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HOW	
  TO	
  BUILD	
  
         A	
  VIABLE	
  
BUSINESS	
  MODEL	
  
                   ?	
  
      Tanguy	
  Lesselin	
  
Agenda	
  


•      The	
  Business	
  Model	
  Canvas	
  
•      How	
  good	
  is	
  your	
  business	
  model	
  
•      The	
  investor	
  perspec<ve	
  
•      A	
  few	
  examples	
  
•      How	
  to	
  manage	
  a	
  pivot?	
  

	
  
Start-­‐up	
  vs	
  company	
  

              Start-­‐up         	
  	
                 Company	
  
•  Iterate	
  product,	
                    •  Execute	
  iden<fied	
  
   customer	
  discovery,	
  go-­‐             business	
  model	
  and	
  scale	
  
   to-­‐market,	
  value	
                  •  Maximize	
  growth,	
  share,	
  
   proposi<on…	
                               compe<<ve	
  posi<on	
  
•  Reach	
  Product-­‐Market	
              •  Move	
  from	
  $1m	
  to	
  $50m	
  
   Fit	
  quickly	
  
•  Iden<fy	
  and	
  validate	
  a	
  
   business	
  model	
  
THE	
  BUSINESS	
  
MODEL	
  CANVAS	
  
Business	
  Model?	
  


                   •    Customer	
  selec<on	
  
                   •    Unique	
  Value	
  Proposi<on	
  
1995	
             •    Go-­‐to-­‐market	
  
                   •    Business	
  Processes	
  
                   •    Value	
  capture	
  
www.businessmodelalchemist.com	
  
www.businessmodelgenera<on.com	
  
www.businessmodelalchemist.com	
  
www.businessmodelgenera<on.com	
  
There	
  are	
  many	
  possibiliJes	
  

•  For	
  each	
  product	
  idea,	
  maybe	
  3	
  poten<al	
  
   revenue	
  streams	
  
•  For	
  each	
  customer	
  segment,	
  3-­‐4	
  channels	
  
•  For	
  each	
  business	
  idea,	
  3-­‐4	
  customer	
  
   segments	
  
•  Etc…	
  

          Need	
  to	
  map	
  op<ons	
  and	
  evaluate	
  
                        before	
  you	
  start	
  
Examples	
  of	
  a	
  few	
  choices	
  

•      Free	
  /	
  Freemium	
  /	
  Paid	
  
•      Large	
  accounts	
  vs	
  long	
  tail	
  
•      Niche	
  vs	
  mass	
  
•      User	
  Generated	
  Content	
  vs	
  curated	
  
•      Adver<sing	
  vs	
  direct	
  mone<za<on	
  
•      Marketplace	
  vs	
  B2B	
  so]ware	
  
•      Etc.	
  
	
  
What	
  is	
  the	
  	
  


one	
  thing	
  	
  
that	
  makes	
  you	
  stand	
  out?	
  
Focus	
  on	
  it,	
  build	
  on	
  it,	
  
 and	
  iterate	
  around	
  it	
  
HOW	
  GOOD	
  IS	
  YOUR	
  
 BUSINESS	
  MODEL?	
  
Viable	
  business	
  model	
  for	
  dummies	
  

•    You	
  create	
  value	
  for	
  “someone”	
  
•    There	
  are	
  enough	
  “someone”	
  
•    You	
  can	
  find	
  them	
  at	
  reasonable	
  cost	
  
•    They	
  are	
  willing	
  to	
  pay	
  you	
  
•    They	
  pay	
  you	
  J	
  
•    You	
  get	
  paid	
  more	
  than	
  what	
  the	
  product	
  costs	
  
•    You	
  can	
  reach	
  profitability	
  reasonably	
  fast	
  
•    The	
  required	
  investment	
  is	
  low	
  enough	
  to	
  be	
  found	
  
What	
  is	
  a	
  great	
  business	
  model?	
  

