value and growth models
Post on 10-Feb-2015
88 Views
Preview:
DESCRIPTION
TRANSCRIPT
05.899/499
Value and Growth Models for Lean Startups
Jim Morris
Spring Semester 2014
05.899 & 499 Mobile Service Innovation Spring 2014 2
Why Quantify?
• If you start a business you will have to measure performance: cash on hand, cash flow, revenue, costs, profit, growth rate, even stock price.
• There are many other measures that can be used to predict financial ones, e.g. number of users.
• Your value and growth hypotheses are theories. To tell if they are good theories, you need to measure the things they predict.
• The theories start with rough numbers that experience will refine.
05.899 & 499 Mobile Service Innovation Spring 2014 3
Your Secret Weapon• Unlike old, “bricks and mortar,” businesses
internet businesses can easily measure many more things about users.
• Each user can be followed, recording every interaction and its outcome, predicting her future interactions—without even asking her!
• Your quantified value and growth hypotheses will tell you what measures to build in as you implement the service.
05.899 & 499 Mobile Service Innovation Spring 2014 4
A Simple Service
Providing a service to a uniform population for a fee.
05.899 & 499 Mobile Service Innovation Spring 2014 5
A Simple Value Hypothesis
A Site with App MemberService/$
• The member joins and pays a monthly fee until she resigns.
05.899 & 499 Mobile Service Innovation Spring 2014 6
Quantifying the Simple Value Hypothesis
• Double-click the table to get the Excel® spreadsheet.
05.899 & 499 Mobile Service Innovation Spring 2014 7
Development and computing costs are insignificant.• The development costs occur only
once, so are not part of the value diagram, which reflects just ongoing costs.
• The ongoing computing infrastructure costs—servers, networking—are small relative to things like marketing expenses and office staff. They can be free until you have a lot of users; and, even then, the per-user cost will decrease every year.
05.899 & 499 Mobile Service Innovation Spring 2014 8
A Simple Growth Hypothesis: Three States of Engagement
Visitor
Member
Advocate
Advertising
Convinced
Value
Atrophy
Forgets
Resigns
Word of Mouth
05.899 & 499 Mobile Service Innovation Spring 2014 9
Quantifying the Simple Growth Model
05.899 & 499 Mobile Service Innovation Spring 2014 10
Combining Value & Growth
We can add columns derived from the value hypothesis to compute the weekly loss and accumulating debt for the first year. This provides an estimate of the needed investment for the year, $60,000.
05.899 & 499 Mobile Service Innovation Spring 2014 11
Start-up Plan for a Simple Service
• One-time development costs: $100,000.
• The Growth Hypothesis predicts two years to grow the membership base to the $7,000 required by the Value Hypothesis.
• Assuming I get half-way there in one year I need one years’ total costs, about $80,000.
• Total: $180,000.
• Extra credit: Combine Value and Growth spreadsheets to show changing profit picture.
05.899 & 499 Mobile Service Innovation Spring 2014 12
A Commission-based Service
Generating sales for a business and collecting commissions
• Relay It • VICI
05.899 & 499 Mobile Service Innovation Spring 2014 13
Commission-based Value Hypothesis
Our Service Member
Something/$
Merchant
New Sales/$
(Encourage Purchase)
X
05.899 & 499 Mobile Service Innovation Spring 2014 14
Quantifying Commission-based Value Hypothesis
• A salesperson signs up merchants.• Each merchant has 125 patrons who join.• Each member makes 1 purchase per week.• Additional advertising is needed.
05.899 & 499 Mobile Service Innovation Spring 2014 15
Commission-based Growth Hypothesis
The Growth Hypothesis varies based on the nature of the service—simple, social, or two-sided.
05.899 & 499 Mobile Service Innovation Spring 2014 16
Commission-based Start-up Funding
Assuming the Simple Growth Hypothesis, it will take about year to build up to the 2,500 member goal in the Value Hypothesis. Therefore we need a year’s worth of operating costs: 12*$7,500 plus a 10% contingency: $100,000.
05.899 & 499 Mobile Service Innovation Spring 2014 17
Advertising-funded Services
Using Google AdSense, you can put ads on your pages, whether or not they are related to your service. Then you care about how many people visit your site.
Some projects that might do this are• HUE• Icnutri• TrekXplore
05.899 & 499 Mobile Service Innovation Spring 2014 18
Value Diagrams for Advertising-funded Services
MemberMerchan
t
Product/$
Service Advertising/
$
X/Ad V
iews
05.899 & 499 Mobile Service Innovation Spring 2014 19
Quantifying the Advertising-funded Service Value Hypothesis
When anyone comes to our page they see banner ads, each of which pays us CPM/1000.
05.899 & 499 Mobile Service Innovation Spring 2014 20
The value members receive needn’ t be part of the value hypothesis computation.
