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?
HOW TO BUILD A VIABLE BUSINESS MODEL ? Tanguy Lesselin
Agenda • The Business Model Canvas • How good is your business model • The investor perspec<ve • A few examples • How to manage a pivot?
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
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
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.
What is the one thing that makes you stand out?
Focus on it, build on it, and iterate around it
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
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
Micro economics Cost of AcquisiJon < Life Time Value
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
Life Time Value (LTV) • Contribu<on, not revenues • Don’t forget the churn
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
It is all about the slope LTV CoA $1 $10 $10 $100 $50,000 $500,000
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
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)
The investor perspecJve and a few examples Piyush Chaplot Innosight Ventures
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
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
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
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