CS419 Info. Technology Entrepreneurship

1. CS419Info. Technology Entrepreneurship Fall 2012 – 2013 Emre Oto Building a Lean, Scalable Startup www.CS419online.com Follow on Twitter: @CS419Bilkent

2. CS419 Technology Entrepreneurship Week #4 «Customer Discovery Phase 1» Today’sAgenda • Customer Discovery Phase One: Stating Your business Model Hypotheses • This lecture is an addendum to Udacity EP245, you still have to watch Udacity EP245 to perform in this class • Tips and Tricks for Digital Channels • Disclaimer: Almost all texts and tables on these slides taken directly from The Startup Owner’s Manual pages 69-189 • Now is the time to go and read the rest of the textbook

3. CS419 Technology Entrepreneurship Week #4 «Customer Discovery Phase 1» Market Size Hypothesis • Not included in the canvas • At the end of the day, it’s all about the revenue • Web/mobile markets may be multi-sided: • Users may be measured in eyeballs, page views, downloads, referrals, or hours • But there better be payers who offer acess to users • Market size = #eyeballs x $worth /eyeball

4. CS419 Technology Entrepreneurship Week #4 «Customer Discovery Phase 1» Market Size Hypothesis • Calculating the audience without understanding who will pay money to access the audience is a big mistake • You can use Google Keywords and Google Trends to assess your target market • One other tool is the 30/10/10 law of web/mobile (by Fred Wilson, next slide) • Refine with “Customer Understanding” in the field

5. CS419 Technology Entrepreneurship Week #4 «Customer Discovery Phase 1» Market Size Hypothesis30/10/10 Rule • 30% of registered users and those downloading mobile apps will use the service each month • 10% of registered users and those downloading mobile apps will use the service each day • Concurrent users of a real-time service will seldom exceed 10 percent of the number of daily users

6. CS419 Technology Entrepreneurship Week #4 «Customer Discovery Phase 1» Market/Opportunity Analysis How Big is It?: Market/Opportunity Analysis • Identify a Customer and Market Need • Size the Market • Competitors • Growth Potential

7. CS419 Technology Entrepreneurship Week #4 «Customer Discovery Phase 1» How Big is the Pie?Total Available Market • How many people would want/need the product? • How large is the market be (in TLs) if they all bought? • How many units would that be? • How Do I Find Out? • Research Total Available Market

8. CS419 Technology Entrepreneurship Week #4 «Customer Discovery Phase 1» How Big is My Slice?Served Available Market • How many people need/can use product? • How many people have the money to buy the product • How large would the market be (in TLs) if they all bought? • How many units would that be? • How Do I Find Out? • Talk to potential customers TotalAvailableMarket Served Available Market

9. CS419 Technology Entrepreneurship Week #4 «Customer Discovery Phase 1» How Much Can I Eat?Target Market • Who am I going to sell to in year • 1, 2 & 3? • How many customers is that? • How large is the market be (in TLs) if they all bought? • How many units would that be? • How Do I Find Out? • Talk to potential customers • Identify and talk to channel partners • Identify and talk to competitors TotalAvailableMarket ServedAvailableMarket Target Market

10. SegmentationIdentification of groups most likely to buy CS419 Technology Entrepreneurship Week #4 «Customer Discovery Phase 1» TotalAvailableMarket • Geographic • Demographic • Psychographic variables • Behavioral variables • Channel • etc… ServedAvailableMarket Target Market 10

11. CS419 Technology Entrepreneurship Week #4 «Customer Discovery Phase 1» Final points on scalability and market size • Market Size Questions: • How big can this market be? • How much of it can we get? • Market growth rate • Market structure (Mature or in flux?) • Most important: Talk to Customers and Sales Channel

12. CS419 Technology Entrepreneurship Week #4 «Customer Discovery Phase 1» Value Proposition Hypothesis #1 The Low-Fidelity MVP • Exposes the product to prospects as early as possible, even as continuous deployment adds new features, functionality or graphics • Can be as simple as a single web page used to gather customer feedback about the problem the product will solve • For web-based startups using agile development and continuous deployment delivery date for the low fidelity MVP is basically Day One • Should evolve everyday: Ideally latest stage in the agile development process

13. CS419 Technology Entrepreneurship Week #4 «Customer Discovery Phase 1» Value Proposition Hypothesis #1 The Low-Fidelity MVP • Even the earliest MVP should include some way for interested users to register or self-identify • Low-fi MVP: Have we accurately identified a problem that customers care about? • Based on user traction: visits to site, e-mail received, demos played etc. • Hi-fi MVP: Are we on the right path to solving the identified problem? • Based on orders received, users’ stay on the site, users’ recommendations to others, etc. • Evolves to look more like a finished product during Customer Validation Product-Market Fit

