UW Entrefest - 10 Startup Business Models that work and 3 that fail

Copyright DKParker, LLC 2016

10 Business Models (+3 that can fail)Dave Parker

@DaveParkerSEA

www.dkparker.com/blog

[email protected]

http://www.dkparker.com/blog

mailto:[email protected]


Your idea is unique – your business model isn’t!


Agenda

About Dave Methods

Marketing Sales Pricing

10 Business Models 3 that can fail Q&A – Your ideas


About Dave

5X founder, Board Member and (former) VC, SVP Programs at UP Global (Startup Weekend + Startup America)

CEO – Code Fellows, code school based in Seattle Husband, Dad & Husky Startup Week Organizer Nov 14-18 – 150 FREE events

https://seattle.startupweek.co/


Context Matters


Three Methods + Two Models Marketing Methods – how you get customers to FIND

you Sales Methods – how you SELL your product. Pricing Methods – how to price your product Business Models – are the way to monetize, including

key metrics Financial Models – include revenue and expenses. Used

for both forecast and actual results


Marketing & Sales Terms

The following apply regardless of business models Cost of Customer Acquisition (CAC) Lifetime value of Customer (LTV)

12 month calculation (36 for mature businesses)

LTV:CAC Ratio >5X Time to close sale

How does this change with product/market maturity?

Churn/Retention


Marketing Channels and Metrics

What are your core assumptions for marketing? Track all Marketing by channel and $$ spend

Paid, SEO, etc.

Cost to create leads (traffic) Cost (effort) and % convert to prospects Cost (effort) and % convert to customers


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Sales Methods

Web Direct – Advertising and conversion based sales, sales support?, requires customers to search and find

Direct – internal sales people (Inside or Outside), # of deals/Month, salary + commissions

Distribution/Channel Sales – Indirect or external, <# of deals/Month, no Salary, just commission <Mindshare. Fulfill demand, don’t create demand

White Label Sales/Licensing – infrastructure or license sales, long sales cycle, few but targeted customers

Retail – Product on shelves - N/A


Known Market

Unknown Market

Low Price Point

High PricePoint

Known Search Words

Unknown Search words

Web Direct ✔ ✔ ✔

Direct ✔ ✔ ✔ ✔ ✔Indirect ✔ ✔ ✔Licensing ✔ ✔Retail


Pricing Methods

What do you need to charge to cover: Cost of build Cost of Sale Profit Expectation = Cash flow

Value based pricing – don’t start too low One time or recurring? Test, test, test


Business Models – Pick ONE!



1. New Media Example: SnapChat, WhatsApp Use: B2C only Key Metrics:

K-Factor (Viral Co-efficient) Network effect of inviting others to join

Challenges – K-Factor is hard. Little revenue until scale Notes: Everyone wants to! Not happening in B2B

https://www.snapchat.com/

https://www.whatsapp.com/


2. Subscription

Example: Salesforce , Box, Spotify Use: B2C & B2B Key Metrics

Average Revenue Per User (ARPU) Conversion ratio – e.g. trial to purchase Churn

Challenges: MVP won’t be enough to be Kick Ass Product Notes: Highest multiple, forecastable revenue

http://www.salesforce.com/

https://www.box.com/

http://www.spotify.com/


3. Commerce Example: Amazon, AmazonSupply Use: B2C & B2B Key Metrics:

Wholesale or cost of goods sold Average Margin % Average Basket

Commerce – Physical Goods- Wholesale, cost of goods, retail, average margin, physical good

Notes: Can mature into marketplace

http://www.amazon.com/

http://www.amazonsupply.com/


4. Gaming

Example: King.com/Candy Crush Use: B2C Only Key Metrics:

Downloads % play Average in app purchase

Challenges – tends to be “hit driven business” Notes: use in first 21 days is a predictor of success

https://king.com/game/candycrush

https://king.com/game/candycrush


5. Advertising/Search

Example: Google, Facebook Use: B2B – advertisers pay, users are free Key Metrics

Traffic Click Avg. revenue/click

Challenges – Scale, need >1M uniques/month to consider the option


6. Marketplaces Example: eBay, Alibaba Use: B2C & B2B Key Metrics

Average Transaction Amount Number of Monthly Transactions Commission %

Challenges: two sided market places require you start with one side, value to seller & Product market fit (x2)

Notes: critical mass or marketplace required

http://www.ebay.com/

http://www.alibaba.com/


7. Transaction Fees/Rental

Example: 99Designs, KickStarter, Elance, Chugg Use: B2C & B2B Key Metrics

Average transaction revenue Fee % per transaction Number of transactions

Challenges: Margins are small (15%), need efficiency Notes: Don’t start too low

http://www.99designs.com/

http://www.kickstarter.com/

http://www.elance.com/

http://www.chugg.com/


8. Lead Generation

Example: Mint.com, AllStarDirectories, NetQuote Use: B2C & B2B Key Metrics

Cost to generate traffic % conversion of form data Price per lead

Challenges: Highly competitive, barrier of entry is low Notes: Conversion rates average 0.06%

http://www.mint.com/

http://www.allstardirectories.com/

http://www.netquote.com/


9. Productize a Service

Your offerings is generally complex and requires services to deploy Gross margin on Services >35% Product development comes with services

Use: B2C & B2B Examples: Moz, service company convert to tools. Challenges – difficult to make the transition away from

services


10. Combinations

Combinations business models happen for two reasons You don’t know which model is right At scale you can expand revenue sources

Examples: Hardware sensors + software services to create data analytics

Challenges – most require scale or at least traction


Three that could cost you everything!


The rest – at Scale – Not Launch

1. Multi-sided Marketplaces – Etsy – create products and customers

2. Big Data – PatientsLikeMe is emerging, but requires massive data in advance = massive cash

3. Panels – Toluna, precise groups of customer service research

4. Non-profit – Startup Weekend

http://www.etsy.com/

http://www.patientslikeme.com/

http://www.toluna.com/


Q&A – Your Models


[email protected] www.dkparker.com @DaveParkerSEA

mailto:[email protected]

http://www.dkparker.com/


SAM

TAM

SOM

LAM

TAM – Total Addressable Market SAM – Service Addressable Market SOM – Service Obtainable Market LAM – Launch Addressable Market. Who can buy your product at MVP?