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STARTIAP 2016
BUILD A STARTUP IN FOUR WEEKS
Elaine Chen
Business models 101
January, 2016
What are you leaving with today
• A list of possible business models relevant to
your venture
• Everything you need to know to hallucinate a
5-year forecast for your venture (hopefully)
2
Before we begin:
3
“FREE” IS NOT A BUSINESS MODEL
WhatsApp, FB, Twitter are anomalities. Why won’t you do the hard work now and play to win?
>40 out of 940
companies funded
by America’s most
elite accelerator
are woth more
than $100M (4%)
Read this in your spare time
4
But really, it ’s very simple
• 3 classes of approaches
– Transaction based
– Subscription based
– Advertising based
• One factor that drives the LTV/COCA ratio
– One and done versus recurring revenue stream
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Some examples
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Transactional Subscription Ad-based
Common wisdom
• Simple is beautiful
– You are building a hypothesis of what works, so you can test in the field. Complexity will befuddle you.
• Ad based is hard
– Ad-based needs scale, scale needs awareness, awareness needs time and money startups don’t have
– Most investors will be skeptical
• One and done is hard
– Recurring revenue stream creates much needed sanity in the chaos of a startup
7
Why is one and done hard?
8Source: David Skok’s 2015 SaaS survey infographic
Anything can be made recurring
9
Ways to get to a recurring business model
• Gillette Razor blades, transactional
• Keurig K-cups, transactional
• Uber, transactional
• Amazon Subscribe-and-save, subscription
• Industrial automation field service plans, subscription
• Industrial automation field repair, transactional
• C-space – subscription
• LinkedIn – subscription (true freemium)
• Atlassian –subscription (pseudo-freemium)
• Rackspace – subscription (no freemium)
• AWS – metered transactional
• …
10
Workshop activity: Business Models
Enumerate all the business models you can think
of that is relevant to your venture and classify
them by the 3 approaches (transactional,
subscription, ad-based). Think about ways to
maximize life time value. See if you can come up
with a recurring revenue model.
Pick the one you think works best and explain why.
11
Sharing!
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Case study: Atlassian
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• Market leading software dev and mgmt tools
• Profitable for 10 years, 48.5% growth YOY ‘15
• Revenue $320M in 2015
• IPO late 2015 – Valued at $5.8B
• 48,000 paying corporate customers
• >5m active users
• 864 customers spent $50,000+
• Great customer retention (Cisco, Kroger, Verizon were customers since 2003)
“Pseudo-freemium”
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Pricing tiers
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It’s not all self service, but close
16
Simple template: B2C SaaS
17
Y1 Y2 Y3 Y4 Y5
Average annual subscription fee per user ($$)
# New users this year
%Churn
# Install base this year (= #new + #old last year –churn)
Revenue this year ($$)
Example forecast: Product +
subscription (e.g. traditional MCAD)
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Example forecast: Consumer
electronics – connected device
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Example forecast: B2B SaaS
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Example forecast: Consumer marketplace
21
End
Questions?
22