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

Lean Launchpad Roadmap 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 Customer Validation 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 Session 1Session 2Session 3Session 4

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

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

NewThemes: workshop 3 Customer Validation 1 Cust Relationships (Get-Keep-Grow) Revenue Model Cost Structure Themes: Finding Pivots Minimum Viable Product

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?

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

Get Customers Funnel – Physical Goods “Get Customers” Funnel

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

Demand Creation Feeds the Sales Funnel Paying Customers $ Demand Creation Acquisition PR SEO Advertising Blogs/Website Product reviews Cold calls Tradeshows

EXAMPLE of GET for Physical Product reviews PR & Media Advertising

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

“Get Customers” Funnel Viral Loop Get Customers Funnel – Web/Mobile

Earned and Paid Media “Get Customers” Funnel PR SEO Advertising Blogs/Website Tradeshows Viral Mktg SEM/PPC Affiliate Mktg Viral Loop Demand Creation for the Web/Mobile Sales Funnel

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

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

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

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

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

“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 list rentals: rent your customer 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

Physical Revenue Models Asset Sale Sale of ownership right to a physical product

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

Subscription Fee Fee for continuous access to a service

Renting Fee for temporary access to a good or service

Licensing Fee for use of some IP (including software)

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

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

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

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

Common approaches to pricing  Cost + markup  Typically not a strategic way to price  Driven by internal economics and not customer insight Cost based Value 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

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

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

More pricing considerations consider 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

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

How do we price the product? Pricing Model Choices

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

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

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

Does it add up? 39 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?

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

Web Channels 41

Physical Channels 42

Types of Channels Who is your customer? 43 –OEM –VAR –Reseller –Distributor DirectIndirectLicensing

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

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

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

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

Book Publishing 48 Percent of Retail 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 Publisher National Wholesaler DistributorRetailerCustomer 35%15%10%40% $7.00$3.00$2.00$8.00$20.00

Book Publishing Economics 49 Publisher National Distributor WholesalerRetailerCustomer Wholesale costs Markup Allowances Payment guarantees Payments Bills Credit guarantees Payment guarantees Return rights Credits

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

Pivots: your status Customer segment Customer need (pain you are solving) Platform Business model Features – zoom in (to minimum viable product) – zoom out (towards whole product)

MVP: where are you at? Can you: -specify what to make and test? -From LLP discovery, what can you strip out? -What must you include?

10 inch From a Jon Nakane 11/2013 presentation

From a Jon Nakane 11/2013 presentation

Lean Launchpad Roadmap 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 Customer Validation 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 Session 1Session 2Session 3Session 4

Next steps: from workshop 3 to 4 Next hypotheses Interviews Customer Relationship: Get-keep-grow Min. viable product (MVP) Revenue model: pricing Elements of cost structure Canvas v4