Value Propositions, Customer Development, Product Market Fit, MVPs and Product Roadmaps, How Startups make Monday, Pricing.

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DKParker, LLC
2017
Flat6 Labs Boot Camp – Day 2
Dave Parker
@DaveParkerSEA
www.dkparker.com/blog
Dave@dkparker.com
@DaveParkerSEA

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Day 2 Agenda
¤ Value Propositions
¤ Customer Development
¤ Product Market Fit
¤ MVPs/Product Roadmap
¤ Pricing
¤ How Startups Make Money & Metrics that Matter
¤ Marketing Sales
¤ Business Development Revenue Models

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Value Proposition

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Positioning
¤ Positioning is holding a place in your customer’s mind –
not as everything, what’s memorable?
¤ Who is the initial customer
¤ Think about limiting service and customer first – before
you expand
¤ You’re not precluded from selling other services or products
¤ What claim or promise will you make?

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Don’t Bury the Lead
¤ Think of this like journalism
¤ What’s the headline?
¤ What’s the Lead?
¤ What’s the Story?

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Exercise
¤ Write out:
¤ What makes you different?
¤ Why should people buy from you?
¤ Write your websites tagline and opening paragraph
¤ What claim/promise will you make
¤ Write your DRAFT Unique Selling Proposition
¤ Compare this to your Pitch

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Customer Development

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Converging Definitions
¤ Design Thinking
¤ Stanford “D-School” IDEO U Crash Course
¤ Lean Startup
¤ Steve Blank
¤ Eric Reis
¤ Agile Development

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Design Thinking
For Companies it assumes you have customers (and
resources)
¤ Emphasize
¤ Define
¤ Ideate
¤ Prototype
¤ Test

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Lean Startup
¤ Entrepreneurs are everywhere
¤ Validate learning
¤ Build, Measure, Learn

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Customer Development
¤ Parallel process with Product Development
¤ “Get out of the Building”
¤ Develop for a few not Many
¤ Prioritize features based on Needs not Wants
¤ Validate with Revenue/Commitment

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What is Customer Development?
¤ Four Steps of an Epiphany – Steve Blank

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Customer Discovery Goals
¤ Acute focus on problem – not product
¤ Find out if customers care?
¤ What do they want?
¤ Determines the difference your product at launch and at
scale
¤ Feature priorities & Product Roadmap

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Customer Dev Mechanics
¤ Google Forms
¤ Structured questions
¤ Progression
¤ Easy to Hard
¤ What do you really want to know?
¤ Will they pay for it? How much
¤ Why will it fail
¤ Neutral, not Guided Questions

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Customer Dev Mechanics, Cont
¤ Build a list of interested parties
¤ Mail Chimp List setup
¤ Ask for permission to email
¤ Two week updates – Format: “What we did, what we’re
going to do and where we can use your help”
¤ This setups you up to make progress every two weeks!

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What Not To Do
¤ You are not the customer
¤ Don’t tolerate a small sample set – this could delay your
success by Years
¤ Avoid “Selection Bias”
¤ “Isn’t our product amazing”
¤ No rhetorical questions
¤ No blind surveys
¤ Can’t outsource

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How Many Customer Interviews
¤ B2B – 25+
¤ Profile
¤ Job Title
¤ Type of Company
¤ B2C – 50+
¤ Demographic
¤ ¯_(ツ)_/¯ = bad

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Fundraising Note
You have opinions
You have Data
You get money!
Investors have opinions
They have money

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Hypothesis vs Fact
¤ If you are convinced you’re right you won’t be open to
radical feedback that could change the trajectory of
your business & life!
¤ Always testing what you think you know
¤ Permission to give negative feedback
¤ If this idea was to fail, why would it fail?
¤ Why is this idea stupid?

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Dave’s Madlibs Pitch
Hi, I’m <your name here>, and my company <your Company
name here> the problem I’m solving is <insert problem here>. Our
product <insert product info here> is designed for our target
customer of <insert target customer here>. We make money by
<insert method here> and our team is the right team because
<insert why you’re awesome here>. I need help with <insert help
needed here>.

