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Business Models
                                         Steve Blank
                              www.steveblank.com
Clean Tech Open Accelerator 2009, San Jose, California
Iʼm Confused

•   What is a Business Plan?
•   How does it differ from a Business Model?
Business Plan

1.   A document your investors make you
     write that they don’t read
2.   A useful place for you to collect your
     guesses about your business
     •   Size of Opportunity
     •   Customers
     •   Channel
     •   Demand Creation
     •   Revenue/Expenses/Profit
Business Model

1.   A diagram that shows all the flows
     between your company and its
     customers
But First…

Market Risk
Clean Tech Markets
Air, Water    Energy       Green     Renewables   Smart   Transport
 & Waste     Efficiency   Building                Power
Clean Tech Markets - Risk
Air, Water    Energy       Green     Renewables   Smart   Transport
 & Waste     Efficiency   Building                Power




     •   Which markets have technology risk?
     •   Which markets have customer risk?
     •   Which have both?
Clean Tech Markets - Risk Definitions
Air, Water    Energy         Green       Renewables       Smart       Transport
 & Waste     Efficiency     Building                      Power




 •   Technology Risk
      – risk is in development of the product (i.e. fuel cells, thin-film arrays,
        etc.) then customers automatically adopt
 •   Customer risk
      – risk is in customer and market adoption
 •   Which have both?
 •   You spend your time differently depending on risk
Next…

Business Plan Hypothesis
Clean Tech Markets - Hypotheses
Size of Opportunity
Customer
Competition
Sales
                      •   Your business plan is a set of untested
Marketing                 hypothesis
Biz Dev
                      •   What are they?
Customer Dev
Bus/Rev Model         •   How do you test them?
IP/Patents
                      •   How do you execute them?
Regulatory
Time to Market
Prod Dev Model
Manufacturing
Team
Seed Financing
Follow-on
Liquidity
Clean Tech Markets - Hypotheses
Size of Opportunity
Customer
Competition           •   Size of Opportunity
Sales                      – TAM, SAM
Marketing             •   Customer
Biz Dev                    – Who’s the end user? Economic buyer? Reimburser?
Customer Dev          •   Sales
Bus/Rev Model              – What’s the distribution channel?
IP/Patents            •   Marketing
Regulatory                 – How do you create end-user demand
Time to Market        •   Customer Development
Prod Dev Model             – How do you test your hypothesis
Manufacturing
                      •   Business Model
Team                       – How do all the parts work to create profits?
Seed Financing
                      •   Financing
Follow-on
                           – What is the path to cash flow positive
Liquidity
Finally…

Your Hypothesis Go Here
Clean Tech Markets
                      Air, Water    Energy       Green     Renewables   Smart   Transport
                        Waste      Efficiency   Building                Power
Size of Opportunity
Customer
Competition
Sales
Marketing
Biz Dev
Customer Dev
Bus/Rev Model
IP/Patents
Regulatory
Time to Market
Prod Dev Model
Manufacturing
Team
Seed Financing
Follow-on
Liquidity
Clean Tech Markets
                      Air, Water    Energy       Green     Renewables   Smart   Transport
                        Waste      Efficiency   Building                Power
Size of Opportunity
Customer
Competition
Sales
Marketing
Biz Dev

Customer                           This         Is         Important
Development
Bus/Rev Model
IP/Patents
Regulatory
Time to Market
Prod Dev Model
Manufacturing
Team
Seed Financing
Follow-on
Liquidity
Business Plan - Sum of Hypotheses

•   Business plan collects your hypothesis
•   Adds facts as you know them today
•   Contains a plan of how to turn hypothesis into facts
•   Extrapolates results if hypothesis turn into facts
•   Has a business model which is clearly articulated
Business Model…

Start with the Pieces
Business Model

•   Goal is to get to a single diagram of your
    business
•   Start by drawing pieces of your business
     –   Problem/Opportunity
     –   Market Size
     –   Distribution Channel
     –   Demand Creation
     –   Financial assumptions
•   Then put it all together
Problem/Opportunity

Why Are You in Business?
+
    Pain Points in Inter-District
    Development of Curricula
Recognize Your Market Type

    Can Save a Ton of Dollars
Market Type?

