Startup Secrets presents a lecture on how to build a game-changing business model for your unique startup. Business models can be just as disruptive as technology!
2. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models
Workshops
Full descriptions of each at
startupsecrets.com
1. What’s Your Roadmap to Success?
2. Building a Compelling Value Proposition
3. Turning Products into Companies
4. Culture, Mission and Vision
5. Hiring A+ Talent
6. Game-Changing Business Models
7. Go to Market Strategies
8. Getting Behind the Perfect Investor Pitch
9. Funding Strategies to go the Distance
10. Have You Got What It Takes?
11. Mastering Mutual Mentorship
3. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models
Introductions & Case Examples
Established
• Google
Startup
• Acquia
• Demandware
Not-for-profit
• One Laptop Per Child
• Diagnostics For All (on the web)
3
4. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models
Agenda
1. Finding a Disruptive Business Model
2. Focusing on CORE differentiation
3. Multiply and Leverage it with innovation
4. Designing for high value
4
5. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models
What is your model for:
• Creating
• Delivering
• Harnessing
VALUE?
5
5
Business Model:
How Do You Make Money?
6. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models
Today
Let’s get creative and think specifically about startups!
6
7. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models
Business Model as a Disruptor
Why?
• Time to market
• Market adoption
• Sustainability
Connecting the dots for you, as a founder:
• Spend
• Cash efficiency
• Your ownership
• Valuation
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8. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models
The Perfect Startup Storm
8
Disruptive
Business Model
Disruptive
Technology
New Market &
GTM
9. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models
How can your Business Model…
Change the game?
Rewrite the rules?
Cause an innovator’s dilemma
Be as disruptive as your technology?
9
New Game
New playing field
New boundaries
New rules
YOU choose players
10. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models
Symantec Antivirus for Mac (SAM)
Best seller – Licensed Product
Norton Antivirus for PC (NAV)
How to change the game
Best seller – Subscription Service
Example 1: Symantec – Many Years Ago!
10
11. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models
Dramatic!
Game changing
• Flipped the model on it’s head
Competitors caught off guard
• Predictable profitable business model
Led to solution leadership vs. battle: “Data Security”
• Customer need met more effectively
• More value extracted
• 1.5 product / seat => 2.6x
11
Results?
12. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models
Off balance sheet Publisher of US products
• Investment in Management, Sales, Marketing, Support, Translation & Localization
Acquired back by US corporation when profitable
• Pooling of interest
• Non-dilutive
• Growing earnings
Symantec example Win / Win
12
Example 2: European Software Publishing
13. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models
Win / win / win
• Customers = better local product, support, services
• Publishers = accelerated, off balance sheet setup of profitable business
• Shareholders = 97x return on original investment
Non-technology disruptive business model
• Economies of scale
• Pooling of interests (tax)
• Time shifting expense → Accretive outcome
13
Results?
14. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models
Shared ownership (Zipcar)
Flash sales (Vente Privee)
Crowd sourcing (uTest)
Lead Gen (Mint.com)
Virtual goods/currencies (Tapjoy)
Combinations
• Acquia - OSS, SaaS
• AirBnB - Commission on P2P rentals
• Demandware - SaaS, success based rev share
• Groupon - broker, revshare
• Spotify -adbased, freemium
14
Sample Models
15. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models
Process or Product?
Software or Services?
Open or Proprietary?
Content or Data?
Freemium or Premium?
Subscription or License?
15
Business Model – Sample Questions
16. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models
First key question!
What is Your CORE Value?
16
Capabilities
Of
Really
Exceptional
Value
Focus on it!
C.O.R.E.
Value
17. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models
Where is your CORE value?
Software/other technology
Data
Content
Service, support
User network
Disruptively monetize it!
• To your competitive advantage
• Where are others most vulnerable?
17
CORE
Cut to the CORE!
18. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models
Google Apps vs. Microsoft office
• What is the C.O.R.E for each?