14. CS419 Technology Entrepreneurship Week #4 «Customer Discovery Phase 1» Value Proposition Hypothesis #1 The Low-Fidelity MVP • Write a “User Story” instead of a feature list: • Important to reveal your differentiation edge • Helps get a better sense of the product vision and benefits • Reveals why “you think/guess” the site will attract a hard-to-reach audience

15. CS419 Technology Entrepreneurship Week #4 «Customer Discovery Phase 1» Customer Segments HypothesisThe Customer Archetype • Combines everything you know about your “most typical” customers or users into one or more complete profiles • You will most likely have more than one archetype • Initially means: Who do “you think/guess” your customer is? What do you know about this hypothetical customer’s profile • As you understand who your customer is, you continue to update the Customer Archetype

16. CS419 Technology Entrepreneurship Week #4 «Customer Discovery Phase 1» Customer Segments HypothesisThe Customer Archetype How can we use Archetypes to Drive Strategy? Table 4.5 on The Startup Owner’s Manual

17. CS419 Technology Entrepreneurship Week #4 «Customer Discovery Phase 1» Customer Segments HypothesisThe Customer Archetype • Big executives? • Teen gamers? • Urban/suburban? • Single/married? • How old? • How much money do they make? • How much leisure time do they have? • Focus on their technology ownership/access (laptop, iPad, smartphone all?) • Loners / Social network heavyweights? • When online, are they alone at home or in a crowd? • Do they share sites and information with others?

18. CS419 Technology Entrepreneurship Week #4 «Customer Discovery Phase 1» Customer Segments HypothesisThe Customer Archetype • How to advance an archetype? (more on this later) • Gather statistics about customers’ demographics and behavior • Use Google Trends, Google Insights, Facebook ads • Search online for studies/reports/news • Study information on your competitors and their choices • Interview people you think look most like your potential customers, and understand: • Who they are • What they do • How they behave

19. CS419 Technology Entrepreneurship Week #4 «Customer Discovery Phase 1» Customer Segments Hypothesis“A Day-in-the-Life” How can we use a Day-in-the-Life to Drive Strategy?

20. CS419 Technology Entrepreneurship Week #4 «Customer Discovery Phase 1» Customer Segments Hypothesis“A Day-in-the-Life” • Understand how they find about new products: Where will you find your customers? • Create a “day in the life” scenario using 30min increments from wakeup to bedtime • Pay close attention to time spent on web/mobile • Specify what they are doing for how long • Important to formulate Customer Relationships

21. CS419 Technology Entrepreneurship Week #4 «Customer Discovery Phase 1» Distribution Channel Hypothesis • Please read the Web/Mobile distribution models: page 104-111 • The book talks about the advantages and disadvantages of each channel • We will not talk about these in detail, but make sure you read to understand different distribution models for web/mobile

22. CS419 Technology Entrepreneurship Week #4 «Customer Discovery Phase 1» Value Proposition Hypothesis #2 The Market Map • Particularly important for new web-based businesses because you are stealing from the time of something else • Market map based on minutes vs dollars • Web/mobile equivalent of market share • Why will consumers “trade in” time currently spend elsewhere? • Map the “time source”

23. CS419 Technology Entrepreneurship Week #4 «Customer Discovery Phase 1» Value Proposition Hypothesis #2 The Market Map Support Software Remedy Scopus Clarify Consumer Intuit Lotus KnowWonder Help Tools Logitear eHelp Microsoft Service Provider Bracket OneTwo EDS

24. CS419 Technology Entrepreneurship Week #4 «Customer Discovery Phase 1» Customer Relationships Hypothesis • In Customer Discovery, “Get, Keep, Grow” activities are in small-scale. • The goal is to expose the “rough and dirty”, or low-fidelity MPV to a modest number of customers ~ 100 • Multi-sided markets need “Get” strategies for both sides of the market

25. CS419 Technology Entrepreneurship Week #4 «Customer Discovery Phase 1» Customer Relationships Hypothesis

26. CS419 Technology Entrepreneurship Week #4 «Customer Discovery Phase 1» Customer Relationships HypothesisAcquistionvs Activation • Customer Acquisition: Bringing as many customers as possible to the company’s online “front door” – the landing page • Must reach a lot of people • Customer Activation: Customer shows interest through a free download or trial, a request for more informaiton, or purchase • The customer is considered activated if you have enough info. to recontact

