9 Business to Business (B2B) Startup Business Models
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Your startup idea is unique - but the business model isn't unique. What can you learn from established fast growth startup companies? The models and key metrics they use to monetize their ideas. learn more about your revenue models and how they compare to other peer & competitor companies at www.lumeric.com
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9 Business to Business (B2B) Startup Business Models
- 1. Copyright DKParker, LLC 2015 Models & Methods Dave Parker @DaveParkerSEA www.dkparker.com Dave@dkparker.com “Big E Entrepreneurship”
- 2. Copyright DKParker, LLC 2015 Agenda ¤ About Dave ¤ Marketing Methods ¤ Sales Models ¤ Pricing Methods ¤ Business Models ¤ Financial Models ¤ Q&A – Your models
- 3. Copyright DKParker, LLC 2015 About Dave ¤ CEO Code Fellows ¤ 5X Entrepreneur ¤ SVP Programs at UP Global (Startup Weekend + Startup America) ¤ 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 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 2015 Why? ¤ Doing a financial model requires Data & #’s for: ¤ Marketing Methods ¤ Pricing Methods ¤ Sales Model ¤ Business Model
- 8. Copyright DKParker, LLC 2015 How many of you are planning Virality as a driver of your model?
- 9. Copyright DKParker, LLC 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 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 2015 SAM TAM SOM LAM LAM – Launch Addressable Market. Who can buy your product at MVP? Market Sizing
- 12. Copyright DKParker, LLC 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
- 15. Copyright DKParker, LLC 2015 You can sell anything for nothing
- 16. Copyright DKParker, LLC 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”
- 18. Copyright DKParker, LLC 2015 Someone has to sell your product – let’s start with you
- 19. Copyright DKParker, LLC 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 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 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
- 23. Copyright DKParker, LLC 2015 Who is your customer? Who Pays? ¤ Business to Business (B2B) ¤ Business to Consumer (B2C) ¤ Business to Government (B2G) ¤ At launch you get one, at scale you can have a number
- 24. Copyright DKParker, LLC 2015 9 B2B Business Models
- 25. Copyright DKParker, LLC 2015 9 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 2015 9 B2B Models ¤ Search – Example Google ¤ Yahoo was first in the PPC business. Search is a free consumer service paid for by advertisers – targets action or intention. ¤ Advertising – Example Facebook ¤ Monetizing eyeballs. Need to start with 1M uniques to be fundable. Cost per Thousand (CPM) on Banners can target demographic vs. intention.
- 27. Copyright DKParker, LLC 2015 9 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.
- 28. Copyright DKParker, LLC 2015 9 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.
- 29. Copyright DKParker, LLC 2015 9 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).
- 30. Copyright DKParker, LLC 2015 Other Models – ONLY at Scale ¤ Nonprofit - Example Startup Weekend ¤ 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…
- 32. Copyright DKParker, LLC 2015 To the Spreadsheets! ¤ These details manifest in assumptions ¤ Time based ¤ Launch ¤ Ramp ¤ Scale ¤ Market & Brand Development ¤ Pricing ¤ Overtime
- 33. Copyright DKParker, LLC 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”
- 34. Copyright DKParker, LLC 2015 Q&A – Your Metrics & Models