Embed Size (px)
Citation preview
Business Model DesignAnd
ValidationProduct-Market Fit Through
Customer Discovery
Jason BealeOwner – Wright Energy Solutions
Brief Background
u Serial entrepreneuru I-Corps Instructor – Wayne State, UofM, National
Science Foundation
u 1st Startup –u Raised Investor Capitalu Part of notable local startup incubatoru Failed < 4 years
u 2nd Startup -u No Investor Capitalu Bootstrapped day 1u 25X revenue from year 1 to year 4u Inc. 5000 “Fastest Growing Company #931
2019
Brief Background
3rd Startup –u No Investor Capitalu Bootstrapped day 1u 10X revenue from year 1 to year 4
u 1st Acquisition -u Strategic acquireu 8X revenue since acquisition (3 yr.)
Business Model Design
“Any business model will perform brilliantly...
if you are lucky enough to be the only one in a market” - (unknown)
Failure happens often….WHY!!!Ø Companies build them without thinking about
competitionØ UnderfundedØ Wrong team selectedØ Wrong timing in the market
Ø Build around products or services or technology not VALUE
Ø Build around wrong customer
A Business Model is nothing more than
Process behind how you are compensated for delivering value.
What you must do before testing out the model???
Find Value for a specific Customer Segment
How do I do that???
Organize the process
Which 2 Boxes are the Most Important????
The world DOESN’T care if you have…
u the BEST technologyu the BEST teamu the BEST plan
u The MOST funding
Product/MarketFit
The world DOES care if you…
1. Provide value (Value Proposition)2. To them (Customer Segment)
Who are you selling to….
Why do they buy….
The Process: Scientific MethodCustomer Discovery
uHypothesize Customer and ValueGuess
u Test – InterviewsAsk
uAssess & AnalyzeListen
uAdjust – PivotGuess Again
How do we turn hypotheses into facts?
4
2B. Story
Why Get Out of the Building?
Test value (very
different from usability)
is a problem really a problem
Builds deeper empathy with the customer
Tells us the “why” behind customer behavior
Sparks big insights and mental leaps
Helps foundation
for business model
What are you try to gather from the Interviews?
uClear understanding of problem
uProcess behind the problem
uData quantifying problemuCustomer Pattern Analysis
& Recognition
Customer Segment
Customer Segments
u Companies do not buy anything.
u PEOPLE do.
u Who are you selling to?uThe Customer
Segment
General Motors, Inc.
Cindy WheelsChief Engineer, Drive TrainGMC Denali Luxury Trucks
General Motors is NOT a person.
Market Segmentation
Transportation
Off Road Vehicles• Agriculture• Construction• Sport Utility
2-3 Wheel Vehicles• Bicycles• Motorcycles• E-Bikes• ATV’s• Community/
Neighborhood
Commercial Vehicles
• Light Duty • Medium Duty• Heavy Duty
Passenger Vehicles• Compact• Sedan• SUV/Vans• Trucks
Military Ground Vehicles
• Tactical • Non-tactical• UGV’s
Marine• Yachts• Cargo/Shipping• Naval
Rail• Commuter Light• Cargo /Shipping• High Speed
Aerospace• Commercial • Cargo/Shipping• Air Force • UAV’s• Space travel
Value Proposition
Value Proposition Canvas
The set of v!"ue proposition benefits th!t #ou design to !ttr!ct customers.
Cre!te ObserveThe set of customer ch!r!cteristics th!t #ou !ssume, observe, !nd verif" in the m!rket.
Fit
3!30
CO
NC
EP
T
30
OutcomeIf ! P!in re"iever or G!in cre!tor doesn't Fit !n#thing, it m!# not be cre!ting customer v!"ue. Don't worr# if not !"" p!ins/g!ins !re checked –$#ou c!n't s!tisf# them !"". Ask #ourse"f, how we"" does #our V!"ue Proposi-tion re!""# fit #our Customer?
