LLP-AP workshop 3 – Nov 22nd 2013

1. LLP-AP workshop 3 – Nov 22nd 2013 Agenda • 8-8.15 Intro and themes for the day • 8.15-10.00 • Teams present on progress and plans • 10.00-11.00 • Key themes going forward • 11.00-12.00 • Out of the building…..

2. Lean Launchpad Roadmap Session 1 Session 2 Session 3 Session 4 Customer Discovery 1 Canvas v1:Value Proposition Customer Segment Get out of the bldg: Interviewing Customer Discovery 2 Canvas v2: Channels Cust Relationships Themes: Cust Decision Network Day in the Life Customer Ecosystem Whitespace Grid TAM/SAM/SOM Customer Validation 1 Canvas v3: Cust Relationships(Get-Keep-Grow) Revenue Model Cost Structure Themes: Finding Pivots Min Viable Product CustomerValidation 2 Canvas v4: C.R.  Get Revenue model v2 Cost structure v1 Exit criteria for Discovery phase and End Game for LLP Next steps Interview objectives & script Interviews “Day in the Life” Validate/Pivot/Stop Interviews Cust decision network Cust Ecosystem Whitespace Grid TAM/SAM/SOM Interviews CR: Get Min. viable product Revenue model: pricing Elements of cost structure

3. Customer Discovery: (where we left you end workshop 2) • What are our customers top problems? • How much will they pay to solve them • Does our product concept solve them? • Do customers agree? • How much will they pay • Can we draw a day-in-the-life of a customer • before & after your product • Can we draw the org chart of users & buyers

4. Presentations • Notes on process • Connecting process across teams • Mentor input • Circling back on incomplete themes

5. NewThemes: workshop 3 CustomerValidation 1 • Cust Relationships (Get-Keep-Grow) • Revenue Model • Cost Structure Themes: • Finding Pivots • Minimum Viable Product

6. CUSTOMER RELATIONSHIPS How will customers hear about your product? How much will it cost to acquire a customer using these strategies? What relationship type are you establishing with each segment? personal? automated? acquisitive?

7. Customer Relationship: Get–keep-growfor Physical Goods S. Blank, B. Dorf – The Startup Owner’s Manual, 2012

8. Get Customers Funnel – Physical Goods “Get Customers” Funnel Interest Awareness Consideration Purchase

9. Get Customers: Who needs to hear about you? End User Suppliers Influencer / Recommender Channels Economic Buyer Government Decision Maker Partners

10. Demand CreationFeeds the Sales Funnel PayingCustomers $ Demand Creation Acquisition PR SEO Blogs/Website Product reviews Advertising Tradeshows Cold calls

11. EXAMPLE of GET for Physical Product reviews PR & Media Advertising

12. Get-keep-grow for Web/Mobile products S. Blank, B. Dorf – The Startup Owner’s Manual, 2012

13. Get Customers Funnel – Web/Mobile “Get Customers” Funnel Acquire Activate Viral Loop

14. Demand Creation for the Web/MobileSales Funnel Earned and Paid Media PR “Get Customers” Funnel Viral Mktg SEO SEM/PPC Acquire Activate Blogs/Website Affiliate Mktg Advertising Tradeshows Viral Loop

15. GET: issues to focus on now • What do you have to understand?

16. REVENUE STREAMS what are customers really willing to pay for? how? are you generating transactional or recurring revenues?

17. REVENUE MODEL = the strategy the company uses to generate cash from each customer segment YES, different segments will look different in revenue

18. Where is the money coming from? Revenue Model Choices • Channel • Web • Physical • Direct Sales • Products • Subscription • Add-on services • Upsell/Next Sell • Referrals • Direct Sales • Products • Subscription • Upsell/Next Sell • Ancillary Sales: • Referral revenue • Affiliate revenue • E-mail list rentals • Back-end offers • Bits • Product • Direct Sales • Products • Service • Upsell/Next Sell • Referrals • Leasing • Physical

19. Web/Mobile: “Direct” revenue models Sales: Product, app, or service sales Subscriptions: SAAS, games, monthly subscription Freemium: use the product for free: upsell/conversion Pay-per-use: revenue on a “per use” basis Virtual goods: selling virtual goods Advertising sales: unique and/or large audience

20. “Ancillary” revenue models Referral revenue: pay for referring traffic/customers to other web or mobile sites or products. Affiliate revenue: finder’s fees/commissions from other sites for directing customers to make purchases at the affiliated site E-mail list rentals: rent your customer email lists to advertiser partners Back-end offers: add-on sales items from other companies as part of their registration or purchase confirmation processes, or “sell” their existing traffic to a company that strives to monetize it and share the resulting revenue

