Trajectory Startup Bootcamp Program Session 2
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The document outlines the second month of a startup bootcamp, focusing on key aspects such as revenue models, pricing strategies, and go-to-market tactics. It details various revenue models including fee-for-service, subscriptions, and marketplaces, highlighting key metrics for each. Additionally, it emphasizes the importance of product-market fit, customer acquisition costs, and effective marketing techniques in ensuring startup success.
![Copyright, DKParker, LLC 2020
PMF Scorecard
¤ How would you feel if you could no longer use [product]?
¤ The answers are the following:
¤ Very disappointed
¤ Somewhat disappointed
¤ Not disappointed
¤ I no longer use [product]](https://image.slidesharecdn.com/trajectory-startupprogramsession2-201219150450/85/Trajectory-Startup-Bootcamp-Program-Session-2-62-320.jpg)
Trajectory Startup Bootcamp Program Session 2
- 1. Copyright, DKParker, LLC 2020 Trajectory Bootcamp – Month 2 Dave Parker @DaveParkerSEA www.GetTrajectory.com @DaveParkerSEA
- 2. Copyright, DKParker, LLC 2020 Month 2 Agenda ¤ How Startup Make Money – 14 Revenue Models ¤ Pricing and Metrics that Matter ¤ Go-to-Market ¤ Traction and Product / Market Fit ¤ Pitch Reviews
- 3. Copyright, DKParker, LLC 2020 How Startups Make Money
- 4. Copyright, DKParker, LLC 2020 Do you know? ¤ Cost to Build Known Unknown ¤ Cost to Sell Known Unknown ¤ Price Known Unknown ¤ Profit Known Unknown
- 5. Copyright, DKParker, LLC 2020 How not to make money? ¤ Small transaction values are bad ¤ Small percentages are bad ¤ Not being able to capture value is bad ¤ Lumpy sales cycles are bad ¤ Long sales cycles are bad ¤ Pricing too low could kill your idea before you start
- 6. Copyright, DKParker, LLC 2020 How to Monetize Your Startup: Revenue Models
- 7. Copyright, DKParker, LLC 2020 Business and Revenue Models ¤ Business Models – abstract framework of Creating, Delivering and Capturing Value ¤ Revenue Models (part of business model) is the framework of revenue, pricing, who pay ¤ Models Lean toward Tech and Product
- 8. Copyright, DKParker, LLC 2020 1. Fee for Service ¤ Example: Consulting Services company ¤ Use: B2B & B2C ¤ Key Metrics ¤ Project Revenue ¤ Cost of delivering (usually time) ¤ Gross Margin ¤ Services are hard to scale because they require people to deliver including Restaurant, Contractors, etc. ¤ Services include markup on cost of goods sold
- 9. Copyright, DKParker, LLC 2020 2. 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
- 10. Copyright, DKParker, LLC 2020 3. 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
- 11. Copyright, DKParker, LLC 2020 4. Metered Servcie ¤ Example: AWS, Splunk, Azure ¤ Use: Favors 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
- 12. Copyright, DKParker, LLC 2020 5. 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
- 13. Copyright, DKParker, LLC 2020 6. 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
- 14. Copyright, DKParker, LLC 2020 7. 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
- 15. Copyright, DKParker, LLC 2020 8. 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
- 16. Copyright, DKParker, LLC 2020 9. 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%
- 17. Copyright, DKParker, LLC 2020 10. 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
- 18. Copyright, DKParker, LLC 2020 11. 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
- 19. Copyright, DKParker, LLC 2020 12. 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 ¤ No revenue acutally required
- 20. Copyright, DKParker, LLC 2020 13. Big Data ¤ Examples: PatientsLikeMe ¤ Use: B2B ¤ Key Metrics: ¤ Per API Call ¤ Per record pricing ¤ Frequency/recency ¤ To monetize data, you need to have the data in advance or massive cash
- 21. Copyright, DKParker, LLC 2020 14. Licensing ¤ Example: Think Microsoft office license or server license – before subscription. Content Licensing ¤ Use: B2B ¤ Key Metrics: ¤ Duration of license ¤ Upgrades & maintenance (20-25% annually) ¤ Use can be based on vertical market or geography
- 22. Copyright, DKParker, LLC 2020 Revenue Models– Pick Two 1. Fee for Service 2. Commerce 3. Subscription 4. Metered Service 5. Transaction Fee/Rental 6. Productize a Service 7. Marketplace 8. Combinations 9. Lead Generation 10. Gaming 11. Advertising/Search 12. New Media 13. Big Data 14. Licensing
- 23. Copyright, DKParker, LLC 2020 Break
- 24. Copyright, DKParker, LLC 2020 Pricing
- 25. Copyright, DKParker, LLC 2020 Your price will be wrong! Increase it every year and grandfather early customers for a period of time
- 26. Copyright, DKParker, LLC 2020 Art or Science? ¤ Pricing is an informed decision based on data and proven revenue modesl ¤ Benchmarks ¤ Comparable products ¤ Don’t start too low ¤ Cost base vs Value based ¤ What is the alternate for the “Job to be Done”?
