Startup Business Methods and Models.

1. Copyright DKParker, LLC
Do Not Use Without Permission
2015
Models & Methods
Dave Parker
@DaveParkerSEA
www.dkparker.com
Dave@dkparker.com
“Big E Entrepreneurship”

2. Copyright DKParker, LLC
Do Not Use Without Permission
2015
Agenda
¤ About Dave
¤ Marketing Methods
¤ Sales Models
¤ Pricing Methods
¤ Business Models
¤ Financial Models
¤ Q&A – Your models

3. Copyright DKParker, LLC
Do Not Use Without Permission
2015
About Dave
¤ SVP Programs at UP Global (Startup Weekend + Startup
America)
¤ 5X Entrepreneur
¤ EIR at Mitsui Venture Capital
¤ Board member for three mid-market, handful of startups
and advisory board for over 50+ startup companies
¤ Husband, Dad

4. Copyright DKParker, LLC
Do Not Use Without Permission
2015
Two Methods + Three Models
¤ Marketing Methods – are mechanics to be tested
¤ Pricing Methods – how to price your product
¤ Sales Models – how you SELL your product.
¤ Business Models – are the way to monetize, including key
metrics
¤ B2B
¤ B2C
¤ Financial Models – include revenue and expenses. Used
for both forecast and actual

5. Copyright DKParker, LLC
Do Not Use Without Permission
2015
Why?
¤ Doing a financial model requires Data & #’s for:
¤ Marketing Methods
¤ Pricing Methods
¤ Sales Model
¤ Business Model

6. Copyright DKParker, LLC
Do Not Use Without Permission
2015
Example

7. Copyright DKParker, LLC
Do Not Use Without Permission
2015
Marketing Methods

8. Copyright DKParker, LLC
Do Not Use Without Permission
2015
How many of
you are
planning Virality
as a driver of
your model?

9. Copyright DKParker, LLC
Do Not Use Without Permission
2015
5 reasons you won’t go viral
1. Viral & Network effect is a B2C marketing method
calculated as “K Factor” k = invites sent * conversion
2. No inherent virality in your offering – nothing to share
with other people, e.g. Facebook or WhatsApp
3. No collaboration virality – extending your offering
4. Your target market is too small (TAM/SAM/LAM)
5. Budget and Creative - No “me-too” approach will work

10. Copyright DKParker, LLC
Do Not Use Without Permission
2015
What you can do
¤ Clear product positioning = word of mouth. Can your
message be repeated to their boss?
¤ Make your product more valuable over time <REALLY?>
¤ MVP vs. KAP “Kick Ass Product”
¤ Free trial is different from Freemium
¤ Corporate users will expense a service below a specific price
point
¤ What the conversion % to paid is the question you will have
to answer

11. Copyright DKParker, LLC
Do Not Use Without Permission
2015
SAM
TAM
SOM
LAM
LAM – Launch
Addressable Market.
Who can buy your
product at MVP?
Market Sizing

12. Copyright DKParker, LLC
Do Not Use Without Permission
2015
Marketing Channels and Metrics
What are your core assumptions for marketing?
¤ Track all Marketing by channel and $$ spend
¤ Paid, SEO, etc.
¤ Cost to create leads (traffic)
¤ Cost (effort) and % convert to prospects
¤ Cost (effort) and % convert to customers

13. Copyright DKParker, LLC
Do Not Use Without Permission
2015
Customers (10)
SEO
Inbound
Outbound
Marketing
Channels
Leads
1,000
Prospects
100

14. Copyright DKParker, LLC
Do Not Use Without Permission
2015
Pricing Methods

15. Copyright DKParker, LLC
Do Not Use Without Permission
2015
You can sell
anything for
nothing

16. Copyright DKParker, LLC
Do Not Use Without Permission
2015
Pricing
¤ What do you need to charge to cover:
¤ Cost of build
¤ Cost of Sale
¤ Profit Expectation = Cash flow
¤ Value based pricing – don’t start too low
¤ One time or recurring?
¤ Bundled pricing (Services+)
¤ “Mystery of Product Pricing” dkparker.com