27. CS419 Technology Entrepreneurship Week #4 «Customer Discovery Phase 1» Customer Relationships HypothesisCustomer’s Life on the Web • Step 1. People discıver a need or want to solve a problem • Step 2. They begin a search: Google / FB/Quora / Yelp / Zafat / TripAdvisor • Step 3. They don’t look very hard • Step 4. They go where they are invited, entertained, or informed

28. CS419 Technology Entrepreneurship Week #4 «Customer Discovery Phase 1» Customer Relationships HypothesisDevelop your “Get” strategy • Make your info. as rich and inviting and as widely available as possible when people begin their search • Step 1: Determine who your audience is: Be prominent where they spend time on the web • Step 2: What kind of content will they find attractive? • Step 3: Make sure your content works within your location • Step 4. Participate in the communities your customers are a part of • Step 5. Create content that people would like to share

29. CS419 Technology Entrepreneurship Week #4 «Customer Discovery Phase 1» Customer Acquisition TacticsFree Tactics • Create an acquistion test plan spreadsheet: Outline activities, costs, and program goals ( pg. 319 Startup Owner’s Manual) • Public relations: Generate small “test” amounts of news and feature coverage about the problem on websites, blogs, and social nets. • Don’t publicize product or solution • Viral marketing: We will discuss later in “grow” • SEO: Unpaid, “natural” option • Social networking: FB likes, Twitter, Bloggers

30. CS419 Technology Entrepreneurship Week #4 «Customer Discovery Phase 1» Customer Acquisition TacticsPaid Tactics • Pay-per-click (PPC) • Online / traditional media • Affiliate marketing: Other related websites are paid to drive traffic to the product • Online lead generation: Permission-based e-mail lists (very tricky)

31. CS419 Technology Entrepreneurship Week #4 «Customer Discovery Phase 1» Customer Relationships HypothesisHow To Test Customer Acquisition • More on this later: Phase 2 & Phase 3 of Customer Discovery. A teaser: • Buy $500 worth of AdWords and see if they’ll drive customers representing five or 10 times that amount in potential revenue to the site • Test at least two different headlines and as many calls to action, monitor performance • Use FB messages or Tweet to measurable audiences to invite at least 1,000 people to explore the product. • Test different messages

32. CS419 Technology Entrepreneurship Week #4 «Customer Discovery Phase 1» Customer Relationships HypothesisHow To Test Customer Acquisition • Viral marketing: Getting customers can’s start until there’s a customer base to viralize. • Network-effect businesses should consider viral activities sooner • Other tactics: Referral banners, E-mail blast lists, Traffic partners

33. CS419 Technology Entrepreneurship Week #4 «Customer Discovery Phase 1» Customer Relationships HypothesisCustomer Activation • Activation is the choke point for web businesses • The product is the salesman, has to sell itself • Activation is always encouraged by a compelling value proposition, well-communicated and coupled with a good, clear offer and a low-fidelity or hi-fidelity MVP • You should be calling your customer! Always include a phone number on your site and answer the phone. • Phone channel can increase CTR from 5%-30%

34. CS419 Technology Entrepreneurship Week #4 «Customer Discovery Phase 1» Customer Relationships HypothesisQuick Activation Tests • Capture the customers e-mail address with permission to follow up. Follow up with 1,000 customers and expect at least 50 or more to activate • Offer incentives for activation: Offer a free trial, download or significant discount to 500 or 1,000 customers. • Try this with at least three different offers, hoping to find at least one that generates a 5% or greater response rate. • Keep testing and calculate revenue model based on response rates, and costs • Call 100 prospects who don’t activate immediately. See if the phone calls generate enough of a response-rate improvement.

35. CS419 Technology Entrepreneurship Week #4 «Customer Discovery Phase 1» Customer Relationships HypothesisQuick Activation Tests • Free-to-paid conversion: Offer a 7- or 14-day free trial of an app, service or web/mobile product. • Compare the total 60-day acquisition revenue with the Get results of the typical paid offer • Offer the use of some but not all of the site or app’s features • E.g. eHarmony.com • Use free-download websites to offer free downloads or trials. Make sure revenue generated over a 90-day period exceeds that of the standard activation offer.