•    It	
  is	
  scalable	
  	
  
•    You	
  get	
  paid	
  before	
  you	
  spend	
  
•    You	
  get	
  a	
  recurring	
  revenue	
  
•    You	
  build	
  or	
  secure	
  an	
  exclusive	
  asset	
  	
  
•    Others	
  do	
  the	
  work	
  for	
  you	
  (UGC)	
  
•    Your	
  product	
  is	
  highly	
  viral	
  
•    You	
  destroy	
  or	
  create	
  an	
  industry	
  
Examples	
  of	
  great	
  business	
  models	
  
Micro	
  economics	
  



Cost	
  of	
  AcquisiJon	
     <	
  	
  Life	
  Time	
  Value	
  
Cost	
  of	
  AcquisiJon	
  (CoA)	
  

•  Fully	
  loaded	
  cost	
  (ad	
  space,	
  PR,	
  K	
  Factor,	
  sales…)	
  
•  Divide	
  by	
  #	
  of	
  	
  new	
  ac<ve	
  /	
  paying	
  customers	
  
	
  
                                  $	
  Cost	
                                                             #	
  
    Google	
                      20,000	
                  #	
  new	
  visitors	
  (*)	
             400,000	
  
    Sales	
  people	
             10,000	
                  #	
  new	
  registered	
  users	
         50,000	
  
    SEO	
  service	
               3,000	
                  #	
  new	
  ac<ve	
  users	
              10,000	
  
    Total	
                       33,000	
                  #	
  new	
  buyers	
                       1,000	
  


                   CoA	
  =	
  33,000	
  /	
  1,000	
  =	
  $33	
  
(*)	
  coming	
  directly	
  from	
  marke<ng	
  investment	
  and	
  ac<vi<es	
  performed	
  in	
  the	
  
relevant	
  period	
  
Life	
  Time	
  Value	
  (LTV)	
  

•  Contribu<on,	
  not	
  revenues	
  
•  Don’t	
  forget	
  the	
  churn	
  
Payback	
  on	
  Customer	
  AcquisiJon	
  

•  If	
  you	
  invest	
  $1,000,	
  how	
  long	
  does	
  it	
  take	
  to	
  
   pay	
  back	
  the	
  investment	
  so	
  you	
  can	
  reinvest	
  
   and	
  grow?	
  
   Payback	
  =	
  33	
  /	
  37.5	
  *12	
  =	
  10.5	
  months	
  	
  

   #	
  new	
  customers	
  year	
  1	
  =	
  1000	
  /	
  33	
  *	
  12	
  /	
  10.5	
  =	
  34.6	
  

•  What	
  if	
  you	
  divide	
  CoA	
  by	
  2	
  
   #	
  new	
  customers	
  year	
  1	
  =	
  34.6	
  *	
  2	
  =	
  69.2	
  
It	
  is	
  all	
  about	
  the	
  slope	
  




                             LTV	
  
         CoA	
  


         $1	
               $10	
  
         $10	
             $100	
  
       $50,000	
         $500,000	
  
Reducing	
  CoA	
  

                       •    Op<mize	
  channels	
  
                       •    Virality	
  
                       •    SaaS	
  /	
  Freemium	
  
             LTV	
  
                       •    Cool	
  partnerships	
  
CoA	
                  •    Kill	
  unprofitable	
  
                            customer	
  segments	
  
Increasing	
  LFT	
  

                        •  Increase	
  value	
  
                           delivered	
  to	
  customers	
  	
  
                        •  Cross-­‐sell	
  /	
  upsell	
  
                        •  Tiered	
  pricing	
  
                        •  Subscrip<on	
  model	
  
              LTV	
     •  Work	
  on	
  reten<on:	
  	
  
CoA	
                       –  Improve	
  customer	
  
                               sa<sfac<on	
  	
  
                            –  Create	
  low	
  pain	
  
                               switching	
  costs	
  
A	
  few	
  comments	
  on	
  pricing	
  

•  Price	
  at	
  a	
  share	
  of	
  the	
  value	
  you	
  create	
  (10-­‐30%?)	
  