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Product Market Fit – PMF

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Product Market Fit
Two Epoch’s of every startup
¤ Pre - Product Market Fit
¤ The only thing that matters is getting there
¤ Post – Product Market Fit
¤ A whole new set of questions – Scale, Culture and People

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Pre – PMF
¤ Some Revenue
¤ Some Customers
¤ Some Marketing
¤ A lot Hypothesis

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Post – PMF
¤ Predictable & Scalable Revenue
¤ Customer profiles
¤ Cohort analysis
¤ Churn
¤ Scalable marketing
¤ Hypothesis + Data

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What is “Traction?”

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Predictable/Forecastable Revenue
¤ De-risking your <time> investment
¤ Predictable revenue moves you from valuations based
on trailing 12 to future 12
¤ Target customer
¤ Sales Cycle
¤ Tools trail Strategy and Tactics

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Customer Acquisition Hypothesis
¤ Cost of Customer Acquisition (CAC)
¤ Lifetime value of Customer (LTV)
¤ 36 month calculation in a mature business, 12 months for you
¤ Time to close sale
¤ How does this change with product/market maturity?
¤ Churn/Retention
¤ Average Revenue/measure (User, Account, etc)
¤ Word of mouth vs. Virality

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Product

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Product Vision
¤ Product vision is important
¤ Long term features
¤ Startup with PROBLEM not product – pivot product/
features around the problem
¤ It won’t be what you ship first
¤ What the world looks like before your product
¤ What the world looks like after your product

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Minimum Viable Product (MVP)
¤ Narrow and list features
¤ PowerPoint/Keynote first as your demo
¤ What screens do you need to show (e.g. do you need to
really show registration – answer no)
¤ Have them rank the features
¤ Prioritize the build based on the feedback
¤ More Customer Development Interviews!

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Cost to Build

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Estimating Costs
¤ Write specification
¤ Required for launch
¤ Design & Flow
¤ Post project on Fiverr.com
¤ PPT/Keynote first with design
¤ Test design and flow
¤ Revise specification

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MVP Mechanics
¤ MVP Series
¤ Blog 1 – Launching a product
¤ Blog 2 – Writing a spec
¤ Blog 3 – picking a vendor
¤ Blog 4 – Contracts, Monitoring Progress
¤ Cost to market and sell – Next Month!

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Product Road Map

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Product Roadmap
¤ Where will you be in 18 Months
¤ Product
¤ People
¤ Customers
¤ Where will you be in 36 months
¤ Product
¤ People
¤ Customers
¤ Does it map to your financial model

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Dave’s Madlibs Pitch
Hi, I’m <your name here>, and my company <your Company
name here> the problem I’m solving is <insert problem here>. Our
product <insert product info here> is designed for our target
customer of <insert target customer here>. We make money by
<insert method here> and our team is the right team because
<insert why you’re awesome here>. I need help with <insert help
needed here>.

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BREAK

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Metrics that Matter

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What to track – best practices
¤ Marketing Metrics – “Marketing Motion”
¤ Ad Spend
¤ Traffic
¤ Marketing Qualified Leads (MQLs)
¤ Sales Metrics “Sales Motion”
¤ Outbound/Inbound
¤ MQL to SQL Conversion
¤ Business Development – Partnerships
¤ What’s in it for them?
¤ Pricing

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Monthly Updates
¤ Using MailChimp Free Account
¤ Investors – Tagged
¤ Customers
¤ 30 day intervals
¤ What we thought
¤ What we learned
¤ What we’re doing about it
¤ Where we need help
¤ Regularly

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How Startups Make Money

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Do you know?
¤ Cost to Build Known Unknown
¤ Cost to Sell Known Unknown
¤ Price Known Unknown
¤ Profit Known Unknown

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Business Model: Should You Build
It?
¤ Creating Value
¤ You’ve identified a problem
¤ Can you build a solution?
¤ Delivering Value
¤ Ship it!
¤ Capturing Value for what you created
¤ Cost to build – last month (and next month)
¤ Cost to Sell
¤ Make a Profit

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How not to make money?
¤ Small transaction values are bad
¤ Small percentages are bad
¤ Not being able to capture value is bad
¤ Lumpy sales cycles are bad
¤ Long sales cycles are bad
¤ Pricing too low could kill your idea before you start

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Marketing – Finding the right
customers