•   Existing Market
•   Resegment a Niche
•   Resegment on Low Cost
•   New Market
Definitions: Types of Markets
               Existing Market      Resegmented        New Market
                                       Market


•   Existing Market
     – Faster/Better = High end
•   Resegmented Market
     – Niche = marketing/branding driven
     – Cheaper = low end
•   New Market
     – Cheaper/good enough can create a new class of product/customer
     – Innovative/never existed before
Type of Market Changes Everything

        Existing Market             Resegmented            New Market
                                       Market

•   Market                •   Sales
    – Market Size              –   Sales Model       • Customers
    – Cost of Entry                                       - Needs
                               –   Margins
    – Launch Type              –   Sales Cycle            - Adoption
    – Competitive              –   Chasm Width
      Barriers
    – Positioning
                                    • Finance
                                        - Ongoing Capital
                                        - Time to Profitability
How Big is It?

So if You Succeed Do I Care?
Total Available Market, Served Available
          Market, Target Market


TAM = how big is the universe   Total
                                Available
                                Market      Served
                                            Available
                                            Market
                                                        Target
                   SAM = how many can I reach           Market
                   with my sales channel




                                      Target Market (for a startup) =
                                      who will be the most likely buyers



                                                                           25
sizing up the market

                       $123 billion tourism
                       industry inside the U.S.



                       $1 billion English travel
                       guides sold annually



                       $210 million 20-35 year
                       old travelers
         SF            (Initial test market)
OLED’s ‐ Billion Dollar Opportunity
     TAM: En@re consumer electronics market                 Our target market is the Flat
            ($790 million)

                SAM: Size of TV market
                                                              Panel display market.
                    ($500 million!)

                                                         Target products: Camcorders, DVD
                        Target Mkt: $155                 players and recorder, digital cameras,
                            million!                     computer monitors, LCD and Plasma TV
                             Apex: ≥ 3.5M



                                                         OLED TV market will grow to $15.29
                                                         billion by 2015

YEAR 1 PROJECTIONS
Units sold                             : 1,000,000
Price per unit                         : $700 - $1,000

Revenue from Royalties (assuming .5-1.0% of shelf price):
Worst case = $3,500,000          Best Case = $10,000,000
Distribution Channel

How Does Your Product Get to Your Customer?
+
    Sales Ecosystem
                      Discussion channel
                      Mandate channel
         Sale
                                Superintendant
                                                               Another
                                                 District      district
                      IT Director




      Engagement
     (Early Stages)                                   School
                                    Dept. Head                 Another
                                                               school
                                                               in the
                                                               district
                      Teacher                     Teacher
Distribution Channel
                                             Licensed Partners:
                                             • Sony                                                 Consumer electronics
                                             • Samsung                                         • Flat Screen TVs through
                                             (Other possibilities - LG, Toshiba, Panasonic,
                                             DuPont)
                                                                                              Fry’s, Best Buy, Magnolia,
                                                                                                                      etc




             IP
                        A
                        P       Patents        Manufacturing                  DistribuDon                     Retail
                        E
                        X




     2 patents owned by Apex!                                               Partners’ distribution channels
     • Technology patent - SOLED                                            • Sony
     • Long-Brite and inkjet printing process                               • Samsung
                                                                            (Other possibilities - LG, Toshiba, Panasonic,
                                                                            DuPont)


 Dollar flows:
Wages: founders &
Consultants
                                                            PA
IP Costs: Lawyer            A
                            P             License fees      RT
                                                            NE
& Patent costs.                                             RS
                            E             Royalties
Premises: Dev’t labs.       X
Business Model for Startups
Demand Creation

How Do You Drive Demand Into Your Channel?
+
    Demand Creation
       State-by-state rollout: educational standards

       Continuous iteration of feedback

           CA Pilot                 Broad                     Grow
                                   Adoption                  Adoption
       Hypotheses: Will       Hypotheses: Will        Hypothesis: How
        they adopt, use,        they buy hands-          well does it sell
        and pay?                off? Can it scale?       itself?