• They are receiving some sort of value for their time, and that affects the number of page views, but we just guess that number for now.
• The number of page views are dependent on the growth hypothesis, which is more important in this case.
05.899 & 499 Mobile Service Innovation Spring 2014 21
A Simple Growth Model That Gets 20,000 Members in a Year
Notice that most of the growth occurs at the end of the year, since it depends on accumulating word-of-mouth.
05.899 & 499 Mobile Service Innovation Spring 2014 22
Start-up Costs for Advertising-based Services
• It takes most of the year to get to profitability, so you need to cover costs for the entire year: 365*$336 or about $123,000.
• Businesses that depend solely on selling ads require large start-up costs.
05.899 & 499 Mobile Service Innovation Spring 2014 23
Social Network Services
The value hypothesis may vary (simple, commission, advertising), but the growth hypothesis is special.
• UrbanBite• Cup of Sugar (Community Sharing)• TrekXplore
05.899 & 499 Mobile Service Innovation Spring 2014 24
Social Network (Facebook, LinkedIn, etc.) Growth Model
Visitor
Member
Advocate
Advertising
Convinced
Value
Atrophy
Forgets
Resigns
Word of Mouth
NetworkEffect
05.899 & 499 Mobile Service Innovation Spring 2014 25
Quantifying Growth Hypothesis for Social Network Service
05.899 & 499 Mobile Service Innovation Spring 2014 26
Two-sided Services
• Spotter• Point• TrekXplore• UrbanBite?
Each side has its own value hypothesis, and the growth hypotheses are different but inter-dependent.
05.899 & 499 Mobile Service Innovation Spring 2014 27
Taxi Dispatcher, e.g. Lyft
Possible Operation Rider requests specific ride with phone. Dispatcher negotiates with idle Taxies (via phone app?) and sends taxi. Rider gets ride, pays dispatcher. Dispatcher pays taxi, less commission.
This competes with existing dispatchers because They don’t use modern technology well
• GPS• Computer planning• Real-time auctions
Our system gives them better access to customers. They charge taxis a fixed monthly fee. Handling payments might improve safety. Drivers can adopt it without giving up existing dispatchers. Some taxi drivers are abandoning existing dispatchers and using social cell-
phone networks already. We can measure user satisfaction on every transaction!
05.899 & 499 Mobile Service Innovation Spring 2014 28
Value Diagrams
Taxi RiderRide
Dispatcher
$Customer/$
Taxi RiderRide/$
Dispatcher
$
Old New
Rather than charge a driver a fixed monthly fee, charging him a commission each ride, arranged and paid for by the rider’s phone.
05.899 & 499 Mobile Service Innovation Spring 2014 29
Creating a Value Hypothesis Spreadsheet
1. Decide on the period to measure, e.g. 0ne day, and a market, e.g. Pittsburgh.
2. Create a spreadsheet describing with all the factors that effect value flows and costs
Number of each type of stakeholder Transactions per day Price per transaction
3. Estimate measures about the market.
4. Select initial choices for the numbers you can control.
5. Create formulas to compute outcomes leading to profit for the service.
05.899 & 499 Mobile Service Innovation Spring 2014 30
Spreadsheet for Two-sided Value Hypothesis
05.899 & 499 Mobile Service Innovation Spring 2014 31
Spreadsheet Structure
Ride Price
# New Rides
% Taxis Signed Up
Commission %
Daily Fee
Guesses
Choices
Taxi Revenue Increase*
All Taxis
Signed-up Taxis*
*+
Taxi Cost Increase
-Taxi Profit Increase
Dispatcher Revenue*
05.899 & 499 Mobile Service Innovation Spring 2014 32
Growth Model for a Two-sided Market
Visitor
Driver
Advocate
Advertising
Convinced
Value
Atrophy
Forgets
Resigns
Word of Mouth
Visitor
Rider
Advocate
Advertising
Convinced
Value
Atrophy
Forgets
Resigns
Word of Mouth
Drivers
Riders
05.899 & 499 Mobile Service Innovation Spring 2014 33
Two-sided Growth Model
05.899 & 499 Mobile Service Innovation Spring 2014 34
A Flip from Rider to Driver Surplus
05.899 & 499 Mobile Service Innovation Spring 2014 35
Sensitivity Analysis (Optional)
• Changing the numbers in your spreadsheets gives you a feeling for what parameters matter the most.
• There is an Excel trick, Data Table, that allows you to explore the question of what matters more more systematically.
• To decide what research to do first, compute the sensitivity times the range of uncertainty and look at the parameter(s) with the highest score.
05.899 & 499 Mobile Service Innovation Spring 2014 36
Pre-cooked Spreadsheet w/Sensitivity Analysis
05.899 & 499 Mobile Service Innovation Spring 2014 37
Two Factor Sensitivity Analysis:How to Divide Advertising between Drivers and Riders
top related