17. Copyright DKParker, LLC
Do Not Use Without Permission
2015
Sales Models

18. Copyright DKParker, LLC
Do Not Use Without Permission
2015
Someone has
to sell your
product – let’s
start with you

19. Copyright DKParker, LLC
Do Not Use Without Permission
2015
Sales Models
¤ Web Direct – Advertising and conversion based sales, sales
support?, requires customers to search and find
¤ Direct – internal sales people (Inside or Outside), # of deals/
Month, salary + commissions
¤ Distribution/Channel Sales – Indirect or external, <# of deals/
Month, no Salary, just commission <Mindshare. Fulfill
demand, don’t create demand
¤ White Label Sales/Licensing – infrastructure or license sales,
long sales cycle, few but targeted customers
¤ Retail – Product on shelves - N/A

20. Copyright DKParker, LLC
Do Not Use Without Permission
2015
Known
Market
Unknown
Market
Low Price
Point
High Price
Point
Known Search
Words
Unknown
Search
words
Web Direct ✔ ✔ ✔
Direct ✔ ✔ ✔ ✔ ✔
Indirect ✔ ✔ ✔
Licensing ✔ ✔
Retail

21. Copyright DKParker, LLC
Do Not Use Without Permission
2015
Sales Model Assumptions
The following apply regardless of models
¤ Cost of Customer Acquisition (CAC)
¤ Lifetime value of Customer (LTV)
¤ Typically 36 month calculation
¤ Time to close sale
¤ How does this change with product/market maturity?
¤ Churn/Retention

22. Copyright DKParker, LLC
Do Not Use Without Permission
2015
Business Models

23. Copyright DKParker, LLC
Do Not Use Without Permission
2015
Who is your customer?
¤ Business to Business (B2B)
¤ Business to Consumer (B2C)
¤ Business to Government (B2G)
¤ At launch you get one, at scale you can have many
¤ Business to business to consumer (B2B2C)

24. Copyright DKParker, LLC
Do Not Use Without Permission
2015
B2B Business Models

25. Copyright DKParker, LLC
Do Not Use Without Permission
2015
8 B2B Models
¤ B2B Commerce - Example Grainger
¤ Grainger is a wholesale supply company with a $15B market
cap. This ordering site shifted the expense of ordering from
their counter to the customer.
¤ Subscription - Example Salesforce.com - detailed post
¤ There are so many great examples now of B2B subscriptions; I
wanted to highlight one of the frontrunners in Salesforce.
One of the things they did that was masterful was recruited
sales people directly (cheap for 5 users or less) who would
then expense it back to their company.

26. Copyright DKParker, LLC
Do Not Use Without Permission
2015
8 B2B Models
¤ Productize a Service - Example MOZ - detailed post
¤ Services business (Consulting) usually generates 35%+ Gross
Margin. Given that pull of profit $, very few companies make
the shift from services company to product company.
¤ Marketplace - Example Alibaba
¤ Nearly everyone has used eBay or similar. Alibaba's IPO and
global presence is what people know it for in 2015. But this
marketplace was founded in 1999.

27. Copyright DKParker, LLC
Do Not Use Without Permission
2015
8 B2B Models
¤ Transaction Fees - Example Square
¤ Square launched with a replacement for credit cards like
PayPal and take a percentage of every transaction as their
payment. They've since expanded into Point of Sales (POS)
services.
¤ Lead Generation - Example Mint
¤ Consumers are the product to whom Lead Generation
companies are selling. They are a business that sells other
businesses (consumer) leads. They are paid for the lead, not
a transaction. Sometimes this is a great customer experience
like Mint, but with others, like Insurance, it's a bad customer
experience.

28. Copyright DKParker, LLC
Do Not Use Without Permission
2015
8 B2B Models
¤ Combination - Example Uber
¤ Uber is a business that created a marketplace that
innovated around transaction fees (the driver doesn't control
the price like an eBay seller).
¤ Nonprofit - Example Startup Weekend
¤ I have to give a head nod here to UP Global, the parent
of Startup Weekend and Startup Next. The company is a
501(c)(3) that doesn't make money through its events, but
rather through sponsorships.