7!
customer profilevalue map
MVPCustomer Archetype
Gain Creator
Pain Reducer Pain
Gain
Products & Services
Tasks
Problems Needs
Value Proposition describes the benefit your customer will derive by adopting your product or service.
Defining a great
Value Proposition?uCustomers would actually say ituCustomers understand it immediately
uA direct benefit to the customeruUniquely delivered by your company
uSpecific and quantitativeuConcise
Don’t Care
Nice to Have
Must Have
Magnitude of the Customer’s Pain
Magnitude of Customer’s Pain
u Unknown/Vague Ailment (Don’t’ Care)?Diffused benefit, non-specific (vitamins)
u Mosquito Bite (Nice to Have)?Annoying, but not critical or life threating (bug spray)
u Shark Bite (Must Have)?Life threatening must have (tourniquet)
Mosquito Bite
Shark Bite
Vitamin
Scale of Pain
Minimum Viable ProductTHE MINIMUM SET OF FEATURES NEEDED TO
SOLVE YOUR CUSTOMER’S MOST PRESSING NEED
Channels
What is the fundamental hypothesis to validate in your Channels?
How does my customer want to find & buy the product?
How will your channel affect your economics?
Direct?
Indirect?
OEM?
Licensing?
Physical Distribution
Virtual Distribution
Distribution Complexity
Evangelists
ServiceTechnicians
Higher Value AddedHigher Volume Direct Sales
VARs
Retail
Web, Telesales
Systems Integrators
Mainframes
MinisLANs
PC ServersDesktop PCs
PrintersKeyboards
Toner
WANs
Global Systems
Solution Complexity
Mar
ketin
g C
ompl
exity
Channel Economics Direct Sales
SG&A + R&D
End
Con
sum
er
Disc
ount
s
Your RevenueList
Price
Source: Mark Leslie, Stanford GSB
Cost of Goods(Supply Chain) PROFIT
SG&A + R&D D
iscounts
Reseller
Distributor
Source: Mark Leslie, Stanford GSB
Cost of Goods(Supply Chain)
Channel Economics Distributor & Reseller
Cost of Goods(Supply Chain)
End
Con
sum
er
Your RevenueList
Price
PROFIT
Customer Relationship
3 Stages of Customer Relationships
Customer Relationships Products & Services – Get Customers
CAC = Customer Acquisition Cost
How much will it cost you?
the sum ofmarketing costs
ANDsales costs!
Customer Relationships Products & Services – KEEP & GROW
Customers
LTV = Customer Lifetime Value
Revenue Streams
How will you make
MONEY?
1.How many can we sell?a) When/How Quickly?
2.Who/Where is the money coming from?3.How do we price the product?
Is this a business worth pursuing?
The Big Questions
What value are customers willing to pay for?How do customers pay for products today?
Transactional
Subscription
Commission
Fee Based
Ad Spend
Licensing
Pricing ModelTHE TACTICS USED TO SET THE PRICE FOR EACHCUSTOMER SEGMENT
Many possible ways…
COST PLUS
COMPETITIVE PRICING
VOLUME PRICING
VALUE PRICING
PORTFOLIO PRICING
RAZOR/RAZOR BLADE SUBSCRIPTION
TIME/HOURLY BILLING
LEASING
Common Approaches to Pricing
Cost + markupTypically not a strategic way to priceDriven by internal economics and not customer insight
Cost based
Value based
Based on buyer’s perception of value (e.g. time saved, new efficiency created, etc.)Customers don’t necessarily feel that they want to pay this way
Revenue Model Calculations
c.o.g. profit / g&a / r&d disc.
list price
rese
ller
distrib
utor
etc.
How Many Will You Sell?
u What’s the Market Size & estimate of Market Share?
u How many can your channel sell?u How much will the channel cost?u How many customer activations?
uRevenue? Churn/Attrition rate? customers?u How much will it cost to acquire a customer?
uHow many units will they buy from each of these efforts?
Does it All Add Up?