•  Cost+	
  is	
  ok	
  /	
  necessary	
  if	
  variable	
  cost	
  (if	
  not	
  
   profitable,	
  then	
  it	
  is	
  a	
  marke<ng	
  investment)	
  
•  Freemium	
  makes	
  sense	
  for	
  long	
  tail	
  /	
  uniden<fiable	
  
   customers	
  
•  If	
  sales	
  mee<ng	
  required,	
  beware	
  of	
  profitability	
  
   (charge	
  minimum	
  of	
  say	
  $10k)	
  
•  It	
  is	
  ok	
  /	
  good	
  to	
  increase	
  prices	
  when	
  targeted	
  
   customer	
  segments	
  are	
  not	
  price	
  sensi<ve	
  
•  Create	
  pricing	
  structure	
  that	
  enables	
  to	
  get	
  paid	
  early	
  
   (credits	
  for	
  future,	
  see	
  iStockphoto)	
  
The	
  investor	
  perspecJve	
  and	
  a	
  
           few	
  examples	
  
                    	
  
              Piyush	
  Chaplot	
  
            Innosight	
  Ventures	
  	
  
HOW	
  TO	
  MANAGE	
  
   A	
  PIVOT?	
  
What	
  pivoJng	
  requires	
  

•  Cold	
  analysis	
  on	
  the	
  real	
  numbers	
  (how	
  do	
  they	
  
   compare	
  with	
  ini<al	
  expecta<ons?)	
  
•  Acknowledgment	
  that	
  current	
  model	
  does	
  not	
  work	
  	
  
•  Iden<fica<on	
  of	
  a	
  promising	
  new	
  business	
  model	
  
   hypothesis	
  (ideally	
  the	
  pivot	
  comes	
  from	
  customer	
  
   demand)	
  
•  A	
  bit	
  of	
  courage	
  to	
  make	
  the	
  decision	
  and	
  
   communicate	
  it	
  (though	
  it	
  should	
  be	
  a	
  natural	
  team	
  
   decision)	
  
•  Energy	
  to	
  just	
  do	
  it	
  
What	
  pivoJng	
  implies	
  (example)	
  

•    Reorganize	
  team	
  –	
  some	
  stay,	
  some	
  leave	
  
•    Rework	
  all	
  legal	
  documents	
  
•    Create	
  new	
  communica<on	
  and	
  sales	
  methods	
  
•    New	
  metrics	
  to	
  accurately	
  measure	
  progress	
  
•    Search	
  for	
  new	
  investors	
  matching	
  the	
  new	
  vision	
  
•    …	
  
             Work	
  on	
  your	
  ability	
  to	
  pivot	
  fast	
  
              with	
  the	
  least	
  possible	
  fric<on	
  
A	
  few	
  interesJng	
  sources	
  

•  Business	
  Model	
  Genera<on:	
  
   www.businessmodelgenera<on.com	
  

•  Slideshare:	
  
       hqp://www.slideshare.net/colinraney/planningness-­‐2011	
  
       hqp://www.slideshare.net/innova<onexcellence/10-­‐business-­‐models-­‐
       that-­‐rocked-­‐2010-­‐7896384	
  
       hqp://www.slideshare.net/Alex.Osterwalder/talk-­‐with-­‐steve-­‐blank-­‐at-­‐
       true-­‐ventures	
  	
  	
  
       hqp://www.slideshare.net/sblank/successful-­‐entrepreneurship-­‐1	
  	
  

	
  
Previous	
  presentaJons	
  

•  Build	
  and	
  mo<vate	
  your	
  dream	
  team:	
  
   hqp://www.slideshare.net/tlesselin/firing-­‐up-­‐your-­‐dream-­‐team	
  

•  Gesng	
  start-­‐up	
  financing	
  in	
  Singapore:	
  
   hqp://www.slideshare.net/tlesselin/120524-­‐financing-­‐slideshare	
  

•  How	
  to	
  make	
  a	
  Rock	
  Star	
  product:	
  
   hqp://www.slideshare.net/tlesselin/how-­‐to-­‐make-­‐a-­‐rock-­‐star-­‐product	
  	
  
How to build a viable business model?