- 27. Copyright, DKParker, LLC 2020 Pricing needs to cover ¤ Cost of Building ¤ Cost of Delivering and support ¤ Cost of Selling ¤ Customer Acquisition Cost ¤ Marketing expense ¤ Marketing team ¤ Sales expense ¤ Sales Team
- 28. Copyright, DKParker, LLC 2020 Cost vs. Value Based ¤ Cost based is mark up over expense ¤ Pay rate vs bill rate ¤ Mark up from cost of goods ¤ Value based is what you can charge for it ¤ Can be a range ¤ Depends on product maturity
- 29. Copyright, DKParker, LLC 2020 Jobs to Be Done Framework ¤ Clayton Christensen – HBS “When we buy a product, we essentially ‘hire’ something to get a job done. If it does the job well, when we are confronted with the same job, we hire that same product again. And if the product does a crummy job, we ‘fire’ it and look around for something else we might hire to solve the problem.” ¤ What job is your customer hiring your product to do? ¤ Does it replace 20% of a staff person’s time ¤ Does it save them money, make them money
- 30. Copyright, DKParker, LLC 2020 Product Pricing ¤ First Product ¤ Staged pricing – up or down over time ¤ Second Product ¤ Staged pricing – up or down over time ¤ Launch timeline based on product road map ¤ Services? ¤ Could it improve you sales cycle
- 31. Copyright, DKParker, LLC 2020 A/B Testing ¤ With your hypothesis ¤ Hide the current pricing page ¤ Drive traffic to Pricing landing pages ¤ Squeeze page ¤ Test pricing ¤ Unbounce or other tool to tack ¤ Optimizes based on conversions
- 32. Copyright, DKParker, LLC 2020 Promotions ¤ Freemium ¤ Time based ¤ Early adopter based ¤ Percentage discount ¤ Grandfather early users * Prices subject to change
- 33. Copyright, DKParker, LLC 2020 Common Errors ¤ Setting pricing too low ¤ Too opaque of a price will frustrate customer – especially if it’s low ¤ Knowing the answer vs testing ¤ Positioning as “me too” just like your competitor, but less ¤ Same price for all customers ¤ ”Free for Life!”
- 34. Copyright, DKParker, LLC 2020 Where to Start ¤ Pick your primary/secondary model ¤ Do a competitive analysis ¤ Building a pricing hypothesis ¤ A/B Test ¤ Three tiers, maximum ¤ Price high and promo the discount based on time to close
- 35. Copyright, DKParker, LLC 2020 Metrics that Matter
- 36. Copyright, DKParker, LLC 2020 What to track – best practices ¤ Marketing Metrics – “Marketing Motion” ¤ Ad Spend ¤ Traffic ¤ Marketing Qualified Leads (MQLs) ¤ Sales Metrics “Sales Motion” ¤ Outbound/Inbound ¤ MQL to SQL Conversion ¤ Business Development – Partnerships ¤ What’s in it for them? ¤ Pricing
- 37. Copyright, DKParker, LLC 2020 Lunch – 60 Minutes
- 38. Copyright, DKParker, LLC 2020 Marketing – Finding the right customers
- 39. Copyright, DKParker, LLC 2020 Marketing – Finding Customers ¤ Messaging/Value Proposition ¤ Does it resonate with the target customer segment ¤ They are the hero of the story ¤ Is it repeatable? ¤ Strategy ¤ Outbound first ¤ Inbound second
- 40. Copyright, DKParker, LLC 2020 Key Metric Terms ¤ State your hypothesis ¤ CAC ¤ LTV ¤ ARPU ¤ Churn ¤ Time to Close ¤ Customer engagement ¤ Time on Site
- 41. Copyright, DKParker, LLC 2020 OrganicSearch PaidSearch WordofMouth SalesCalls PR Miracles! TimetoClose Month1 Month2 Month3 Month4 $ Spen d # Conv # Conv # MRR Time
- 42. Copyright, DKParker, LLC 2020 Marketing Channels ¤ Paid Search ¤ Organic Search ¤ Word of mouth ¤ Sales calls ¤ Public Relations ¤ Affiliate ¤ Email marketing ¤ Social
- 43. Copyright, DKParker, LLC 2020 Marketing Qualified Leads ¤ Define qualified vs list ¤ Suspects ¤ Prospects ¤ Qualified Prospects
- 44. Copyright, DKParker, LLC 2020 Sales Qualified Leads ¤ Hand off to Sales ¤ Identify steps to close ¤ Number of calls
- 45. Copyright, DKParker, LLC 2020 Time to Close ¤ Lead attribution ¤ Source time ¤ Compressing or Expanding ¤ Trend by source
- 46. Copyright, DKParker, LLC 2020 Tracking ¤ Data allows you to know where to double down and where to hold back ¤ Conversion ratios
