Technology Venture Creation (elec5701) sept12



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Technology Venture Creation (ELEC5701) SEPT12

  • assert(CPA < LTV) - the most important line of code
  • David Jones
  • http://slideshare.net/djinoz/
  • @djinoz

Personal experience from startups

  • OEM
  • Channel
  • Enterprise
  • Consumer
  • EmU Tech
  • 2000
  • 2003
  • 2004
  • 2006
  • 2009
  • High Touch Low Touch
  • 2011/
  • 2012

assert(CPA < LTV)

  • Even if you could build Twitter/Instagram - in Australia you’d never get it funded.
  • Aussie VCs will look at 150+ deals/year but fund 2-5 companies
  • Aussie angel increasing but still conservative and sparse.
  • 2012 Update: Maybe Blackbird is a game-changer
  • Corollary: Aussie startups don’t have luxury of unlimited venture, so frame your “Business Models” from the beginning.

(Ye olde) Funding Model for: Web 1.0, Enterprise S/W, Deep IP, Rockstar Founders

  • david DOT jones AT gmail DOT com | skype://djinoz | Cell:+61 412 683 111 | @djinoz
  • Australia:
  • Not a great track record here
  • X

Lean but not starving - revenue is a the best deodorant BEWARE: Of Market Changes, Slow Execution, Too Few Customers …a common “underfunded aussie story”.

  • david DOT jones AT gmail DOT com | skype://djinoz | Cell:+61 412 683 111 | @djinoz
  • Trough of Despair
  • X
  • david DOT jones AT gmail DOT com | skype://djinoz | Cell:+61 412 683 111 | @djinoz

Revenue is a deodorant

  • david DOT jones AT gmail DOT com | skype://djinoz | Cell:+61 412 683 111 | @djinoz

Your Product is not your product (Ash Muraya)

  • david DOT jones AT gmail DOT com | skype://djinoz | Cell:+61 412 683 111 | @djinoz
  • Customer
  • Acquisition
  • &
  • Monetization
  • The Actual
  • Product

Product vs Sales Matrix

  • Product needs selling, strong sales piece. This is a sales-driven company.
  • Product sells itself, strong sales piece.
  • This is ideal. 
  • Product sells itself, no sales effort.
  • Does not exist.
  • Product needs selling, no sales effort.
  • You have no revenue.
  • david DOT jones AT gmail DOT com | skype://djinoz | Cell:+61 412 683 111 | @djinoz
  • Credit: Thiel
  • http://blakemasters.tumblr.com/post/22405055017/peter-thiels-cs183-startup-class-9-notes-essay

assert(CPA < LTV)

  • david DOT jones AT gmail DOT com | skype://djinoz | Cell:+61 412 683 111 | @djinoz
  • Credit: Thiel
  • http://blakemasters.tumblr.com/post/22405055017/peter-thiels-cs183-startup-class-9-notes-essay
  • The Metrics you need:
  • Customer lifetime value (LTV sometimes CLV)
  • Average revenue per user (per month/year), or ARPU
  • Retention rate (monthly, decay function), or r
  • Churn (the opposite of Retention!)
  • Average customer lifetime, which is 1 / (1-r)
  • Cost per customer acquisition, or CPA
  • Retention cost (customer support, 3rd parties, ops costs)

The Basic Math

  • LTV = ARPU x Average Lifetime of a Customer – the Cost to Serve them (COGS)
  • Where ARPU = Average Revenue Per User and Average Lifetime of a Customer = 1/Churn Rate.
  • david DOT jones AT gmail DOT com | skype://djinoz | Cell:+61 412 683 111 | @djinoz

assert(CPA < LTV) Engines of Growth

  • david DOT jones AT gmail DOT com | skype://djinoz | Cell:+61 412 683 111 | @djinoz
  • Credit: Ries
  • http://www.startuplessonslearned.com/2008/09/three-drivers-of-growth-for-your.html
  • Paid
  • Sticky
  • Viral

