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Allan Chao Startup Consultant Startup V8 allan@startupv8.com UC Berkeley Extension, Summer 2012
Question of the day:
What is the difference between an idea, a product, a business, and a company?
Humor of the day:
The Agenda Quiz
Quick review of last session
Marketing
Distribution, Advertising, and Promotion
Revenue Models and Sales
Quiz Time
Good luck!
10 minutes max
Quick review of prior material Hosting
Server
Data Center
Hosting Options
Dedicated Hosting
Shared Hosting
Virtual Private Server (VPS)
Colocation
Cloud Hosting
Buying hosting
Cheap options
Rackspace, Softlayer
Deployment
FTP = File Transfer Protocol
Filezilla
Multiple environments
Dev > QA > Staging > Production
Build Process
Advanced Deployment tools
Release planning
Firefox example of staggered releases
Project Management
Gantt Chart
Agile Development
Project Management tools
Budgeting
Ninety-ninety rule
Deployments on closed platforms
Hiring Developers
Managing developers
Extreme Programming
Code Reviews
Outsourcing
Positioning and Targeting Once sentence description of what your product is and who
the customer is In-class exercise, go around the room, everyone say your
one-sentence description.
Position Differentiation from Competitors Value Proposition = what’s special about your product
Targeting Who is your target audience Demographics, psychographics Segmenting
Differentiation Positioning and Targeting
USP = Unique Selling Proposition What do you offer that no one else does?
What do you offer better than competitors?
Examples Newest, coolest, best?
Cheapest, Best value?
Most convenient?
Most prestigious?
Most features?
Unique features?
Competitors There will be competitors
They could have VC funding
Their team is equally or more passionate than you
As soon as an opportunity is recognized, competitors pop up everywhere.
Usually not exact clones, but have some differentiation
Generally, only one big winner will emerge.
Network-effect startups are in winner-take-all markets
Handling Competitors What are your competitors doing right? What are they doing wrong? Use their mistakes to differentiate and push them out
Portable music existed before iPods Search existed before Google Social networks existed before Facebook
First Mover Advantage is a myth Why?
Finding the product-market fit is much harder Market may not be ready for your product, even if it is better
Product is much costlier to build
Make all the “first timer” learning mistakes
Investors are wary of first-to-market Highest risk among the high risk
If there are no competitors, maybe there is no opportunity (other entrepreneurs tried and failed)
Requires high capital to “land grab” If there is an opportunity, competitors will appear quickly
Focusing on Niche Niche = small section of the total market
E.g. Facebook
Why? Better product for the niche
Focused marketing message
Easier to reach critical mass
Brand recognition
Exclusivity effect
After success, expand
Policy Year
Harvard Feb, 2004
Stanford, Columbia, Yale
Mar, 2004
Ivy league schools 2004
All universities 2004
Universities internationally
Oct-Dec 2005
High schools Sep 2005
Anyone Sep 2006
Critical Mass Is the minimum number of users you need for your
service to be useful for a new user. Reaching “traction”
Mostly relevant to startups with strong network effects Social Networks
Crowdsourcing sites Yelp
Anything requiring concurrency Real time gaming
Two sided markets
Two-sided markets Most commonly buyers and sellers
Ebay
Airbnb
elance.com
Which side are you making free or cheap?
Which side are you charging?
Source Data analysis
Conversion Funnels
If you build it, they won’t come.
If you build it, they won’t come.
Options for a Web Startup Online marketing
SEO
PPC
Social Media
PR
Offline Marketing
“on-the-ground” campaigns
Events
Traditional marketing
TV, radio, magazines, etc.
SEO = Search Engine Optimization aka “organic” listings
“I want to be on the top of Google!”
For small businesses, target “long-tail” keywords. E.g. “San Francisco flood repair”, not “flood repair”
Very complex algorithms, constant changes
Can be very challenging, depending on market saturation
“Guaranteed rankings” are “blackhat”! Google will ban the site!
Trust is very important, fraud/cheating is pervasive
SEO Implementation Search engine friendly website design and code
URLs
HTML tags
Keyword research and keyword targeting
Content Create meaningful content, bring people to your site
Blog
Links
Learn more SEOmoz.com
SEM = Search Engine Marketing aka Keyword advertising
Google Adwords, Bing, Yahoo
Pay per click, $0.50-$20, depending on keywords
Much more stable source leads
Must be set up correctly, or else could be wasting money
Many factors still at play, such as quality score
Google Adwords Pay-per-click
Set up ads
Set up keywords
What about Social Media? What is Social Media?