- 47. Copyright, DKParker, LLC 2020 Sales – capturing value creation
- 48. Copyright, DKParker, LLC 2020 How will they buy? ¤ Web Direct – place the order to buy on the web ¤ Direct – outbound sales, inside/outside ¤ Indirect/Channel – fulfills demand, doesn’t generate ¤ Retail – BestBuy, etc
- 49. Copyright, DKParker, LLC 2020 Sales Model Hypothesis Known Market Unknown Market Low Price Point High Price Point Known Search Words Unknown Search words Web Direct ✔ ✔ ✔ Direct ✔ ✔ ✔ ✔ ✔ Indirect ✔ ✔ ✔ Retail
- 50. Copyright, DKParker, LLC 2020 Sales ¤ Model – Pick one, why? ¤ Strategy ¤ Who ¤ Tactics ¤ How ¤ Tools ¤ Sales tools
- 51. Copyright, DKParker, LLC 2020 Business Development
- 52. Copyright, DKParker, LLC 2020 Business Development ¤ Strategic relationships ¤ Who has the list you want ¤ How do you get the partnership
- 53. Copyright, DKParker, LLC 2020 Business Development ¤ Strategy ¤ Who should you get as a partner ¤ How will you build the relationship? ¤ What channels ¤ Tactics ¤ Messaging/Value proposition ¤ Tools ¤ CRM
- 54. Copyright, DKParker, LLC 2020 Go-to-market plan
- 55. Copyright, DKParker, LLC 2020 Go-to-Market Plan ¤ Revenue Model ¤ Marketing ¤ Sales ¤ Business development plan ¤ Pricing
- 56. Copyright, DKParker, LLC 2020 Before the Program ¤ What are you priority tests? ¤ Do you need product final to do that test?
- 57. Copyright, DKParker, LLC 2020 Exercise - 30/60/90 ¤ Write up your 30/60/90 ¤ Marketing tests ¤ Channel spend hypothesis ¤ Lead source, cost ¤ Sales tests ¤ Initial Sales script ¤ Pricing ¤ High and low
- 58. Copyright, DKParker, LLC 2020 Traction and PMF
- 59. Copyright, DKParker, LLC 2020 Product Market Fit Two Epoch’s of every startup ¤ Pre - Product Market Fit ¤ The only thing that matters is getting there ¤ Post – Product Market Fit ¤ A whole new set of questions – Scale, Culture and People
- 60. Copyright, DKParker, LLC 2020 Pre – PMF ¤ Some Revenue ¤ Some Customers ¤ Some Marketing ¤ A lot Hypothesis
- 61. Copyright, DKParker, LLC 2020 Post – PMF ¤ Predictable & Scalable Revenue ¤ Customer profiles ¤ Cohort analysis ¤ Churn ¤ Scalable marketing ¤ Hypothesis + Data
- 62. Copyright, DKParker, LLC 2020 PMF Scorecard ¤ How would you feel if you could no longer use [product]? ¤ The answers are the following: ¤ Very disappointed ¤ Somewhat disappointed ¤ Not disappointed ¤ I no longer use [product]
- 63. Copyright, DKParker, LLC 2020 Tracking Over Time ¤ Churn Rate ¤ Net Negative Churn ¤ NPS vs CSAT ¤ Product usage level ¤ Frequency ¤ Recency ¤ Growth Rate
- 64. Copyright, DKParker, LLC 2020 What is “Traction?”
- 65. Copyright, DKParker, LLC 2020 Predictable/Forecastable Revenue ¤ De-risking your <time> investment ¤ Predictable revenue moves you from valuations based on trailing 12 to future 12 ¤ Target customer ¤ Sales Cycle ¤ Tools trail Strategy and Tactics
- 66. Copyright, DKParker, LLC 2020 Customer Acquisition Hypothesis ¤ Cost of Customer Acquisition (CAC) ¤ Lifetime value of Customer (LTV) ¤ 36 month calculation in a mature business, 12 months for you ¤ Time to close sale ¤ How does this change with product/market maturity? ¤ Churn/Retention ¤ Average Revenue/measure (User, Account, etc) ¤ Word of mouth vs. Virality
- 67. Copyright, DKParker, LLC 2020 Financial Modeling Note
- 68. Copyright, DKParker, LLC 2020 Templates ¤ Do this after you get in the program – not highest and best use today ¤ Four Templates ¤ Marketplace ¤ Subscription ¤ Transaction Fee (works for commerce) ¤ Productize a service ¤ Templates in shared Google Drive
- 69. Copyright, DKParker, LLC 2020 Financial Model Heuristics ¤ $0- $40 is likely OK ¤ Start with Assumptions ¤ Product 1, 2 ¤ Services ¤ Release timing ¤ Scale Revenue first ¤ Customer count and timing ¤ Keep expenses in line as you grow
- 70. Copyright, DKParker, LLC 2020 Q&A
- 71. Copyright, DKParker, LLC 2020 Pitch Reviews
- 72. Copyright, DKParker, LLC 2020