1. Is revenue adequate to cover costs in the short term?
2. Are you confident revenue will grow materially if not dramatically over time?
3. Does profitability improve as the revenues get bigger?
Simple experiment
u How fast will monthly revenue double? u When will I get to $100k/month in revenues?
u When will I get to $1M/month in revenues?u What assumptions about my business am I making when I reach these milestones?uCustomer SizeuConversion Ratio
“Direct” revenue models
SALES: PRODUCT, APP, OR SERVICE
SALES
SUBSCRIPTIONS: SAAS, GAMES,
MONTHLY SUBSCRIPTION
FREEMIUM: USE THE PRODUCT FOR FREE:
UPSELL/CONVERSION
PAY-PER-USE: REVENUE ON A “PER USE” BASIS
VIRTUAL GOODS: SELLING VIRTUAL
GOODS
ADVERTISING SALES: UNIQUE AND/OR LARGE
AUDIENCE
“Ancillary” revenue models
Referral revenue: pay for referring traffic/customers to other web or mobile sites or products.
Affiliate revenue: finder’s fees/commissions from other sites for directing customers to make purchases at the affiliated site
E-mail list rentals: rent your customer email lists to advertiser partners
Back-end offers: add-on sales items from other companies as part of their registration or purchase confirmation processes, or “sell” their existing traffic to a company that strives to monetize it and share the resulting revenue
Key Resources
What Resources are needed in your industry in order to succeed???
Key Resources you may require• Financial – Startup Capital, LOC, Etc.• Physical – Offices, Warehouse, Trucks, etc.• Intellectual Property• Human resources
HumanResources
Mentors, Teachers, Coaches:
Advances your personal career
Advisors, Consultants:
Advances your company’s success
Key Partners
Types of Partners
Strategic Allianceu Use a Partner to build the “whole product”
Joint Business Developmentu Joint promotion of complementary products
Coopetitionu Joint promotion of competitive products
Key Suppliersu Direct Suppliers or Strategic Service Providers
Automotive Industry Action Group (+900 auto industry members)
Why would you need Partners?
u Faster time to marketu Broader product offeringu More efficient use of capitalu Unique customer knowledge or expertiseu Access to new markets
What key activities will they do for you?What key resources will you get from them?
What could go Wrong?Risks to Consider
u Vision: Is the product design or service offering vision shared? u Schedule: Is the partner the bottleneck? u IP: Who owns what?u Team: Is it stable on both sides? u Accountability: Clearly defined? Who’s in charge?
Is this a mutually-beneficial relationship?
Key Activities
What type of activities are needed in order to succeed?
Key Activities you may require• Manufacturing – In house or outsourced• Development/Engineering – In house or outsourced
• Freedom to Operate/IP• TestingTrials/Quality Data• Regulatory Approval• Supply Chain Development
Cost Structure
Types of CostsFixed Costs• Building Costs• Employee Costs
• …Costs that show up every month no matter what
Variable Costs
• Important resources, activities, channel costs
• …Vary from month to month
Profits = Revenue – Costs
Costs < Revenue
How do you Key Activities and Key Resources affect
cost???
Profit
Taxes And Interest
R&D
General & Admin
Operations Overhead
Selling Costs
Distribution Costs
Indirect Materials/Equipment
Direct Labor
Direct Materials
Cost Stack – Your Cost
Some costs most forget…
• Time Cost of Money• Payment Delays• Discounts for timely pay• Cash flow considerations
• Opportunity Cost• Time and Effort
• Taxes
• Shrinkage
RECAP
Metrics That Matter
VPs: How valuable is your solution? What’s your market size/share? What about status quo/competition?
Channels: What are your Channel economics? Can you optimize?
CR: What’s your CAC? What’s your conversion rate? Is CAC<LTV?
Revenue Streams: How many will you sell, and when? What are your Pricing Tactics?
KP/KR/KAs: How can your Partners help your business?Cost Structure: What’s the total cost of making/selling your
product? What are the operating costs of your business? Fixed? Variable? What’s your Burn Rate? When will you run out of $$$?
All these components help form
u Business Modelu Revenue Projectsu Investment Dollar needs
uPitch Decku SWOT Analysis