       10 schools f2f:        CA telemarket           All telemarket

       Sales: $1,066          F2f elsewhere           $533/dist

       Travel: $1,000
distribution and demand creation
    Unique Idea: website and iPhone app form
     symbiotic relationship

                                                         Travel
AdWords                                                   App
                             traffic
                                                         Listing


             TravelSpy.com               iPhone App



                               traffic                Blogs (ex.
Magazines
                                                      Travelblog.org)
Business Model for Startups
Financial Assumptions

What are the Ten Numbers that Matter?
Financial Assumptions

•   Ten Numbers that matter depends on
    your business
     –   Average selling price
     –   Life time value
     –   Material cost
     –   Distribution channel cost
     –   Customer Acquisition cost
     –   Time to market
     –   Time to cash flow positive
     –   Etc.
•   Do this before 45 pages of financials
Business Model

How Do The Pieces Work Together?
Bird’s Eye View of our Business Model
  Hardware
   ($155)
                                          Online Distribution
                                          • Own website ($208+.3x)
                        Customer          • Amazon.com ($40+32x)
                                          • eBay ($300+25x)
                       Acquisition
                                                                 Target Market
                          Cost:
                          ($41)
                      Demand Creation     Viral
 MyNote                  • SEO/SEM
   ($156.00)                                      Marketing
                             • Blogs
                           • Forums
                         • Bookstore
                          promotion
                         • Sales force
                      • Viral marketing   Offline Distribution
                           • Website                                 $399.99
                                          • College bookstores
                                          ($0.02)


Software (in-house)
     ($1.00)
BUSINESS MODEL
          iPhone Application                 Subscription Based Service


$ 2.99 (x.7)                                                             $ 5/month
Year 1: $ 40K    END-USERS                             END-USERS         Year 1: $ 50K
Year 2: $1M                                                              Year 2: $1.2 M




                                                 C E
                                 SE




                                              VI


                                                        E
                                                       NU
                                               R
                                  RV
                          RE




                                            SE

                                                   VE
                                       IC
                             V


                                       E
                               EN




                                               RE
                                                                      Third
         Nightlife
                                  UE




                                                                       party
         venues
                                                                     affiliates

                                   CITYBEATS.COM
                                                       Two Revenue Streams
March | 2011
                                                       Total Revenue (year 1) = $ 90 K
Critical Mass: 500,000 users
                                                       Total Revenue (year 2) = $ 2.2 M
   IP license for WiBat
       technology                                         Manufactured
                                 Smaller Router             Product

                $3.01             companies                                     Distributors
                                  ie Netgear,                $60.19             ie Windsor
                                     Meru

                                                                                          Product
                                                                                          Delivery
   Planet Batteries                                                      $93.75


                                                                              Retail Stores
                                                                          i.e. Best Buy, Fry’s

                                                                                               End
                                                                                               User
                                                                         $125                  Sale
   Corporate Investors
•Partner router companies
•Intel (they are interested in                                            End Users
wireless technology)
                                                                    i.e. college students

                                   (See appendix E for figures)
Other Investors/Channels

•   Mission Point Capital
    JFink@missionpointcapital.com
•   Westly Group
    http://www.westlygroup.com/
•   California Public Utilities Commission
    http://www.cpuc.ca.gov/SMBUS/