Software, Data, Advertising?
Don’t compete head-on
• Microsoft Office = enterprise market
• Google Apps = consumer market
• Free vs. $500 license
• Simple vs. Complicated
• 80% solution vs. Professional Tool
18
Example 1: Apps
19. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models
How can you compete with a market leader who has 80% to 90% market share?
1. Don’t compete head-on
2. Innovators Dilemma – go for low end
3. Disruptive technology, business model, or market approach
4. Examples: Gmail, Google Apps, Chrome
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Competing with Market Leaders
20. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models
Apple vs. Google
• What is the C.O.R.E for each?
Hardware, Software, Content?
Others in Ecosystem
• Samsung, HTC
Alternative approaches
• Amazon
20
Example 2: Mobile
21. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models
Who is winning?
Why?
Is technology the difference?
Apple, Google, & Microsoft strategies
• Always play to your strength
• Apple Mac, Google Search, Microsoft Windows
21
Android vs. iPhone
22. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models
Disrupt the market leader
• Apple disrupted carriers and manufacturers
Verizon, Sprint, Nokia, Motorola, RIM, Symbian
• Android allowed them to fight back
Disruptive business model
• Android is free
• Advertising business model
• Search, Maps, Local, Wallet, YouTube
22
Android vs. iPhone
23. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models
Business Models Matter!
23
Don Dodge
dondodge@google.com
25. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models 25
Startup Secret!
Co-Creating Value
Be Open and Extensible (e.g., Software APIs)
• Enabling external multipliers to your value
• Building on yourself
• Eating your own cooking
• Being your own customer
26. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models
Be Open and Extensible (e.g., Software APIs)
• Enabling external multipliers to your value
• Building on yourself
• Eating your own cooking
• Being your own customer
Open Source
• Leverage through community
• Make the customer the product manager
Scratching their own itch
26
Startup Secret!
Co-Creating Value
27. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models
Dries Buytaert
Founder and Project Lead Drupal
Co-Founder and CTO Acquia
http://buytaert.net
@Dries
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28. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models
Meet Dries 12 years ago when he started work on Drupal ...
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Compiler books
Collection of stamps
Chess board
Assembly books
All furniture is from IKEA
Student dorm in Antwerp
where I started Drupal
29. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models
1 out of 50 websites in the world
10,000+ modules
300,000+ downloads/month
1.5M unique visitors/month
FREE
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30. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models
71 of the World's Top 100 Universities Use Drupal
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31. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models
1. Freedom to run the program
2. Freedom to study the program
3. Freedom to modify the program
4. Freedom to re-distribute the program
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Open Source is a Software License
32. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models
Drupal Wins Because it is Less Expensive
… Yet Technically Superior!
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34. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models
3,800 people contributed to Drupal 8
Open Source is not just a software license,
it is also a development model
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39. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models
“Creative Destruction”
Joseph Schumpeter
39
Joseph Schumpenter
Economist, 1883-1950
Drupal and Open Source are Catalysts for
“Creative Destruction”
- Changes how we develop
software
- Changes how we build websites
- Changes a multi-billion dollar
industry
- Open Source enables business
model innovation
- Bonus: allows people to do well,
and do good
41. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models
Multiply and Leverage your CORE
Multipliers:
• Increase revenue
• Increase reach
• Increase coverage
Levers:
• Reduce time
• Reduce costs
• Reduce resources
CORE
Levers
Multipliers
Startup Secret!
Multipliers and Levers
41
42. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models
Multipliers:
• Added functionality
• Community reach
Levers:
• Community development
• Community marketing
CORE
Levers
Multipliers
Multiply AND Leverages CORE
Drupal and Open Source
42
43. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models
Multiplier Examples:
• Sales & Marketing
– Tiered Pricing
– Freemium
– Channel partners
• Product
– Slippery products *
– “Russian Doll”
Packaging *
– Technology stacks
Lever Examples:
• Sales & Marketing
– Web
– Inside
– Inbound
– Viral
• Product, Support
– Offshoring
– Outsourcing
– Crowdsourcing
– Co-creation *
– Technology stacks
* Covered in this presentation
Examples in Software:
CORE
Levers
Multipliers
43
Startup Secret!