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Marketing – Finding Customers
¤ Messaging/Value Proposition
¤ Does it resonate with the target customer segment
¤ They are the hero of the story
¤ Is it repeatable?
¤ Strategy
¤ Outbound first
¤ Inbound second

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Key Metric Terms
¤ State your hypothesis
¤ CAC
¤ LTV
¤ ARPU
¤ Churn
¤ Time to Close
¤ Customer engagement
¤ Time on Site

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OrganicSearch
PaidSearch
WordofMouth
SalesCalls
PR
Miracles!
TimetoClose
Month1
Month2
Month3
Month4
$
Spen
d
#
Conv
#
Conv
#
MRR
Time

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Marketing Channels
¤ Paid Search
¤ Organic Search
¤ Word of mouth
¤ Sales calls
¤ Public Relations
¤ Affiliate
¤ Email marketing
¤ Social

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Marketing Qualified Leads
¤ Define qualified vs list
¤ Suspects
¤ Prospects
¤ Qualified Prospects

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Sales Qualified Leads
¤ Hand off to Sales
¤ Identify steps to close
¤ Number of calls

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Time to Close
¤ Lead attribution
¤ Source time
¤ Compressing or Expanding
¤ Trend by source

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Tracking
¤ Data allows you to know where to double
down and where to hold back
¤ Conversion ratios

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Sales – capturing value creation

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How will they buy?
¤ Web Direct – place the order to buy on the web
¤ Direct – outbound sales, inside/outside
¤ Indirect/Channel – fulfills demand, doesn’t generate
¤ Retail – BestBuy, etc

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Sales Model Hypothesis
Known
Market
Unknown
Market
Low
Price
Point
High
Price
Point
Known
Search
Words
Unknown
Search
words
Web Direct
Direct
Indirect
Retail

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Sales
¤ Model – Pick one, why?
¤ Strategy
¤ Who
¤ Tactics
¤ How
¤ Tools
¤ Sales tools

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Business Development

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Business Development
¤ Strategic relationships
¤ Who has the list you want
¤ How do you get the partnership

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Business Development
¤ Strategy
¤ Who should you get as a partner
¤ How will you build the relationship?
¤ What channels
¤ Tactics
¤ Messaging/Value proposition
¤ Tools
¤ CRM

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Revenue Models:
Services = 1
Products =15

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Business and Revenue Models
¤ Business Models – abstract framework of Creating,
Delivering and Capturing Value
¤ Revenue Models (part of business model) is the
framework of revenue, pricing, who pay
¤ Models Lean toward Tech and Product

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1. Fee for Service
¤ Example: Consulting Services company
¤ Use: B2B & B2C
¤ Key Metrics
¤ Project Revenue
¤ Cost of delivering (usually time)
¤ Gross Margin
¤ Services are hard to scale because they require people
to deliver including Restaurant, Contractors, etc.
¤ Services include markup on cost of goods sold

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2. Commerce
¤ Example: Amazon, AmazonSupply
¤ Use: B2C & B2B
¤ Key Metrics:
¤ Wholesale or cost of goods sold
¤ Average Margin %
¤ Average Basket
¤ Commerce – Physical Goods- Wholesale, cost of goods,
retail, average margin, physical good
¤ Notes: Can mature into marketplace

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3. Subscription
¤ Example: Salesforce , Box, Spotify
¤ Use: B2C & B2B
¤ Key Metrics
¤ Average Revenue Per User (ARPU)
¤ Conversion ratio – e.g. trial to purchase
¤ Churn
¤ Challenges: MVP won’t be enough to be Kick Ass Product
¤ Notes: Highest multiple, forecastable revenue

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4. Productize a Service
¤ Your offerings is generally complex and requires services
to deploy
¤ Gross margin on Services >35%
¤ Product development comes with services
¤ Use: B2C & B2B
¤ Examples: Moz, service company convert to tools.
¤ Challenges – difficult to make the transition away from
services

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5. Transaction Fees/Rental
¤ Example: 99Designs, KickStarter, Elance, Chugg
¤ Use: B2C & B2B
¤ Key Metrics
¤ Average transaction revenue
¤ Fee % per transaction
¤ Number of transactions
¤ Challenges: Margins are small (15%), need efficiency
¤ Notes: Don’t start too low