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How to build a viable business model?

  • 1. HOW  TO  BUILD   A  VIABLE   BUSINESS  MODEL   ?   Tanguy  Lesselin  
  • 2. Agenda   •  The  Business  Model  Canvas   •  How  good  is  your  business  model   •  The  investor  perspec<ve   •  A  few  examples   •  How  to  manage  a  pivot?    
  • 3. Start-­‐up  vs  company   Start-­‐up     Company   •  Iterate  product,   •  Execute  iden<fied   customer  discovery,  go-­‐ business  model  and  scale   to-­‐market,  value   •  Maximize  growth,  share,   proposi<on…   compe<<ve  posi<on   •  Reach  Product-­‐Market   •  Move  from  $1m  to  $50m   Fit  quickly   •  Iden<fy  and  validate  a   business  model  
  • 5. Business  Model?   •  Customer  selec<on   •  Unique  Value  Proposi<on   1995   •  Go-­‐to-­‐market   •  Business  Processes   •  Value  capture  
  • 8. There  are  many  possibiliJes   •  For  each  product  idea,  maybe  3  poten<al   revenue  streams   •  For  each  customer  segment,  3-­‐4  channels   •  For  each  business  idea,  3-­‐4  customer   segments   •  Etc…   Need  to  map  op<ons  and  evaluate   before  you  start  
  • 9. Examples  of  a  few  choices   •  Free  /  Freemium  /  Paid   •  Large  accounts  vs  long  tail   •  Niche  vs  mass   •  User  Generated  Content  vs  curated   •  Adver<sing  vs  direct  mone<za<on   •  Marketplace  vs  B2B  so]ware   •  Etc.    
  • 10. What  is  the     one  thing     that  makes  you  stand  out?  
  • 11. Focus  on  it,  build  on  it,   and  iterate  around  it  
  • 12. HOW  GOOD  IS  YOUR   BUSINESS  MODEL?  
  • 13. Viable  business  model  for  dummies   •  You  create  value  for  “someone”   •  There  are  enough  “someone”   •  You  can  find  them  at  reasonable  cost   •  They  are  willing  to  pay  you   •  They  pay  you  J   •  You  get  paid  more  than  what  the  product  costs   •  You  can  reach  profitability  reasonably  fast   •  The  required  investment  is  low  enough  to  be  found  
  • 14. What  is  a  great  business  model?   •  It  is  scalable     •  You  get  paid  before  you  spend   •  You  get  a  recurring  revenue   •  You  build  or  secure  an  exclusive  asset     •  Others  do  the  work  for  you  (UGC)   •  Your  product  is  highly  viral   •  You  destroy  or  create  an  industry  
  • 15. Examples  of  great  business  models  
  • 16. Micro  economics   Cost  of  AcquisiJon   <    Life  Time  Value  
  • 17. Cost  of  AcquisiJon  (CoA)   •  Fully  loaded  cost  (ad  space,  PR,  K  Factor,  sales…)   •  Divide  by  #  of    new  ac<ve  /  paying  customers     $  Cost   #   Google   20,000   #  new  visitors  (*)   400,000   Sales  people   10,000   #  new  registered  users   50,000   SEO  service   3,000   #  new  ac<ve  users   10,000   Total   33,000   #  new  buyers   1,000   CoA  =  33,000  /  1,000  =  $33   (*)  coming  directly  from  marke<ng  investment  and  ac<vi<es  performed  in  the   relevant  period  
  • 18. Life  Time  Value  (LTV)   •  Contribu<on,  not  revenues   •  Don’t  forget  the  churn  