Multipliers and Levers
44. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models
Strategies that enable Multipliers and Levers to work
together around your CORE are the real winners
44
Get Multipliers and Levers Working Together!
46. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models
• Provider of cloud-based solutions and support for
enterprises using the open source product Drupal
• 2000+ customers
• 250+ employees
• 150% 4 year CAGR
• Global operations
• Highly predictable and repeatable model
• Land and expand strategy
46
Acquia at A Glance
47. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models
Acquia Business Model
Drupal is FREE
It is also Open Source
So how do you make money from FREE and Open IP?
1. Create valuable products and services around the CORE of Drupal
2. Use FOSS as multiplier and a lever in R&D, sales and marketing
47
48. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models
Acquia Products Around Drupal CORE
C OMMU N ITY C OMMER C EC ON TEN T
Enterprise Site FactoryDrupal
Gardens
Managed DeploymentsAcquia
Cloud
Drupal Management SuiteAcquia
Network
Drupal
Training
Professional
Services
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49. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models
As a multiplier AND a lever (in R&D, sales, marketing, and more)
49
Example Multipliers:
• Upsell value added
products & services
• Cloud & SaaS
Example Levers:
• Target installed base
• Expand usage through
partners
CORE
Levers
Multipliers
Free and Open Source Software
(FOSS)
51. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models
Product feeds the business model:
• User experience
• Supportability
• Maintenance, updates (= lifecycle)
• Upgrades
• Upsells
Leads to two startup secrets:
• Russian Dolls and SLIPPERY products
51
Designing for Success…
52. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models
• Simple
• Low to no initial cost
• Installs easily
• Proves value quickly
• Plays well with others
• Easy to use
• ROI is obvious
• Your customers can’t live without it
Think of how this improves
the Gain/Pain Ratio in our
Value Proposition
Workshop
Gain
Pain
52
Startup Secret!
Friction Free, SLIPPERY Products
53. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models
Simple: Update your site from the browser
Low to no initial cost: free
Installs easy: Windows/Mac installers + SaaS
Proves value quickly: Distributions + Start using immediately
Plays well with others: Lots of integrations with other platforms
Easy to use: Web-based
ROI is obvious: Better, faster, cheaper
Your customers can’t live without: flexibility and extensibility
53
What makes Drupal SLIPPERY?
54. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models
Multi purpose strategy
• Packaging
• Pricing
• Distribution
• And more!
54
Startup Secret!
Build a Russian Doll
59. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models
Sales Enabler
59
Limited
Personal
Workgroup
Corporate
Free
60. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models
Free
Adoption
60
Limited
Personal
Workgroup
Corporate
Enterprise
61. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models
“Addiction before Adoption”
Gives you, your partners and your customers:
Digestible starting point
Up-sell Options
Channel Flexibility
…and more
61startupsecrets.com
Startup Secret!
Build a Russian Doll
62. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models
Acquire
On-board
Upsell /
Cross Sell
Acquia example = increasing LTV
“Land & Expand”
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$0
$100
$200
$300
$400
2009 2010 2011 2012(e)
LTV
“Addiction before Adoption”
Startup Secret!
Build a Russian Doll
63. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models
Create, Deliver and Harness Value
Putting it All Together
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64. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models
Lifetime Value of Customer (LTV)
Cost of Acquiring Customer (CAC)
64
CORE
Levers
Multipliers
LTV ~3x >
CAC
Basic Startup Model
65. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models
Repeatable
Scalable – with leverage
Profitable / Sustainable
Predictable
Valuable
65
What makes for a GREAT business model?
66. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models
Development Target
Gross Margin 80%
R&D 100%+ 15%
Sales & Marketing 10%
G&A 45%
Profit (Loss) -100% 20%
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• Example:
– Phases of a software company
Percent of Revenue Spent
67. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models
Expenses as Percentage of Revenue
62%
61%
53%
43%48%
29%
21% 19%
43% 50%
45% 44%
19% 14% 11% 11%
L/T Model
based on
profitable
subscription
based
software
company
62%
48%
43%
19%
51%
29%
65%
14% 11%
45%
21%
53%
44%
19%
44%
11% 10%
35%
15%
25%
67
68. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models
• Today:
– 70% of all bookings are renewable subscriptions
– 30% are consulting services (key differentiator)
– 85%+ annual renewal rate for non-project work
• Long-term Model:
– 80% renewable subscriptions
– 20% consulting services
– 90% annual renewal rate for non-project work
Highly Predictable and
Repeatable Financial Model
68
69. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models
New Geographies
New Partners
New Verticals
Potential M&A
Cross-sell
Up-sell
New Sites
New Products
New Customers Existing Customers
Result: Disruptive Business Model for Continued Growth
Total Revenue
69
71. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models
2013 Revenue Multiples
Median 5.2x
Valuations - SaaS
71
72. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models
2012-2013 Revenue Growth
Valuations - SaaS
2013 Revenue Multiples
Median 5.2x
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77. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models
Lifetime Value of Customer (LTV)
Cost of Acquiring Customer (CAC)
77
CORE
Levers
Multipliers
LTV ~3x >
CAC
Basic Startup Model
78. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models
The Model Refined –
Enabling Retention & Upsell
Lifecycle Value of Customer (LCV)
Cost of Acquiring & Re-Engaging Customer (CARC)
78
CORE
Levers
Multipliers
Re-Trial
Up-sell
79. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models
Re-engagement Costs
Must be included in CARC
Example:
• Support
• Customer Service
• Professional Services
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80. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models
Connecting it to Gain/Pain
They are two views of the same principle:
• Customer view = Gain/Pain
• Vendor view = LCV/CARC
80
CORE
Levers
Multipliers
Re-Trial
Up-sell
82. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models
A Typical Product Lifecycle
But it doesn’t have to be this way !
82
See Try Buy Fly Die
Long, costly (CAC), slow payback, short lifetime value (LTV)
83. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models
Adding Retention and Upsell
83
See Try Buy Fly Die
Re-TrialUp-sell
Extended
Lifecycle
Long, costly (CAC), slow payback, EXTENDED lifetime value (LTV)
84. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models
Web
Self service
On demand
SaaS
Subscription
Open source
A Disruptive and Valuable Lifecycle
See Try Buy Fly Die
Up-sell
Extended
Lifecycle Re-Trial
Up-sell Extended
Lifecycle
Short, low cost (CARC), quick payback, extended lifecycle value (LCV)
84
Re-Trial
85. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models
Applied to Software
Installed by IT
Customized
Infrequent upgrades
Proprietary
License
85
1990+ 2010+
On demand, SaaS
Web based
Self service
Open Source
Subscription
Web
Self service
On demand
SaaS
Subscription
Open
source
Up-sell
Extende
d
Lifecycl
e
Up-sell
Extende
d
Lifecycl
e
short, low cost (CAC), quick payback, EXTENDED lifetime value (LTV)
Re-Trial
…a fundamentally disruptive and more valuable
business model!
98. Proprietary and ConfidentialProprietary and Confidentialstartupsecrets.comGame-Changing Business Models
Summary
Disruptive Business Model – as significant as Technology
Focus on CORE differentiation
Multiply and Leverage it with innovation like:-
• Co-Creation
• Strategic Partners
• Russian Doll Packaging
• And Friction Free, SLIPPERY products
Design for high value using LCV & CARC
98