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6. Lead Generation
¤ Example: Mint.com, AllStarDirectories, NetQuote
¤ Use: B2C & B2B
¤ Key Metrics
¤ Cost to generate traffic
¤ % conversion of form data
¤ Price per lead
¤ Challenges: Highly competitive, barrier of entry is low
¤ Notes: Conversion rates average 0.06%

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7. Gaming
¤ Example: King.com/Candy Crush
¤ Use: B2C Only
¤ Key Metrics:
¤ Downloads
¤ % play
¤ Average in app purchase
¤ Challenges – tends to be “hit driven business”
¤ Notes: use in first 21 days is a predictor of success

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8. Marketplaces
¤ Example: eBay, Alibaba
¤ Use: B2C & B2B
¤ Key Metrics
¤ Average Transaction Amount
¤ Number of Monthly Transactions
¤ Commission %
¤ Challenges: two sided market places require you start
with one side, value to seller & Product market fit (x2)
¤ Notes: critical mass or marketplace required

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9. Advertising/Search
¤ Example: Google, Facebook
¤ Use: B2B – advertisers pay, users are free
¤ Key Metrics
¤ Traffic
¤ Click
¤ Avg. revenue/click
¤ Challenges – Scale, need >1M uniques/month to
consider the option

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10. New Media
¤ Example: SnapChat, WhatsApp
¤ Use: B2C only
¤ Key Metrics:
¤ K-Factor (Viral Co-efficient)
¤ Network effect of inviting others to join
¤ Challenges – K-Factor is hard. Little revenue until scale
¤ Notes: Everyone wants to! Not happening in B2B

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11. Combinations
¤ Combinations business models happen for two reasons
¤ You don’t know which model is right
¤ At scale you can expand revenue sources
¤ Examples: Hardware sensors + software services to create
data analytics
¤ Challenges – most require scale or at least traction

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12. Coin/Tokens
¤ Bitcoin and Blockchain have burst onto the scene over
the last couple of years
¤ Blockchain is a technology
¤ Bitcoin is a token, ICOs have been very succesful but
aren’t a security.

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Three that could cost you
everything!

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Three at Scale – Not Launch
13. Multi-sided Marketplaces – Etsy – create products and
customers
14. Big Data – PatientsLikeMe is emerging, but requires
massive data in advance = massive cash
15. Panels – Toluna, precise groups of customer service
research
Dead Model
1. Licensing – the old Microsoft model <pre-subscription>

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Summary – Pick Two (Primary & Secondary)
1. Fee for Servicer
2. Commerce
3. Subscription
4. Productize a Service
5. Transaction Fee/Rental
6. Lead Generation
7. Gaming
8. Marketplace
9. Advertising/Search
10. New Media
11. Combinations
12. Coins Tokens
13. Multi-sided Marketplaces
14. Big Data
15. Panels
16. Licensing

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Pricing

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Your price will be wrong!
Increase it every year and
grandfather early customers for a
period of time

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Art or Science?
¤ Benchmarks
¤ Comparable products
¤ Don’t start too low
¤ Cost base vs Value based
¤ What is the alternate for the “Job to be Done”?
¤ Remember Freemium is a marketing mechanic, not a
price

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Product Pricing
¤ First Product
¤ Staged pricing – up or down over time
¤ Second Product
¤ Staged pricing – up or down over time
¤ Launch timeline based on product road map
¤ Services?
¤ Could it improve you sales cycle

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Financial Modeling

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Templates
¤ Do this after you get in the program – not highest and
best use today
¤ Four Templates
¤ Marketplace
¤ Subscription
¤ Transaction Fee (works for commerce)
¤ Productize a service
¤ www.venturereadymodels.com Promo “Cairo2019”

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2017
Day 2 Deliverables
¤ Write out your Value Prop
¤ Customer Development
¤ Write your questions
¤ Build your forms
¤ Get first 20+ interviews
scheduled
¤ Review your results
¤ Metrics
¤ What are you tracking today?
¤ What should you be tracking
¤ Product Market Fit
¤ Forecast/predictable
revenue
¤ Write out your Product
Roadmap
¤ Pick a:
¤ Marketing Method
¤ Sales Model
¤ Revenue Model
¤ Price

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2017
THANKS!