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. Consumer. Enterprise. EmU Tech. 2000. 2003. 2004. 2006. 2009. 2011/ 2012. - PowerPoint PPT PresentationTRANSCRIPT
david DOT jones AT gmail DOT com | skype://djinoz | Cell:+61 412 683 111 | @djinoz
assert(CPA < LTV) - the most important line of code
David Joneshttp://slideshare.net/djinoz/@djinoz
Technology Venture Creation (ELEC5701)
SEPT12
Personal experience from startups
OEMOEM ChannelChannel EnterpriseEnterprise ConsumerConsumer
EmU TechEmU Tech2000
20032004
2006
2009
High Touch Low TouchHigh 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 deodorantBEWARE: 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
How to avoid the “trough of despair”?
Ideas?
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
CustomerAcquisition
& Monetization
CustomerAcquisition
& Monetization
The ActualProduct
The ActualProduct
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: Thielhttp://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: Thielhttp://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: Rieshttp://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: Thielhttp://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 aheadBut 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: Thielhttp://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:• crossing free to paid• In-app purchase 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: Thielhttp://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 fityou will never get to sustained ARPU
1.You will never get initial purchases2.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 incident/infection data
Security VendorsSecurity Vendors
CERTS&Governm
CERTS&Governm
TelcosTelcos
Big Data aggregation& combine
Big Data aggregation& combine
Talented Programmers
Talented Programmers
Talented SecurityStaff
Talented SecurityStaff
Super Super Large DataProcessing Reqs(boil the ocean problem)
Super Super Large DataProcessing Reqs(boil the ocean problem)
Business Development
Business Development
Security VendorsSecurity Vendors
Banks?eCommerce?
Banks?eCommerce?
BotNet Detection will make you more secure
BotNet Detection will make you more secure
White Label OEM in Security Products
White Label OEM in Security Products
Ummm? (2-sided market problem)Ummm? (2-sided market problem)
Flat Monthly Fee (peril of OEM)
Flat Monthly Fee (peril of OEM)
Can this Scale?Can this Scale?
BizDevBizDev
ConferencesConferences
ThreatMetrix 2008-2011
david DOT jones AT gmail DOT com | skype://djinoz | Cell:+61 412 683 111 | @djinoz
MarketingEvangelism Awareness
MarketingEvangelism Awareness
Data Center Support
Data Center Support
Geo Data Providers
Geo Data Providers
PerTransaction Assessment
PerTransaction Assessment
Talented Programmers
Talented Programmers
Talented SecurityStaff
Talented SecurityStaff
Super Super Large DataProcessing Reqs
Super Super Large DataProcessing Reqs
BanksBanks
RealtimeSaaS Fraud Protection for eCommerce
RealtimeSaaS Fraud Protection for eCommerce
Payment ProcessorsPayment Processors
Upfront Purchase Transaction Blocks
Upfront Purchase Transaction Blocks
BizDevBizDev
ConferencesConferences
Credit Card CompaniesCredit Card Companies
Resellers in new Territories
Resellers in new Territories
Security DataSecurity Data
eCommerceeCommerce
Social & DatingSocial & Dating
Cloud ServiceSoftware
Cloud ServiceSoftware
Customer Transactions are accretive
Customer Transactions are accretive
Device Intelligence
Device Intelligence
AutorenewAutorenew
Research/DMResearch/DM
Webinars/Demos/EvalsClose/Customer Service
Webinars/Demos/EvalsClose/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 PartnersWho 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 economyReduction of risk and uncertaintyAcquisition 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 StructureWhat 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
david DOT jones AT gmail DOT com | skype://djinoz | Cell:+61 412 683 111 | @djinoz
Questions?
david DOT jones AT gmail DOT com | skype://djinoz | Cell:+61 412 683 111 | @djinoz
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 ValleyStartupHouse
Links into CRV
Southern Cross presence
Good News…
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
The jury is still out but hacked MVP
gives more accurate CustDev feedback
Focus or FailIf you have limited resources and cash reserves then focus is yourmost 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
Don’t let Perfect be the Enemy of the
Good
MarketProductTeam
Ye Olde Startup Funding Model(too early to talk about but I know your thinking about it)
@djinoz [email protected]
TeamMarketProduct