Blogs (Wordpress, Blogger) Social Networks (Facebook, LinkedIn) Microblogs (Twitter) Location-based (Foursquare) Events (meetup.com, Eventbrite) News and Bookmarking (Digg,
Delicious) Much, much more
Free or very cheap, but massive time investment without obvious ROI
Very common, almost necessary, for startups
Public Relations Hiring PR too early is a
common mistake for startups Newsworthy?
First Launch Launch or feature or offer Current events, like
partnerships
What’s the message? Message for the startup
Target a specific writer Someone who already writes
about the topics
Launch Strategy Do a hot launch, not a cold launch (Launch page)
Optimize SEO and blog
Advertise if necessary
Use social media
List the company on startup sites (e.g. Crunchbase)
Target specific PR journalists
Learn more here: http://www.quora.com/Whats-the-best-launch-strategy-for-a-web-startup
Analytics Track everything!
Usage statistics
User sources
Referrals
Errors
Etc.
Google Analytics
HubSpot
SEOMoz
Virality K-factor
On average, how many new users will one user refer
>1 … sustained growth
<1 … sustained loss
must be covered with advertising
All those sharing buttons
The most effective marketing Word of mouth, personal referrals
Money… Profit (or pursuit of profit)
is the difference between a hobby and a business
You need revenue to make a profit. Lots of revenue.
Importance of a Revenue Model? How high are you aiming?
IPO / acquisition / lifestyle business
The higher you aim, the less important revenue is at the beginning But without revenue… need venture capital
Different Business Models Business to consumer
Fastest, highly analytics driven
Business to SMB
Medium, sales cycle with analytics
Business to enterprise
Slowest, long sales cycle
3 Basic Revenue Models (for websites)
Advertising
Subscription
Freemium = Free + Premium
Transaction
http://startupmodels.blogspot.com/2012/02/revenue-models-for-startups.html
Advertising
If you’re not paying for it, you’re not the customer; you are the product being sold
Significantly Detracts from user experience
Requires broad reach and massive scale to generate large revenues
Easier for lifestyle business, much more difficult for IPO/Acquisition
Revenue depends on conversion rate, which depends on many factors
RPM (revenue per mille) How much to make $1000/month
General: $1 RPM 1 million pageviews/month
Demographic targeting $5 RPM 200,000 pageviews/month
Endemic advertising $20 RPM 50,000 pageviews/month
Subscription based Freemium = Free + Premium
Free plan to get registered users
Free plan is limited, must pay monthly for more
Metrics
Conversion rate
Churn rate
CLTV Customer lifetime value
CPA Cost per acquisiton
Conversion Funnel Starts at all visitors
Loss at each step
Eventually, a small number
Free Paid conversion rate tends to be around 1-3%
Those few paying users must cover the expenses of free users
Churn Rate = the rate of people unsubscribing
Example 500 monthly subscribers at $10/month
each $5,000/m
8% monthly subscribers leave each month 40 leave
Just to stay steady, you need 40 new paid subscriptions monthly To grow, you need more than 40 per month
Conversion rate applied (in reverse) 40 new subscriptions
2,000 (2% CR) total subscriptions
10,000 (20% CR) total new visitors
Other Revenue Models (for websites)
These models are less common
Selling data to data miners
In-app sales
Virtual items in games
Patenting technology and Licensing it
Donations / pay-what-you-want
Product Market Fit Achieving “Product Market Fit” means success
How to do it?
Customer development
Release early
Listen to feedback
Sell it to customers
Learn and iterate
The Pivot Back to disruptive innovation
Never been tried before
No one knows if it will be successful
It’s like an experiment If it fails, change your hypothesis, try again
Change a core section of your business model Product-market fit
Examples Online game “Game Neverending” → Web photo sharing (Flickr)
PDA payments → Email/web payments (Paypal)
Animation equipment → Animated movies (Pixar)
Homework Individual, read the following:
10 business models that rocked http://www.slideshare.net/boardofinnovation/10-business-models-that-rocked-2010-6434921
Browse this: The noob guide to online marketing http://www.seomoz.org/blog/the-noob-guide-to-online-marketing-with-giant-infographic-11928
Browse this: How to get Media Coverage for your Startup http://onstartups.com/tabid/3339/bid/80121/How-To-Get-Media-Coverage-For-Your-Startup-A-Complete-Guide.aspx
(Team) Prepare your Final Presentation Use the pitch deck from class 2 as a basis Product Demo should be max 5 min of your 10-15 min presentation
(Team) Keep Going!! Keep programming Keep working on the pitch deck Keep marketing your new startup Occasionally review the market research data (Google Analytics, etc.)
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