increase revenue • Reduce time to market through fuller Services • Reduced dev costs solution Multipliers Application s Lever • Increase reach CORE Database through their sales Storage force, channel etc. • Credibility Integrate your CORE into their technology stack 43
  • 44.
    Harvard innovation lab: Michael J Skok : Startup Secrets : Business Model Hi www.mjskok.com #innovationlab @mjskok #startupsecrets What makes a partner strategic? • Symbiotic multipliers & levers (win-win) + Product + Distribution + other • 1+1 > 2 in joint market leverage – Ousting competitors, driving share • Can create potential exit 44
  • 45.
    Harvard innovation lab: Michael J Skok : Startup Secrets : Business Model Hi www.mjskok.com #innovationlab @mjskok #startupsecrets An ideal ideal (win-win) Strategic Partner Example What You Get What They Get • Complete your • Competitive advantage “WHOLE Product” • Interested ARPU - Increase Value (LTV) • Time to Market • Channels to reach YOUR target customer - Reduce Selling Cost (CAC) • Credibility 45
  • 46.
    Harvard innovation lab: Michael J Skok : Startup Secrets : Business Model Hi www.mjskok.com #innovationlab @mjskok #startupsecrets Devil in the Deal tails For example • Co-sell – who is incented? • Resell – who is supporting? • OEM – what is your upsell? Traps to Avoid! • Co-dependent risk • Dependence on other startups 46
  • 47.
    Harvard innovation lab: Michael J Skok : Startup Secrets : Business Model Hi www.mjskok.com #innovationlab @mjskok #startupsecrets One more thing… 47
  • 48.
    Harvard innovation lab: Michael J Skok : Startup Secrets : Business Model Hi www.mjskok.com #innovationlab @mjskok #startupsecrets Designing for success… • Product feeds the business model… – User experience – Supportability – Maintenance, updates (= lifecycle) – Upgrades – Upsells • Leads to 2 startup secrets – Russian Dolls & SLIPPERY products 48
  • 49.
    Harvard innovation lab: Michael J Skok : Startup Secrets : Business Model Hi www.mjskok.com #innovationlab @mjskok #startupsecrets Friction Free, SLIPPERY products • Simple • Low to no initial cost Gain • Installs easily Pain • Proves value quickly • Plays well with others Think of how this improves • Easy to use the Gain/Pain Ratio in our Value Proposition • ROI is obvious Workshop • Y customers can’t live without it 49
  • 50.
    Harvard innovation lab: Michael J Skok : Startup Secrets : Business Model Hi www.mjskok.com #innovationlab @mjskok #startupsecrets What makes Drupal SLIPPERY? • Simple: Update your site from the browser • Low to no initial cost: free • Installs easy: Windows/Mac installers + SaaS • Proves value quickly: Distributions + Start using immediately • Plays well with others: Lots of integrations with other platforms • Easy to use: Web-based • ROI is obvious: Better, faster, cheaper • Your customers can’t live without: flexibility and 50
  • 51.
    Harvard innovation lab: Michael J Skok : Startup Secrets : Business Model Hi www.mjskok.com #innovationlab @mjskok #startupsecrets Startup Secret: Build a Russian Doll! • Multi purpose strategy – Packaging – Pricing – Distribution – And more … 51
  • 52.
    Harvard innovation lab: Michael J Skok : Startup Secrets : Business Model Hi www.mjskok.com #innovationlab @mjskok #startupsecrets Incent Free 52
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    Harvard innovation lab: Michael J Skok : Startup Secrets : Business Model Hi www.mjskok.com #innovationlab @mjskok #startupsecrets Freemium … Limited Free 53
  • 54.
    Harvard innovation lab: Michael J Skok : Startup Secrets : Business Model Hi www.mjskok.com #innovationlab @mjskok #startupsecrets OEM Solution… Personal Limited Free 54
  • 55.