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Business Model for Startups

  • 1. Business Models Steve Blank www.steveblank.com Clean Tech Open Accelerator 2009, San Jose, California
  • 2. Iʼm Confused • What is a Business Plan? • How does it differ from a Business Model?
  • 3. Business Plan 1. A document your investors make you write that they don’t read 2. A useful place for you to collect your guesses about your business • Size of Opportunity • Customers • Channel • Demand Creation • Revenue/Expenses/Profit
  • 4. Business Model 1. A diagram that shows all the flows between your company and its customers
  • 6. Clean Tech Markets Air, Water Energy Green Renewables Smart Transport & Waste Efficiency Building Power
  • 7. Clean Tech Markets - Risk Air, Water Energy Green Renewables Smart Transport & Waste Efficiency Building Power • Which markets have technology risk? • Which markets have customer risk? • Which have both?
  • 8. Clean Tech Markets - Risk Definitions Air, Water Energy Green Renewables Smart Transport & Waste Efficiency Building Power • Technology Risk – risk is in development of the product (i.e. fuel cells, thin-film arrays, etc.) then customers automatically adopt • Customer risk – risk is in customer and market adoption • Which have both? • You spend your time differently depending on risk
  • 10. Clean Tech Markets - Hypotheses Size of Opportunity Customer Competition Sales • Your business plan is a set of untested Marketing hypothesis Biz Dev • What are they? Customer Dev Bus/Rev Model • How do you test them? IP/Patents • How do you execute them? Regulatory Time to Market Prod Dev Model Manufacturing Team Seed Financing Follow-on Liquidity
  • 11. Clean Tech Markets - Hypotheses Size of Opportunity Customer Competition • Size of Opportunity Sales – TAM, SAM Marketing • Customer Biz Dev – Who’s the end user? Economic buyer? Reimburser? Customer Dev • Sales Bus/Rev Model – What’s the distribution channel? IP/Patents • Marketing Regulatory – How do you create end-user demand Time to Market • Customer Development Prod Dev Model – How do you test your hypothesis Manufacturing • Business Model Team – How do all the parts work to create profits? Seed Financing • Financing Follow-on – What is the path to cash flow positive Liquidity
  • 13. Clean Tech Markets Air, Water Energy Green Renewables Smart Transport Waste Efficiency Building Power Size of Opportunity Customer Competition Sales Marketing Biz Dev Customer Dev Bus/Rev Model IP/Patents Regulatory Time to Market Prod Dev Model Manufacturing Team Seed Financing Follow-on Liquidity
  • 14. Clean Tech Markets Air, Water Energy Green Renewables Smart Transport Waste Efficiency Building Power Size of Opportunity Customer Competition Sales Marketing Biz Dev Customer This Is Important Development Bus/Rev Model IP/Patents Regulatory Time to Market Prod Dev Model Manufacturing Team Seed Financing Follow-on Liquidity
  • 15. Business Plan - Sum of Hypotheses • Business plan collects your hypothesis • Adds facts as you know them today • Contains a plan of how to turn hypothesis into facts • Extrapolates results if hypothesis turn into facts • Has a business model which is clearly articulated
  • 17. Business Model • Goal is to get to a single diagram of your business • Start by drawing pieces of your business – Problem/Opportunity – Market Size – Distribution Channel – Demand Creation – Financial assumptions • Then put it all together
  • 19. + Pain Points in Inter-District Development of Curricula
  • 20. Recognize Your Market Type Can Save a Ton of Dollars
  • 21. Market Type? • Existing Market • Resegment a Niche • Resegment on Low Cost • New Market
  • 22. Definitions: Types of Markets Existing Market Resegmented New Market Market • Existing Market – Faster/Better = High end • Resegmented Market – Niche = marketing/branding driven – Cheaper = low end • New Market – Cheaper/good enough can create a new class of product/customer – Innovative/never existed before
  • 23. Type of Market Changes Everything Existing Market Resegmented New Market Market • Market • Sales – Market Size – Sales Model • Customers – Cost of Entry - Needs – Margins – Launch Type – Sales Cycle - Adoption – Competitive – Chasm Width Barriers – Positioning • Finance - Ongoing Capital - Time to Profitability
  • 24. How Big is It? So if You Succeed Do I Care?