29. Copyright DKParker, LLC
Do Not Use Without Permission
2015
Other Models – ONLY at Scale
¤ Big Data Sales – Data Analytics
¤ Multisided Marketplace – Etsy, Zarly
¤ Panels – ability to interview panel of customers or pay for
Access. Examples: PatientsLikeMe, Toluna
¤ B2B2C – please don’t hurt yourself…

30. Copyright DKParker, LLC
Do Not Use Without Permission
2015
B2C Business Models

31. Copyright DKParker, LLC
Do Not Use Without Permission
2015
12 B2C Models
¤ New Media - Example Twitter
¤ This model is actually the "no model required" model. If you
have a business that acquires users via virality or K-factor,
you don't really need to start with a business model. But for
the rest of us mortals, you'll need to choose one model from
the list that follows.
¤ Search - Example Google
¤ Google's model on search wasn't original (at least according
to Yahoo's lawsuit). The Pay Per Click (PPC) model was the
monetization option for search results.

32. Copyright DKParker, LLC
Do Not Use Without Permission
2015
12 B2C Models
¤ Gaming - Example King
¤ When the app store launched, the model for games was the
$0.99-$4.99 per download. This model was quickly replaced
with in-app sales. Likely the world's best business model - sell
virtual stuff for real money!
¤ Advertising - Example Facebook
¤ Facebook delivers consumer eyeballs for advertisers. You'll
need at least 1M uniques a month to your site to monetize
this way however.

33. Copyright DKParker, LLC
Do Not Use Without Permission
2015
12 B2C Models
¤ B2C Commerce - Example Amazon
¤ Amazon may not have been first, but it's clearly the biggest
e-commerce site on the web. They now sell some of their
own products, but its start was in books, a product that was
the same, regardless of where you purchased the product.
¤ Subscription - Example Netflix
¤ Netflix cracked the code on subscription for consumers. No
freemium, just subscribe.

34. Copyright DKParker, LLC
Do Not Use Without Permission
2015
12 B2C Models
¤ Subscription - Freemium/Premium Example Spotify
¤ Spotify is a great example of free to paid version of
subscriptions. The reason freemium subscription isn't listed in
B2B is that, usually, Business customers won't purchase a de-
featured product.
¤ Marketplace - Example eBay
¤ Ah, eBay! You have sellers (they came first) and buyers; they
find each other and transact on your website. It's a brilliant
and really hard business - because you have to build both
sides of the market at the same time.

35. Copyright DKParker, LLC
Do Not Use Without Permission
2015
12 B2C Models
¤ Transaction Fees - Example AirBnB
¤ I love AirBnB, they created underutilized inventory - vacant
rooms and your house - and made it easy to book and
transact over the web. For creating a market, they charge a
transaction fee.
¤ Lead Generation - Example Groupon
¤ This one is super close to Mint, listed as B2B above, but the
benefit is more tangible to the consumer vs. the business in
this circumstance.

36. Copyright DKParker, LLC
Do Not Use Without Permission
2015
12 B2C Models
¤ Hardware - Example Jawbone
¤ Hardware is the classic example of retail pricing less cost of
goods sold. It's great to see sites like Kickstarter (transaction
fee) helping launch more hardware companies by providing
pre-paid purchases.
¤ Rental - Example Chegg
¤ Chegg was a great idea of taking something that was
ridiculously expensive in the physical (text books) and
making them available as a rental.

37. Copyright DKParker, LLC
Do Not Use Without Permission
2015
Innovative Trends
¤ Airbnb – enabling payments for Peer-2-peer, sharing
economy
¤ Kickstarter – crowdfunding
¤ Groupon – lead gen with consumer benefit
¤ Xerox – leasing equipment – 1950’s

38. Copyright DKParker, LLC
Do Not Use Without Permission
2015
Financial Models

39. Copyright DKParker, LLC
Do Not Use Without Permission
2015
To the Spreadsheets!
¤ These details manifest in assumptions
¤ Time based
¤ Launch
¤ Ramp
¤ Scale
¤ Market & Brand Development
¤ Pricing
¤ Overtime

40. Copyright DKParker, LLC
Do Not Use Without Permission
2015
Just say “no” to $100M!
¤ Avoid the Top 10 Fails Fundraising
¤ Bottom Up vs. Top Down Model
¤ Find a proxy for your business model “Like this for that”

41. Copyright DKParker, LLC
Do Not Use Without Permission
2015
Q&A – Your Metrics & Models

42. Copyright DKParker, LLC
Do Not Use Without Permission
2015
dave@dkparker.com
http://dkparker.com/
businessmodels/
@DaveParkerSEA