21. Physical Revenue ModelsAsset Sale Sale of ownership right to a physical product

22. Usage Fee Usage of service. Fee is proportional to the usage of the service.

23. Subscription Fee Fee for continuous access to a service

24. Renting Fee for temporary access to a good or service

25. Licensing Fee for use of some IP (including software)

26. Intermediation Fee Often found in marketplaces of various types, a fee for bringing together two or more parties involved in a transaction

27. Advertising Fee paid by brands and companies to get in front of potential customers

28. PRICING MODEL = the tactics you use to set the price in each customer segment

29. Other words we use in the place of price Fee Commission Subscription Toll Interest Rent Tax Shipping

30. Common approaches to pricing • Cost + markup • Typically not a strategic way to price • Driven by internal economics and not customer insight Cost based • Based on buyer’s perception of value (e.g. time saved, new efficiency created, etc.) • Customers don’t necessarily feel that they want to pay this way Value based

31. Pricing Choices (1)consider pros and cons of each Cost-based pricing: based on a multiple of actual product cost. Typically priced for maximum revenue/profit versus volume Value pricing:based on the value delivered by the product rather than the cost itself Competitive pricing:positions the product vs. others in its competitive set, typically in existing markets Volume pricing:designed to encourage multiple purchases or users

32. Pricing Choices (2)consider pros and cons of each Portfolio pricing. Mix of high markups and some with low, depending on competition, lock-in, value delivered, and loyal customers “Razor/razor blade” model:part of the product is free or inexpensive; yet it pulls through repeat, highly profitable purchases on an ongoing basis Subscription: while now thought of a software strategy, the “Book of the Month Club” pioneered this for physical products Leasing: lowers the entry cost for customers. Provides constant earnings over a period of years

33. More pricing considerationsconsider pros and cons of each • Freemium • 95:4:1 is typical but NOT guaranteed split • Fixed List price • Negotiated price • Auction bids • Up • down • Dynamic pricing

34. Multi-side Markets and Revenue Single-sided markets that care about revenues Web-based Multi-sided markets may care about users first, revenues second

35. How do we price the product? Pricing Model Choices

36. How do we price the product? Pricing Models - Physical Product-based pricing Competitive pricing Volume pricing Value pricing Portfolio pricing The “razor/razor blade” model Subscription Time/Hourly Billing Leasing 36

37. Competition as an influence Nature of Market • What is their product? • What are their costs and prices? • “What pricing will make them feel the worst?” How they will react? Pure competition Oligopoloy Monopoloy

38. How do we price the product? Pricing Models – Web/Mobile/Cloud Product-based pricing Subscriptions Freemium Pay-per-use Virtual goods Advertising sales 38

39. Does it add up? Is the revenue adequate to cover costs in the short term; Are you confident the revenue will grow materially if not dramatically over time; and Does the profitability get better as the revenues get bigger? 39

40. CHANNELS (revisited) Relook your channel choices in the context of Customer Relationship “GET” choices AND examine the revenue implications. How does the money flow?

41. Web Channels 41

42. Physical Channels 42

43. Types of ChannelsWho is your customer? OEM VAR Reseller Distributor Direct Indirect Licensing 43

44. Channel Economics List price Direct Sales Revenue Cost of Goods(Supply Chain) Profit + SG&A + R&D EU Discounts End Consumer 44 Source: Mark Leslie, Stanford GSB

45. Channel Economics Revenue List Price Reseller Channel Cost of Goods(Supply Chain) Profit + SG&A + R&D Reseller EU Discounts End Consumer Revenue List Price Distributor/Reseller Channel Cost of Goods(Supply Chain) Profit + SG&A + R&D Reseller Distributor EU Discounts End Consumer 45 Source: Mark Leslie, Stanford GSB

46. Channel Economics: OEM or IP Licensing ListPrice Your Revenue Cost of Goods(Supply Chain) Profit + SG&A + R&D Master Distributor Distributor Reseller EU Discounts End Consumer Cost of Goods(Supply Chain) Profit + SG&A + R&D Reseller Your Product Becomes Your Customer’s Cost of Goods 46 Source: Mark Leslie, Stanford GSB

47. How Are Channels Compensated? • Commission • Percentage of sales price • Discounted pre-purchase 47

48. Book Publishing Publisher National Wholesaler Distributor Retailer Customer 35% 15% 10% 40% $7.00 $3.00 $2.00 $8.00 $20.00 • You get (approximately) • 35% of retail • the distributor gets 10% • the wholesaler gets 15% • the retailer gets 40% • less any discount they offer the customer Percent of Retail 48

49. Book Publishing Economics Publisher National Distributor Wholesaler Retailer Customer Allowances Wholesale costs Bills Markup Credit guarantees Payment guarantees Payment guarantees Return rights Credits Payments 49

50. value proposition key activities customer relationships key partners customer segments Cost Structure cost structure revenue streams key resources channels 50 images by JAM