36. CS419 Technology Entrepreneurship Week #4 «Customer Discovery Phase 1» Customer Relationships HypothesisCustomer Retention • Minimize customer churn/attrition by providing great products and services, and interacting with customers often. • Tactics: Customization, User Groups, Blogs, Online Help, Product Tips/Bulletins, Newsletters etc. • Understand who’s staying and who’s leaving and why. Instrument the product to follow the most important customer behaviors you want to improve

37. CS419 Technology Entrepreneurship Week #4 «Customer Discovery Phase 1» Customer Relationships HypothesisCustomer Retention • Track start dates and sources of each customer (referred by a blogger, another site, etc) • Track customers’ activity level individually. • How often do they come? • How long is each visit? • Time span between visits? • When do customers abandon, and what are they doing that cuased them to do so? • Monitor customers’ behavior on-stie: what do they click on, what don’t they click on? • Track customer referrals to others and the sources and activirt level of referred visitors • Track the result of each promotion (inbound or outbound)

38. CS419 Technology Entrepreneurship Week #4 «Customer Discovery Phase 1» Customer Relationships HypothesisCustomer Retention • Guidelines as you test: • E-mail is easy to ignore and at times feels like spam, so don’t overly rely on it • People appreciate legitimate, helpful personalization (e.g. “Here are the sneakers we have in your size” etc.), personalization has to have context and meaning • Outbound e-mail should not be your only customer-retention effort. Focus on product enhancement, service, and other initiatives • Embrace social networks, use them to keep visibility high

39. CS419 Technology Entrepreneurship Week #4 «Customer Discovery Phase 1» Customer Relationships HypothesisCustomer Retention • You need to collect data, observe customer’s behavior, and interact with customers based on what they do or don’t do • Track the behavior of each customer individually. Use data to create a personal 1-1 relationship, and guide him to the next steps • Respect personal-data privacy

40. CS419 Technology Entrepreneurship Week #4 «Customer Discovery Phase 1» Customer Relationships HypothesisCustomer Retention • Simple Retention Tests (Your hypotheses should include these) • Outreacah programs (e-mails, how-to guids, phone calls, tips and tricls about the product) • We haven’t seen you visit in two weeks. Is everything OK? • We have noticed you have a few problems. How can we help? • Have you seen some of the new features? • Here are five “power user” ideas for getting more out of your time at XYZ.com • Blogs • Loyalty programs • Contests and special events • Mobile app push notifications • Product updates and enhancements • Placing live phone calls to users several weeks • Tips and tricks newsletters • Personalized customer service and support

41. CS419 Technology Entrepreneurship Week #4 «Customer Discovery Phase 1» Customer Relationships HypothesisCustomer Retention • Monitor and act on at least these basic retention metrics: • Signs of dwindling visits, page views or time spent on the site or app • Increased time between visits • Average customer life (how long they stay active), and if possible later, lifetime value • Increases in complaints, help or support tickets • Reduced response rates or open rates on company e-mails • Organize metrics around “cohorts”: 3-month customers may behave one way while 9-months customers may be more or less active.

42. CS419 Technology Entrepreneurship Week #4 «Customer Discovery Phase 1» Customer Relationships HypothesisGrowing Customers • Two ways to grow existing customers: • Get current customers to spend more money • Encourage them to send more customers to the company • Get Current Customers to Spend More: • Cross-sell programs: Get buyers to buy adjacent products (those who buy toner cartridges to buy paper, pencils, and other office products) • Up-sell programs. Promote the purchase of “more” of higher-end products • Next-sell programs • Unbundling: Splitting into several products.

43. CS419 Technology Entrepreneurship Week #4 «Customer Discovery Phase 1» Partners HypothesisTraffic Partners Hypothesis • Deliver people to websites and mobile apps in several ways: • On a “cross-referral” or swapping basis • On a paid-per-referral basis • By using textlinks, on-site promotions and ads on the referring site • By exchanging e-mail lists • Difficult to negotiate initially, however they may be vital, so start thinking early • Think of how your startup will reciprocate in cash or in kind • May become the lifeblood of a startup

44. CS419 Technology Entrepreneurship Week #4 «Customer Discovery Phase 1» Partners HypothesisTraffic Partners Hypothesis • Examples: • Zynga is nearly 100 percent dependent on partnership with Facebook (until very recently) • YouTube received most of its early traffic through a partnership with Google • So much that Google bought the company • Mobile apps get much of their traffic from dot.com partners • App stores and marketplaces

45. CS419 Technology Entrepreneurship Week #4 «Customer Discovery Phase 1» Revenue and Pricing Hypothesis • Various revenue sources • Sales: Typically one-time transaction • Subscriptions • Pay-per-use: e.g. Travel sites and eBay • Referral revenue: Payments for referring traffic or customers to other web/mobile sites or products • Affiliate revenue (revenue sharing): Finder’s fees or commissions from other (typically e-commerce) sites for directing customers to them • E-mail list rentals • Back-end offers: Add-on sales from other companies as part of registration or purchase confirmation processes