    Harvard innovation lab: Michael J Skok : Startup Secrets : Business Model Hi www.mjskok.com #innovationlab @mjskok #startupsecrets Premium … Workgroup Personal Limited Free 55
  • 56.
    Harvard innovation lab: Michael J Skok : Startup Secrets : Business Model Hi www.mjskok.com #innovationlab @mjskok #startupsecrets Sales enabler … Corporate Workgroup Personal Limited Free 56
  • 57.
    Harvard innovation lab: Michael J Skok : Startup Secrets : Business Model Hi www.mjskok.com #innovationlab @mjskok #startupsecrets Adoption … Enterprise Corporate Workgroup Personal Limited Free 57
  • 58.
    Harvard innovation lab: Michael J Skok : Startup Secrets : Business Model Hi www.mjskok.com #innovationlab @mjskok #startupsecrets Startup Secret: Russian Doll Packaging “Addiction before Adoption” Gives you, your partners & your customers: • Digestible starting point • Upsell Options • Channel Flexibility … and more 58
  • 59.
    Harvard innovation lab: Michael J Skok : Startup Secrets : Business Model Hi www.mjskok.com #innovationlab @mjskok #startupsecrets Startup Secret: Russian Doll Packaging “Addiction before Adoption” Acquia example = increasing LTV “Land & Expand” Upsell LTV On- / Cross $400 board Sell $300 $200 Acquire $100 $0 59
  • 60.
    Harvard innovation lab: Michael J Skok : Startup Secrets : Business Model Hi www.mjskok.com #innovationlab @mjskok #startupsecrets Putting it all together Create, Deliver & Harness Value 60
  • 61.
    Harvard innovation lab: Michael J Skok : Startup Secrets : Business Model Hi www.mjskok.com #innovationlab @mjskok #startupsecrets Basic Startup Model • Lifetime Value of Customer (LTV) • Cost of Acquiring Customer (CAC) LTV ~3x > CAC Multipliers Levers CORE 62
  • 62.
    Harvard innovation lab: Michael J Skok : Startup Secrets : Business Model Hi www.mjskok.com #innovationlab @mjskok #startupsecrets % of Revenue spent… • Example: – Phases of a software company Development Target Gross Margin 80% R&D 100%+ 15% Sales & Marketing 10% G&A 45% Profit (Loss) -100% 20% 63
  • 63.
    Target Business Model- Demandware 2010 Q4 2010 2011 Q4 2011 Target Revenue 100% 100% 100% 100% 100% Cost of Revenue 40% 36% 35% 28% 30% Gross Margin 60% 64% 65% 72% 70% R&D 17% 14% 20% 15% 12% Sales and Marketing 30% 27% 35% 30% 25% G&A 11% 9% 11% 11% 8% Operating Income 3% 15% (1)% 16% 25% (Loss) Copyright 2012 Demandware, Inc. – CONFIDENTIAL | 65
  • 64.
    Target Business Model:Acquia 62% 62% 61% 51% 53% L/T Model 48% 53% 43% based on 48% 29% 29% 44% 21% 21% 19% 19% 25% profitable 43% 50% 15% subscription 43% 65% 45% 45% 44% 44% 35% based 19% 19% 14% 14% 11% 11% 11% 11% 10% software company
  • 65.
    Harvard innovation lab: Michael J Skok : Startup Secrets : Business Model Hi www.mjskok.com #innovationlab @mjskok #startupsecrets What makes for a GREAT business model? • Repeatable • Scalable – with leverage • Profitable / Sustainable • Predictable • Valuable 67
  • 66.
    Highly Predictable andRepeatable Financial Model • Today: - 70% of all bookings are renewable subscriptions - 30% are consulting services (key differentiator) - 85%+ annual renewal rate for non-project work • Long-term Model: - 80% renewable subscriptions - 20% consulting services - 90% annual renewal rate for non-project work
  • 67.
    Overall Result: DisruptiveBusiness Model for Acquia’s Continued Growth New Existing Customers Customers New Geographies Cross-sell Up-sell New Partners New Sites New Verticals New Products Potential M&A
  • 68.