assert(CPA < LTV) Paid Engine of Growth

  • david DOT jones AT gmail DOT com | skype://djinoz | Cell:+61 412 683 111 | @djinoz
  • Credit: Thiel
  • http://blakemasters.tumblr.com/post/22405055017/peter-thiels-cs183-startup-class-9-notes-essay
  • Enterprise spam/virus cloud solution that filters email
  • ARPU: $200 per month
  • Customers on average stay with you for 18 months.
  • Margin after channel partners and operational costs is 50%
  • The LTV is = 200 * 18 * 50% = $1800
  • You use Google Adwords to acquire users is $500
  • So you are $1300 ahead
  • But not sticky if Google release free email with filtering (low switch cost)

assert(CPA < LTV) Sticky Engine of Growth

  • david DOT jones AT gmail DOT com | skype://djinoz | Cell:+61 412 683 111 | @djinoz
  • Credit: Thiel
  • http://blakemasters.tumblr.com/post/22405055017/peter-thiels-cs183-startup-class-9-notes-essay
  • Same solution, but more sticky by offering “archiving”
  • ARPU: $200 per month
  • Customers on average stay with you for 36 months.
  • Margin after channel partners and operational costs is 50%
  • The LTV is = 200 * 36 * 50% = $3600
  • You use Google Adwords to acquire users is $500
  • So you are $3100 ahead

assert(CPA < LTV) Retention & Churn

  • LEAKY BUCKET is the enemy of LTV
  • Particularly devastating in Consumer/Social
  • Punters leave before you monetise them
  • Enterprise tends to be stickier because of corporate dynamics.
  • david DOT jones AT gmail DOT com | skype://djinoz | Cell:+61 412 683 111 | @djinoz

assert(CPA < LTV) LTV’s in startups

  • How can you possibly know LTV at the start?
  • Everything in Dave McClures AARRR
    • (Acquisition, Activation, Retention, Referral Revenue)
  • In consumer measure rates:
  • david DOT jones AT gmail DOT com | skype://djinoz | Cell:+61 412 683 111 | @djinoz

assert(CPA < LTV) Viral Engine of Growth

  • david DOT jones AT gmail DOT com | skype://djinoz | Cell:+61 412 683 111 | @djinoz
  • Credit: Thiel
  • http://blakemasters.tumblr.com/post/22405055017/peter-thiels-cs183-startup-class-9-notes-essay
  • Add a Default Footer: “Filtered by Mail Filter X”
  • ARPU: $200 per month
  • Customers on average stay with you for 36 months.
  • Margin after channel partners and operational costs is 50%
  • The LTV is = 200 * 36 * 50% = $3600
  • You use Google Adwords to acquire users is $100
  • So you are $3500 ahead
  • OK, not a killer viral engine but you get the idea – just a non-Facebook example ;)

Tip of the day:

  • david DOT jones AT gmail DOT com | skype://djinoz | Cell:+61 412 683 111 | @djinoz
  • NONE OF THAT MATTERS

Validation Tip of the day: Look them deeply in the eye and ask for money

  • david DOT jones AT gmail DOT com | skype://djinoz | Cell:+61 412 683 111 | @djinoz

Validation Tip of the day: Look them deeply in the eye and ask for money

  • david DOT jones AT gmail DOT com | skype://djinoz | Cell:+61 412 683 111 | @djinoz
  • Because if you can’t get to product/market fit
  • you will never get to sustained ARPU
  • You will never get initial purchases
  • If you do, the leaky bucket has a big hole.

The Business Model drives the Business Plan

  • david DOT jones AT gmail DOT com | skype://djinoz | Cell:+61 412 683 111 | @djinoz
  • Product Focus: Core Utility
  • Company Focus: Right Business Model
  • The “right” business model takes iteration. But this BM framework prescribes what activities you SHOULD focus on
  • (the business plan being covered by Ryan Junee)
  • david DOT jones AT gmail DOT com | skype://djinoz | Cell:+61 412 683 111 | @djinoz

The Business Model Canvas

  • david DOT jones AT gmail DOT com | skype://djinoz | Cell:+61 412 683 111 | @djinoz
  • david DOT jones AT gmail DOT com | skype://djinoz | Cell:+61 412 683 111 | @djinoz
  • david DOT jones AT gmail DOT com | skype://djinoz | Cell:+61 412 683 111 | @djinoz
  • david DOT jones AT gmail DOT com | skype://djinoz | Cell:+61 412 683 111 | @djinoz

ThreatMetrix early BM (fail)