  • 19. Payback  on  Customer  AcquisiJon   •  If  you  invest  $1,000,  how  long  does  it  take  to   pay  back  the  investment  so  you  can  reinvest   and  grow?   Payback  =  33  /  37.5  *12  =  10.5  months     #  new  customers  year  1  =  1000  /  33  *  12  /  10.5  =  34.6   •  What  if  you  divide  CoA  by  2   #  new  customers  year  1  =  34.6  *  2  =  69.2  
  • 20. It  is  all  about  the  slope   LTV   CoA   $1   $10   $10   $100   $50,000   $500,000  
  • 21. Reducing  CoA   •  Op<mize  channels   •  Virality   •  SaaS  /  Freemium   LTV   •  Cool  partnerships   CoA   •  Kill  unprofitable   customer  segments  
  • 22. Increasing  LFT   •  Increase  value   delivered  to  customers     •  Cross-­‐sell  /  upsell   •  Tiered  pricing   •  Subscrip<on  model   LTV   •  Work  on  reten<on:     CoA   –  Improve  customer   sa<sfac<on     –  Create  low  pain   switching  costs  
  • 23. A  few  comments  on  pricing   •  Price  at  a  share  of  the  value  you  create  (10-­‐30%?)   •  Cost+  is  ok  /  necessary  if  variable  cost  (if  not   profitable,  then  it  is  a  marke<ng  investment)   •  Freemium  makes  sense  for  long  tail  /  uniden<fiable   customers   •  If  sales  mee<ng  required,  beware  of  profitability   (charge  minimum  of  say  $10k)   •  It  is  ok  /  good  to  increase  prices  when  targeted   customer  segments  are  not  price  sensi<ve   •  Create  pricing  structure  that  enables  to  get  paid  early   (credits  for  future,  see  iStockphoto)  
  • 24. The  investor  perspecJve  and  a   few  examples     Piyush  Chaplot   Innosight  Ventures    
  • 25. HOW  TO  MANAGE   A  PIVOT?  
  • 26. What  pivoJng  requires   •  Cold  analysis  on  the  real  numbers  (how  do  they   compare  with  ini<al  expecta<ons?)   •  Acknowledgment  that  current  model  does  not  work     •  Iden<fica<on  of  a  promising  new  business  model   hypothesis  (ideally  the  pivot  comes  from  customer   demand)   •  A  bit  of  courage  to  make  the  decision  and   communicate  it  (though  it  should  be  a  natural  team   decision)   •  Energy  to  just  do  it  
  • 27. What  pivoJng  implies  (example)   •  Reorganize  team  –  some  stay,  some  leave   •  Rework  all  legal  documents   •  Create  new  communica<on  and  sales  methods   •  New  metrics  to  accurately  measure  progress   •  Search  for  new  investors  matching  the  new  vision   •  …   Work  on  your  ability  to  pivot  fast   with  the  least  possible  fric<on  
  • 28. A  few  interesJng  sources   •  Business  Model  Genera<on:   www.businessmodelgenera<on.com   •  Slideshare:   hqp://www.slideshare.net/colinraney/planningness-­‐2011   hqp://www.slideshare.net/innova<onexcellence/10-­‐business-­‐models-­‐ that-­‐rocked-­‐2010-­‐7896384   hqp://www.slideshare.net/Alex.Osterwalder/talk-­‐with-­‐steve-­‐blank-­‐at-­‐ true-­‐ventures       hqp://www.slideshare.net/sblank/successful-­‐entrepreneurship-­‐1      
  • 29. Previous  presentaJons   •  Build  and  mo<vate  your  dream  team:   hqp://www.slideshare.net/tlesselin/firing-­‐up-­‐your-­‐dream-­‐team   •  Gesng  start-­‐up  financing  in  Singapore:   hqp://www.slideshare.net/tlesselin/120524-­‐financing-­‐slideshare   •  How  to  make  a  Rock  Star  product:   hqp://www.slideshare.net/tlesselin/how-­‐to-­‐make-­‐a-­‐rock-­‐star-­‐product