    Harvard innovation lab: Michael J Skok : Startup Secrets : Business Model Hi www.mjskok.com #innovationlab @mjskok #startupsecrets What makes you valuable? Many factors, but some play more of a role than others in your business model… (with thanks to Goldman Sachs) 70
  • 69.
    Harvard innovation lab: Michael J Skok : Startup Secrets : Business Model Hi www.mjskok.com #innovationlab @mjskok #startupsecrets Valuations – SaaS 2013 Revenue Multiples Median 5.2x 2012-2013 Revenue Growth 71
  • 70.
    Harvard innovation lab: Michael J Skok : Startup Secrets : Business Model Hi www.mjskok.com #innovationlab @mjskok #startupsecrets Valuations – SaaS 2013 Revenue Multiples Median 5.2x 2012-2013 Revenue Growth 72
  • 71.
    Harvard innovation lab: Michael J Skok : Startup Secrets : Business Model Hi www.mjskok.com #innovationlab @mjskok #startupsecrets Valuations – SaaS 73
  • 72.
    Harvard innovation lab: Michael J Skok : Startup Secrets : Business Model Hi www.mjskok.com #innovationlab @mjskok #startupsecrets Valuations – SaaS 74
  • 73.
    Harvard innovation lab: Michael J Skok : Startup Secrets : Business Model Hi www.mjskok.com #innovationlab @mjskok #startupsecrets An important refinement • Retention • Upsell 75
  • 74.
    Harvard innovation lab: Michael J Skok : Startup Secrets : Business Model Hi www.mjskok.com #innovationlab @mjskok #startupsecrets Retention 76
  • 75.
    Harvard innovation lab: Michael J Skok : Startup Secrets : Business Model Hi www.mjskok.com #innovationlab @mjskok #startupsecrets Upsell 14 x leverage! 77
  • 76.
    Harvard innovation lab: Michael J Skok : Startup Secrets : Business Model Hi www.mjskok.com #innovationlab @mjskok #startupsecrets Basic Startup Model • Lifetime Value of Customer (LTV) • Cost of Acquiring Customer (CAC) LTV ~3x > CAC Multipliers Levers CORE 78
  • 77.
    Harvard innovation lab: Michael J Skok : Startup Secrets : Business Model Hi www.mjskok.com #innovationlab @mjskok #startupsecrets The Model Refined – Enabling Retention & Upsell • Lifecycle Value of Customer (LCV) • Cost of Acquiring & Re-Engaging Customer (CARC) Multipliers Levers Up-sell CORE Re-Trial 79
  • 78.
    Harvard innovation lab: Michael J Skok : Startup Secrets : Business Model Hi www.mjskok.com #innovationlab @mjskok #startupsecrets Re-engagement Costs • Must be included in CARC • Example: – Support – Customer Service – Professional Services 80
  • 79.
    Harvard innovation lab: Michael J Skok : Startup Secrets : Business Model Hi www.mjskok.com #innovationlab @mjskok #startupsecrets Connecting it to Gain/Pain • They are two views of the same principle: – Customer view = Gain/Pain – Vendor view = LCV/CARC Multipliers Levers Up-sell CORE Re-Trial 81
  • 80.
    Harvard innovation lab: Michael J Skok : Startup Secrets : Business Model Hi www.mjskok.com #innovationlab @mjskok #startupsecrets Build for a long lifetime… 82
  • 81.
    Harvard innovation lab: Michael J Skok : Startup Secrets : Business Model Hi www.mjskok.com #innovationlab @mjskok #startupsecrets A typical product lifecycle But it doesn’t have to be this way ! Long, costly (CAC), slow payback, EXTENDED lifetime value (LTV) See Try Buy Fly Die 83
  • 82.
