Startup Business Models

Startup Business
Models
Dan Nelson
TechBrainstorm Consulting
Dan@techbrainstorm.com
July 26, 2018
Los Angeles - Accounting & Finance Show

DAN NELSON
Entrepreneur, Virtual CFO &
Startup Economist
Email: Dan@TechBrainstorm.com
Twitter: @Dnels113
Linkedin: linkedin.com/in/dannels
Education
Professional ExperienceClient Portfolio
June
Cannabis

It has NEVER been easier
to start a business…
But NEVER been
harder to be successful.
Startup Thesis #1
@DNels113
Dan@Techbrainstorm.com

Many founders try to start their business backwards
Startup Thesis #2
I am going to change the world with my idea. Its going
to revolutionize XYZ.
First, I am going to quit my job, then raise money, then
build my team and product and then sell to customers.
Then exit for $10bn!
Backwards aka “the Techcrunch trap” Forwards
Me and a team of smart people are going to try and
find something that will solve the problems of D,E,F.
First, we are going to identify our customers, test our
hypothesis and learn what they need then we will sell
them a product.
@DNels113
“it doesn’t matter what you are selling, it only matters what people are buying”
winston devers – disney’s incredibles ii

Startup Thesis #3
Most founders don’t see the entire playing field
Founders usually know
the problem and have
an idea of their solution
That is only one tiny piece of
everything else they need to
understand
Economics
Accounting
Team Building
HR
Management
Marketing
Sales
Business
Development
Growth Hacking
Manufacturing
Finance
Everything Else…
Software
Development
Operations
Problem
Product
‘SME’
@DNels113

The most common major among American billionaires is
Economics.
Business Insider
http://www.businessinsider.com/most-popular-college-major-for-billionaires-2017-10
@DNels113

FinanceEconomics
How the Business Operates External Reporting for Investors
Accounting
Record Keeping
@DNels113
Income Statement
Statement of Cash Flows
Balance Sheet
Taxes
Bookkeeping
Payroll
AP/AR…

Value Chain Analysis
Starting at the beginning, what are the step-by-step processes your business
undertakes to get from zero to a finished product for customers?
Customers
ServiceActivitiesAssets
Customer
Acquisition & Sales
StrategyEmployees
Raw
Materials
@DNels113

KPIs: Key Performance Indicators
KPIs are the important metrics your business needs to run, and are different for
each business. These models should be used to create your Model
Financial Metrics
Profit/EBITDA
Gross Margin %
Annual/Monthly Recurring Revenue (ARR/MRR)
Churn
Average Annual Expenses To Serve One Customer
Process Metrics (Business Centric)
Percentage Of Product Defects/Returns
Net Promoter Score (NPS)
Content pieces created
New Followers
Sales & Managerial Metrics
Number of Sales
Avg Cost/Unit
Avg Sales/Customer Type
Avg Sales Lead Time
Customer Acquisition Cost (CAC)
Customer Lifetime Value (CLV)
Churn
Average Annual Expenses To Serve One Customer
Marketing (SEM/SEO/Social)
Employee Metrics
**Customer Acquisition Costs & Long Term Value
@DNels113

Revenue Analysis
Revenue = Quantity x Price
Customers Purchases per
Customer
New Customers
x
Churn Rate- Total customer
engagement minutes x Aggregate Avg minutes
between sales
Cost per
Acquisition
Marketing
Budget / Engagement minutes
per customerxAvg Customers
KPIs
@DNels113

Sample Revenue Models
•Subscription
•Marketplace
•Freemium
•Ad-supported
•On-demand
•Transactional
•Affiliate revenue
•eCommerce & Sales
•Direct Sales
•Channel sales
•______-as-a-Service
@DNels113

Basic Pricing Theory
Value-Based Pricing
Cost-Based Pricing
Price is based considering
how much value it provides
to the customer
Price is based on the cost of the
inputs of making, distributing,
marketing and selling the product
Revenue = Price x Quantity
Pricing Zone
Value-Based
Cost-Based
@DNels113

1. If nobody’s buying your product, it’s because the
gap between price and perceived value either
doesn’t exist or it’s not large enough
2. Price can serve as a proxy for quality
3. Coming up with packages that appeal to different
customers will be more profitable for you and allow
customers to feel better about their relationship
with your company
4. Figuring out what goes through a customer’s mind
when she first sees your product can help you set a
price.
5. Your price needs to stand up to scrutiny
6. People tend to overvalue things they already have,
a pattern known as the endowment effect. This is
something that enterprise companies should be
particularly aware of
Advanced Pricing Strategy
https://www.sequoiacap.com/article/pricing-your-product/
Sequoia Capital’s Pricing Strategy
How many units do you need to sell to
pay your own salary?
Most startups are UNDER priced.
Dangerous long-term precedent to set
Keep it simple!
Only have 1-3 prices tiers (not 8-12)
“Don’t penalize your customers for using
your product” S.Greenberg
@DNels113

Financial (Pro-Forma) Models
Financial Models are quantitative models that reflect the physical (or digital) operations of the
business. Good models can be used for strategic planning by taking management assumptions and
estimates. 100% necessary for institutional fundraising
If your company can affect KPIs to X, Y, Z what will be the Financial Results in the future?
Communicate how you understand the economics of your business.
Will NEVER ACCURATE, however, importance is in the direction
Pro-Forma
Financial Statements
Budget KPIsActuals
+ + =
@DNels113

Good Financial Models
They should be:
• EASILY UNDERSTANDABLE to audience.
Formatting and organization are key.
• Simple and consistent assumptions and
results!
• Traceable assumptions to practical results.
Use today’s results as benchmark.
• Should be custom, unless you have a super
specific model for your industry.
• ALWAYS in EXCEL!!!
Goal: Turn Managerial Estimates, metrics, KPIs and budgets into Financial projections.
@DNels113

Budgeting Process
Sales Projections Expense BudgetingHeadcount Budgeting
Figure out sales rates and projected
revenue based on KPI assumptions
such as:
• How long is sales cycle?
• What is the close rate (by sales
person)?
• How do we add new clients to the
pipeline?
• What is the value of each sale?
• How often do customers return?
• Cost per acquisition
Once you have a sales forecast met,
start to think about how many
people you need:
• How many developers are needed
to finish phase x? phase y? phase z?
• How many deals can each sales
person close? Does it scale?
• What is needed for support?
Logistics?
What do you need to support
your headcount and sales
efforts?
• Rent space sqft by employee
• Warehouse space needed
• Software subscriptions
• Marketing needed to support
sales
• Consultants
@DNels113

Entrepreneur’s Triangle
Speed
Quality Price
For EVERY decision,
You can only choose
TWO
@DNels113

Understanding Burnrate
Startup Budgets And Timing Burn: Are Founders Winging It?
Posted Nov 1, 2015 by Lucas Matheson on Techcrunch.com
@DNels113

Reporting & Dashboards
If you cant measure it, you cant manage it -Mayor Mike Bloomberg
Reporting DashboardBookkeeping Systems
@DNels113

NEW: The Excel Toolkit for startups!
• Intro to excel
• Understanding & Navigating Data
• Formatting Tips and Tricks
• Introduction to Functions & Formulas
• Vlookup Functions
• Sumif Functions
• Takeaways
• Appendix
o Keyboard Shortcuts → Lose the
Mouse
o Appendix: Other Handy Excel
Features
o Good vs. Bad Data
o Pivot Tables
@DNels113

Thank you!
Dan Nelson

Startup Business Models

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