How to build a viable business model?

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What makes a business model viable? How to move it from viable to great? What are the key metrics to analyze business model performance? How and when should you decide to change your business model? How to manage the transition?

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How to build a viable business model?

  1. 1. HOW  TO  BUILD   A  VIABLE  BUSINESS  MODEL   ?   Tanguy  Lesselin  
  2. 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. 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. 4. THE  BUSINESS  MODEL  CANVAS  
  5. 5. Business  Model?   •  Customer  selec<on   •  Unique  Value  Proposi<on  1995   •  Go-­‐to-­‐market   •  Business  Processes   •  Value  capture  
  6. 6. www.businessmodelalchemist.com  www.businessmodelgenera<on.com  
  7. 7. www.businessmodelalchemist.com  www.businessmodelgenera<on.com  
  8. 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. 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. 10. What  is  the    one  thing    that  makes  you  stand  out?  
  11. 11. Focus  on  it,  build  on  it,   and  iterate  around  it  
  12. 12. HOW  GOOD  IS  YOUR   BUSINESS  MODEL?  
  13. 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. 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. 15. Examples  of  great  business  models  
  16. 16. Micro  economics  Cost  of  AcquisiJon   <    Life  Time  Value  
  17. 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. 18. Life  Time  Value  (LTV)  •  Contribu<on,  not  revenues  •  Don’t  forget  the  churn  
  19. 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. 20. It  is  all  about  the  slope   LTV   CoA   $1   $10   $10   $100   $50,000   $500,000  
  21. 21. Reducing  CoA   •  Op<mize  channels   •  Virality   •  SaaS  /  Freemium   LTV   •  Cool  partnerships  CoA   •  Kill  unprofitable   customer  segments  
  22. 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. 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. 24. The  investor  perspecJve  and  a   few  examples     Piyush  Chaplot   Innosight  Ventures    
  25. 25. HOW  TO  MANAGE   A  PIVOT?  
  26. 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. 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. 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. 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    

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