BUSI 701 Artistic Entrepreneurship Class 8 Business Model Videos: Danger 1 / 212 Google Makes Money Google Strategy

Midterm Check-In Get specific More research Be prepared for group sessions

Risk Aversion When was the last time you… –…tried a new route home? –…went to a new restaurant? –…said hello to a stranger in an elevator? How many of you order the same thing every time you go to your favorite restaurant?

Risk Aversion Risk aversion explains… …why all popular music sounds the same. …why all morning show sets look the same. (the window, the hooting audience, the jolly weatherman…) …why all talk shows look the same. (the desk, the format of standup and then interviews, the band) If it works, copy it!

Risk Trying something truly NEW is the riskiest of all. The newer and riskier your business, the longer your business plan will need to be. There is no insurance policy for a new venture. (Insurance is paying now to reduce risk.)

Paying to Reduce Risk Insurance Volvo Building codes

Vernon’s Razor 1.Value Proposition 2.Market Potential 3.Return 4.Team 5.Competitive Advantage 6.Business Model 7.Customer Pain Defining Opportunity Minimizing Risk

Business Model How you will build an organization to redistribute the value you create To “monetize” value you must identify best customer from value network Reduce risk by using known models

Business Model Startup capital Scalability Margins Revenue model Simplicity

Startup Capital Startup capital: the less money we risk up front, the less risky our venture is VCs call this “capital intensity” The trick with startup capital is balancing the need to maximize our opportunity while also reducing our risk –Find ways to validate idea before scaling big Often directly linked to scalability

Scalability How easily you can replicate your success so that you can create even more value Less infrastructure = higher scalability Service vs. product business –Hard to scale talented people Ideally you have a ready-to-use product Outsource non-essential tasks

Margins Simply: how profitable is your enterprise Sales minus cost (COGS) Ideally you take a commodity, add value and sell at a significant markup Video: Facebook generating revenue

Revenue Model How you charge your customers (or monetize your value) Flat price, subscription, installation, add- ons, etc. One-time vs. recurring Razor/Blade, Printer/Cartridge

Simplicity Simple “value transactions” are preferred Beware “house of cards” structure before value is created –Critical mass –Buy-in from multiple constituencies Usually you can copy other good, simple business models Video: Kawasaki Model

Ideal Business Model Startup capital: LOW Scalability: EASY Margins: HIGH Revenue model: RECURRING Simplicity: SIMPLE

“Countdown to Product” Article Reaching customers Differentiating your product Pricing Selling Distribution Support Customer satisfaction By Vivek Wadhwa Customers drive model video

“Freemium” Article 1.Product stands out 2.Upsell strategy from the start 3.Once free, always free 4.One click away 5.No bugs 6.Harness collective intelligence 7.Keep improving for stickiness 8.Range of revenue 9.Time revenue to cover cost By Katherine Heires Video: charge for service

Other Key Terms Capital intensity Amount of capital needed at startup and for growth Cost structure An overview of all of your costs once your venture is up and running Sales cycles How long does it take to land a new customer. Notoriously long sales cycles include governmental contracts or any large contracts for large corporations. Customer acquisition and retention costs How much does it cost to get and keep a customer. Acquisition is almost always much more expensive than retention.