  • 25. Total Available Market, Served Available Market, Target Market TAM = how big is the universe Total Available Market Served Available Market Target SAM = how many can I reach Market with my sales channel Target Market (for a startup) = who will be the most likely buyers 25
  • 26. sizing up the market $123 billion tourism industry inside the U.S. $1 billion English travel guides sold annually $210 million 20-35 year old travelers SF (Initial test market)
  • 27. OLED’s ‐ Billion Dollar Opportunity TAM: En@re consumer electronics market Our target market is the Flat ($790 million) SAM: Size of TV market Panel display market. ($500 million!) Target products: Camcorders, DVD Target Mkt: $155 players and recorder, digital cameras, million! computer monitors, LCD and Plasma TV Apex: ≥ 3.5M OLED TV market will grow to $15.29 billion by 2015 YEAR 1 PROJECTIONS Units sold : 1,000,000 Price per unit : $700 - $1,000 Revenue from Royalties (assuming .5-1.0% of shelf price): Worst case = $3,500,000 Best Case = $10,000,000
  • 28. Distribution Channel How Does Your Product Get to Your Customer?
  • 29. + Sales Ecosystem Discussion channel Mandate channel Sale Superintendant Another District district IT Director Engagement (Early Stages) School Dept. Head Another school in the district Teacher Teacher
  • 30. Distribution Channel Licensed Partners: • Sony Consumer electronics • Samsung • Flat Screen TVs through (Other possibilities - LG, Toshiba, Panasonic, DuPont) Fry’s, Best Buy, Magnolia, etc IP A P Patents Manufacturing DistribuDon Retail E X 2 patents owned by Apex! Partners’ distribution channels • Technology patent - SOLED • Sony • Long-Brite and inkjet printing process • Samsung (Other possibilities - LG, Toshiba, Panasonic, DuPont) Dollar flows: Wages: founders & Consultants PA IP Costs: Lawyer A P License fees RT NE & Patent costs. RS E Royalties Premises: Dev’t labs. X
  • 32. Demand Creation How Do You Drive Demand Into Your Channel?
  • 33. + Demand Creation  State-by-state rollout: educational standards  Continuous iteration of feedback CA Pilot Broad Grow Adoption Adoption  Hypotheses: Will  Hypotheses: Will  Hypothesis: How they adopt, use, they buy hands- well does it sell and pay? off? Can it scale? itself?  10 schools f2f:  CA telemarket  All telemarket  Sales: $1,066  F2f elsewhere  $533/dist  Travel: $1,000
  • 34. distribution and demand creation  Unique Idea: website and iPhone app form symbiotic relationship Travel AdWords App traffic Listing TravelSpy.com iPhone App traffic Blogs (ex. Magazines Travelblog.org)
  • 36. Financial Assumptions What are the Ten Numbers that Matter?
  • 37. Financial Assumptions • Ten Numbers that matter depends on your business – Average selling price – Life time value – Material cost – Distribution channel cost – Customer Acquisition cost – Time to market – Time to cash flow positive – Etc. • Do this before 45 pages of financials
  • 38. Business Model How Do The Pieces Work Together?
  • 39. Bird’s Eye View of our Business Model Hardware ($155) Online Distribution • Own website ($208+.3x) Customer • Amazon.com ($40+32x) • eBay ($300+25x) Acquisition Target Market Cost: ($41) Demand Creation Viral MyNote • SEO/SEM ($156.00) Marketing • Blogs • Forums • Bookstore promotion • Sales force • Viral marketing Offline Distribution • Website $399.99 • College bookstores ($0.02) Software (in-house) ($1.00)
  • 40. BUSINESS MODEL iPhone Application Subscription Based Service $ 2.99 (x.7) $ 5/month Year 1: $ 40K END-USERS END-USERS Year 1: $ 50K Year 2: $1M Year 2: $1.2 M C E SE VI E NU R RV RE SE VE IC V E EN RE Third Nightlife UE party venues affiliates CITYBEATS.COM Two Revenue Streams March | 2011 Total Revenue (year 1) = $ 90 K Critical Mass: 500,000 users Total Revenue (year 2) = $ 2.2 M
  • 41.    IP license for WiBat technology Manufactured Smaller Router Product $3.01 companies Distributors ie Netgear, $60.19 ie Windsor Meru Product Delivery Planet Batteries $93.75 Retail Stores i.e. Best Buy, Fry’s End User $125 Sale Corporate Investors •Partner router companies •Intel (they are interested in End Users wireless technology) i.e. college students (See appendix E for figures)
  • 42. Other Investors/Channels • Mission Point Capital JFink@missionpointcapital.com • Westly Group http://www.westlygroup.com/ • California Public Utilities Commission http://www.cpuc.ca.gov/SMBUS/