    Harvard innovation lab: Michael J Skok : Startup Secrets : Business Model Hi www.mjskok.com #innovationlab @mjskok #startupsecrets Adding Retention and Upsell Extended Up-sell Lifecycle Re-Trial Long, costly (CAC), slow payback, EXTENDED lifetime value (LTV) See Try Buy Fly Die 84
  • 83.
    Harvard innovation lab: Michael J Skok : Startup Secrets : Business Model Hi www.mjskok.com #innovationlab @mjskok #startupsecrets A disruptive & valuable lifecyle Subscription SaaS On demand Self service Up-sell Extended Extended Up-sell Re-Trial Lifecycle Lifecycle Re-Trial Open source Web short, low cost (CARC), quick payback, extended lifecycle value (LCV) See Try Buy Fly Die 85
  • 84.
    Harvard innovation lab: Michael J Skok : Startup Secrets : Business Model Hi www.mjskok.com #innovationlab @mjskok #startupsecrets Applied to Software 1990+ 2010+ • Installed by IT  Web based • Customized  Self service • Infrequent upgrades  On demand, SaaS • Proprietary  Open Source • License  Subscription Subscription SaaS On demand Self service Extende Extende d Up-sell d Re-Trial Up-sell …a fundamentally disruptive & more valuable Open source Lifecycl e Lifecycl e Web business model short, low cost (CAC), quick payback, EXTENDED lifetime value (LTV) 86
  • 85.
    Harvard innovation lab: Michael J Skok : Startup Secrets : Business Model Hi www.mjskok.com #innovationlab @mjskok #startupsecrets Case example – Demandware (NYSE:DWRE) See the full case example here http://www.mjskok.com/resources/business-model Demandware is presented as an example of a company that leveraged it’s SaaS technology disruption with a fundamentally different business model to it’s competitors, creating innovation on demand for it’s customer and making partners out them with a shared success model. 87
  • 86.
    Demandware business model– simplified summary  Create: Development plus LINK partnerships – Traditional R&D with leverage from LINK partners for whole product  Deliver: SaaS – On Demand Commerce Innovation NOT Infrastructure  Harness: % of GMV payment – Shared success with customers Copyright 2012 Demandware, Inc. – CONFIDENTIAL | 88
  • 87.
    Commerce Innovation. NotInfrastructure. See the full case example here http://www.mjskok.com/resources/business-model
  • 88.
    Harvard innovation lab: Michael J Skok : Startup Secrets : Business Model Hi www.mjskok.com #innovationlab @mjskok #startupsecrets Summary • Disruptive Business Model – as significant as Technology • Focus on CORE differentiation • Multiply and Leverage it with innovation like:- – Co-Creation – Strategic Partners – Russian Doll Packaging – And Friction Free, SLIPPERY products • Design for high value using LCV & CARC 90
  • 89.
    Harvard innovation lab: Michael J Skok : Startup Secrets : Business Model Hi www.mjskok.com #innovationlab @mjskok #startupsecrets Startup Secrets - Series • Sep 11: Perfect Pitch • Oct 11: Value Proposition • Oct 16: Company Formation • Nov 13: Business Model • Dec 4: Go-To-Market Strategy 91
  • 90.
    Harvard innovation lab: Michael J Skok : Startup Secrets : Business Model Hi Hi Harvard innovation lab #innovationlab @mjskok #startupsecrets www.mjskok.com START UP SECRETS An insider’s guide to unfair competitive advantage Business Model MICHAEL J SKOK North Bridge Venture Partners twitter: @mjskok mjskok.com 92

Editor's Notes

  • #26 Building communities is not simple Scratch your own itch
  • #35 Market share
  • #36 Market share
  • #37 Market share
  • #38 Strategies that enable Multipliers and Levers to work together around your CORE are the real winners
  • #42 Create valuable products and services around the CORE of Drupal
  • #44 But it has to be win/winOEM, relies on upsell
  • #46 Could you find a larger strategic partner who needed you to complete their “whole product” AND that had channels to reach your target customers AND that multiplied your go to market value and effectiveness?