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How to build a viable business model?
- 1. HOW TO BUILD A VIABLE BUSINESS MODEL ? Tanguy Lesselin
- 2. Agenda • The Business Model Canvas • How good is your business model • The investor perspec<ve • A few examples • How to manage a pivot?
- 3. Start-‐up vs company Start-‐up Company • Iterate product, • Execute iden<fied customer discovery, go-‐ business model and scale to-‐market, value • Maximize growth, share, proposi<on… compe<<ve posi<on • Reach Product-‐Market • Move from $1m to $50m Fit quickly • Iden<fy and validate a business model
- 4. THE BUSINESS MODEL CANVAS
- 5. Business Model? • Customer selec<on • Unique Value Proposi<on 1995 • Go-‐to-‐market • Business Processes • Value capture
- 8. There are many possibiliJes • For each product idea, maybe 3 poten<al revenue streams • For each customer segment, 3-‐4 channels • For each business idea, 3-‐4 customer segments • Etc… Need to map op<ons and evaluate before you start
- 9. Examples of a few choices • Free / Freemium / Paid • Large accounts vs long tail • Niche vs mass • User Generated Content vs curated • Adver<sing vs direct mone<za<on • Marketplace vs B2B so]ware • Etc.
- 10. What is the one thing that makes you stand out?
- 11. Focus on it, build on it, and iterate around it
- 12. HOW GOOD IS YOUR BUSINESS MODEL?
- 13. Viable business model for dummies • You create value for “someone” • There are enough “someone” • You can find them at reasonable cost • They are willing to pay you • They pay you J • You get paid more than what the product costs • You can reach profitability reasonably fast • The required investment is low enough to be found
- 14. What is a great business model? • It is scalable • You get paid before you spend • You get a recurring revenue • You build or secure an exclusive asset • Others do the work for you (UGC) • Your product is highly viral • You destroy or create an industry
- 15. Examples of great business models
- 16. Micro economics Cost of AcquisiJon < Life Time Value
- 17. Cost of AcquisiJon (CoA) • Fully loaded cost (ad space, PR, K Factor, sales…) • Divide by # of new ac<ve / paying customers $ Cost # Google 20,000 # new visitors (*) 400,000 Sales people 10,000 # new registered users 50,000 SEO service 3,000 # new ac<ve users 10,000 Total 33,000 # new buyers 1,000 CoA = 33,000 / 1,000 = $33 (*) coming directly from marke<ng investment and ac<vi<es performed in the relevant period
- 18. Life Time Value (LTV) • Contribu<on, not revenues • Don’t forget the churn
- 19. Payback on Customer AcquisiJon • If you invest $1,000, how long does it take to pay back the investment so you can reinvest and grow? Payback = 33 / 37.5 *12 = 10.5 months # new customers year 1 = 1000 / 33 * 12 / 10.5 = 34.6 • What if you divide CoA by 2 # new customers year 1 = 34.6 * 2 = 69.2
- 20. It is all about the slope LTV CoA $1 $10 $10 $100 $50,000 $500,000
- 21. Reducing CoA • Op<mize channels • Virality • SaaS / Freemium LTV • Cool partnerships CoA • Kill unprofitable customer segments
- 22. Increasing LFT • Increase value delivered to customers • Cross-‐sell / upsell • Tiered pricing • Subscrip<on model LTV • Work on reten<on: CoA – Improve customer sa<sfac<on – Create low pain switching costs
- 23. A few comments on pricing • Price at a share of the value you create (10-‐30%?) • Cost+ is ok / necessary if variable cost (if not profitable, then it is a marke<ng investment) • Freemium makes sense for long tail / uniden<fiable customers • If sales mee<ng required, beware of profitability (charge minimum of say $10k) • It is ok / good to increase prices when targeted customer segments are not price sensi<ve • Create pricing structure that enables to get paid early (credits for future, see iStockphoto)
- 24. The investor perspecJve and a few examples Piyush Chaplot Innosight Ventures
- 25. HOW TO MANAGE A PIVOT?
- 26. What pivoJng requires • Cold analysis on the real numbers (how do they compare with ini<al expecta<ons?) • Acknowledgment that current model does not work • Iden<fica<on of a promising new business model hypothesis (ideally the pivot comes from customer demand) • A bit of courage to make the decision and communicate it (though it should be a natural team decision) • Energy to just do it
- 27. What pivoJng implies (example) • Reorganize team – some stay, some leave • Rework all legal documents • Create new communica<on and sales methods • New metrics to accurately measure progress • Search for new investors matching the new vision • … Work on your ability to pivot fast with the least possible fric<on
- 28. A few interesJng sources • Business Model Genera<on: www.businessmodelgenera<on.com • Slideshare: hqp://www.slideshare.net/colinraney/planningness-‐2011 hqp://www.slideshare.net/innova<onexcellence/10-‐business-‐models-‐ that-‐rocked-‐2010-‐7896384 hqp://www.slideshare.net/Alex.Osterwalder/talk-‐with-‐steve-‐blank-‐at-‐ true-‐ventures hqp://www.slideshare.net/sblank/successful-‐entrepreneurship-‐1
- 29. Previous presentaJons • Build and mo<vate your dream team: hqp://www.slideshare.net/tlesselin/firing-‐up-‐your-‐dream-‐team • Gesng start-‐up financing in Singapore: hqp://www.slideshare.net/tlesselin/120524-‐financing-‐slideshare • How to make a Rock Star product: hqp://www.slideshare.net/tlesselin/how-‐to-‐make-‐a-‐rock-‐star-‐product