  • david DOT jones AT gmail DOT com | skype://djinoz | Cell:+61 412 683 111 | @djinoz
  • Security incident/infection data
  • Security Vendors
  • CERTS
  • &
  • Governm
  • Telcos
  • Big Data aggregation
  • & combine
  • Talented
  • Programmers
  • Talented Security
  • Staff
  • Super Super Large Data
  • Processing Reqs
  • (boil the ocean problem)
  • Business Development
  • Security Vendors
  • Banks?
  • eCommerce?
  • BotNet Detection
  • will make you more secure
  • White Label OEM in Security Products
  • Ummm? (2-sided market problem)
  • Flat Monthly Fee (peril of OEM)
  • Can this Scale?
  • BizDev
  • Conferences

ThreatMetrix 2008-2011

  • david DOT jones AT gmail DOT com | skype://djinoz | Cell:+61 412 683 111 | @djinoz
  • Marketing
  • Evangelism Awareness
  • Geo Data Providers
  • Per
  • Transaction Assessment
  • Talented
  • Programmers
  • Talented Security
  • Staff
  • Super Super Large Data
  • Processing Reqs
  • Banks
  • Realtime
  • SaaS Fraud Protection for eCommerce
  • Payment Processors
  • Upfront Purchase Transaction Blocks
  • BizDev
  • Conferences
  • Credit Card Companies
  • Resellers in new Territories
  • Security Data
  • eCommerce
  • Social & Dating
  • Cloud Service
  • Software
  • Device Intelligence
  • Autorenew
  • Research/DM
  • Webinars/Demos/Evals
  • Close/Customer Service

Summary: Benefits of BM Canvas

  • Won’t stop you being deluded
  • Won’t stop you arguing black==white
  • BUT
  • Surfaces assumptions
  • Structures dependencies
  • Scopes debate
  • Use it to test the logic of a new activity
  • david DOT jones AT gmail DOT com | skype://djinoz | Cell:+61 412 683 111 | @djinoz

Drill-in Example 1

  • david DOT jones AT gmail DOT com | skype://djinoz | Cell:+61 412 683 111 | @djinoz
  • Key Partners
  • Who are our Key Partners?
  • Who are our key suppliers?
  • Which Key Resources are we acquiring from partners?
  • Which Key Activities do partners perform?
  • motivations for partnerships:
  • Optimization and economy
  • Reduction of risk and uncertainty
  • Acquisition of particular resources and activities

Drill-in Example 2

  • david DOT jones AT gmail DOT com | skype://djinoz | Cell:+61 412 683 111 | @djinoz
  • Cost Structure
  • What are the most important costs inherent in our business model?
  • Which Key Resources are most expensive?
  • Which Key Activities are most expensive?
  • is your business more:
  • Cost Driven (leanest cost structure, low price value proposition, maximum automation, extensive outsourcing)
  • Value Driven ( focused on value creation, premium value proposition)
  • sample characteristics:
  • Fixed Costs (salaries, rents, utilities)
  • Variable costs Economies of scale
  • Economies of scope

Questions?

Good News…

  • The local startup community is building:
    • StartupCamp, Startup Weekend, SiliconBeach
    • StartMate, MentorConnect, SeedAccelerator, Fishburners
    • Courses like this….
    • Lots of global information
  • Aussie “mafia” in Silicon Valley
    • StartupHouse
    • Links into CRV
    • Southern Cross presence

Paper MVP vs Hacked MVP

  • david DOT jones AT gmail DOT com | skype://djinoz | Cell:+61 412 683 111 | @djinoz
  • The jury is still out but hacked MVP gives more accurate CustDev feedback

Focus or Fail If you have limited resources and cash reserves then focus is your most valuable discipline – if your hypothesis wrong at least you “fail fast”

  • david DOT jones AT gmail DOT com | skype://djinoz | Cell:+61 412 683 111 | @djinoz
  • (picture credit: Mick Liubinskas/Pollenizer)
  • Don’t let Perfect be the Enemy of the Good

Ye Olde Startup Funding Model (too early to talk about but I know your thinking about it)

  • Market
  • Product
  • Team
  • @djinoz david@dealsta.com.au
  • Team
  • Market
  • Product

New, New Angel Funding Model

  • @djinoz david@dealsta.com.au
  • Naval
  • AngelList


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