how to build a viable business model?

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 •  Iterate product,

customer discovery, go-‐to-‐market, value proposi<on…

•  Reach Product-‐Market Fit quickly

•  Iden<fy and validate a business model

•  Execute iden<fied business model and scale

•  Maximize growth, share, compe<<ve posi<on

•  Move from $1m to $50m

Company

THE BUSINESS MODEL CANVAS

Business Model?

•  Customer selec<on •  Unique Value Proposi<on •  Go-‐to-‐market •  Business Processes •  Value capture

1995

www.businessmodelalchemist.com www.businessmodelgenera<on.com

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

HOW GOOD IS YOUR BUSINESS MODEL?

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

Examples of great business models

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

Sales people 10,000

SEO service 3,000

Total 33,000

#

# new visitors (*) 400,000

# new registered users 50,000

# new ac<ve users 10,000

# 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

$50,000

$10 $100

$500,000

Reducing CoA

•  Op<mize channels •  Virality •  SaaS / Freemium •  Win-‐win partnerships

•  Kill unprofitable customer segments

LTV

CoA

Increasing LTV

•  Increase value delivered to customers

•  Cross-‐sell / upsell •  Tiered pricing •  Subscrip<on model •  Work on reten<on: –  Improve customer sa<sfac<on

–  Create low pain switching costs

LTV

CoA

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

HOW TO MANAGE A PIVOT?

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