Technology Venture Creation (ELEC5701) SEPT12

1. Technology Venture Creation (ELEC5701) SEPT12 assert(CPA < LTV) - the most important line of code David Jones http://slideshare.net/djinoz/ @djinoz

2. Personal experience from startups OEM Channel Consumer Enterprise EmU Tech 2000 2003 2004 2006 2009 2011/ 2012 High Touch Low Touch

4. Even if you could build Twitter/Instagram - in Australia you’d never get it funded. Aussie VCs will look at 150+ deals/year but fund 2-5 companies Aussie angel increasing but still conservative and sparse. 2012 Update: Maybe Blackbird is a game-changer Corollary: Aussie startups don’t have luxury of unlimited venture, so frame your “Business Models” from the beginning. assert(CPA < LTV)

5. (Ye olde) Funding Model for:Web 1.0, Enterprise S/W, Deep IP, Rockstar Founders X CashFlow Australia: Not a great track record here david DOT jones AT gmail DOT com | skype://djinoz | Cell:+61 412 683 111 | @djinoz

6. Lean but not starving - revenue is a the best deodorantBEWARE: Of Market Changes, Slow Execution, Too Few Customers…a common “underfunded aussie story”. X CashFlow Trough of Despair david DOT jones AT gmail DOT com | skype://djinoz | Cell:+61 412 683 111 | @djinoz

7. How to avoid the “trough of despair”? Ideas? david DOT jones AT gmail DOT com | skype://djinoz | Cell:+61 412 683 111 | @djinoz

8. Revenue is a deodorant david DOT jones AT gmail DOT com | skype://djinoz | Cell:+61 412 683 111 | @djinoz

9. Your Product is not your product(Ash Muraya) Customer Acquisition & Monetization The Actual Product david DOT jones AT gmail DOT com | skype://djinoz | Cell:+61 412 683 111 | @djinoz

10. Product vs Sales Matrix Credit: Thiel http://blakemasters.tumblr.com/post/22405055017/peter-thiels-cs183-startup-class-9-notes-essay david DOT jones AT gmail DOT com | skype://djinoz | Cell:+61 412 683 111 | @djinoz

11. assert(CPA < LTV) The Metrics you need: • Customer lifetime value (LTV sometimes CLV) • Average revenue per user (per month/year), or ARPU • Retention rate (monthly, decay function), or r • Churn (the opposite of Retention!) • Average customer lifetime, which is 1 / (1-r) • Cost per customer acquisition, or CPA • Retention cost (customer support, 3rd parties, ops costs) Credit: Thiel http://blakemasters.tumblr.com/post/22405055017/peter-thiels-cs183-startup-class-9-notes-essay david DOT jones AT gmail DOT com | skype://djinoz | Cell:+61 412 683 111 | @djinoz

12. The Basic Math • LTV = ARPU x Average Lifetime of a Customer – the Cost to Serve them (COGS) • Where ARPU = Average Revenue Per User and Average Lifetime of a Customer = 1/Churn Rate. david DOT jones AT gmail DOT com | skype://djinoz | Cell:+61 412 683 111 | @djinoz

13. assert(CPA < LTV) Engines of Growth • Paid • Sticky • Viral Credit: Ries http://www.startuplessonslearned.com/2008/09/three-drivers-of-growth-for-your.html david DOT jones AT gmail DOT com | skype://djinoz | Cell:+61 412 683 111 | @djinoz

14. assert(CPA < LTV) Paid Engine of Growth Enterprise spam/virus cloud solution that filters email ARPU: $200 per month Customers on average stay with you for 18 months. Margin after channel partners and operational costs is 50% The LTV is = 200 * 18 * 50% = $1800 You use Google Adwords to acquire users is $500 So you are $1300 ahead But not sticky if Google release free email with filtering (low switch cost) Credit: Thiel http://blakemasters.tumblr.com/post/22405055017/peter-thiels-cs183-startup-class-9-notes-essay david DOT jones AT gmail DOT com | skype://djinoz | Cell:+61 412 683 111 | @djinoz

15. assert(CPA < LTV) Sticky Engine of Growth Same solution, but more sticky by offering “archiving” ARPU: $200 per month Customers on average stay with you for 36 months. Margin after channel partners and operational costs is 50% The LTV is = 200 * 36 * 50% = $3600 You use Google Adwords to acquire users is $500 So you are $3100 ahead Credit: Thiel http://blakemasters.tumblr.com/post/22405055017/peter-thiels-cs183-startup-class-9-notes-essay david DOT jones AT gmail DOT com | skype://djinoz | Cell:+61 412 683 111 | @djinoz

16. assert(CPA < LTV) Retention & Churn • LEAKY BUCKET is the enemy of LTV • Particularly devastating in Consumer/Social • Punters leave before you monetise them • Enterprise tends to be stickier because of corporate dynamics. david DOT jones AT gmail DOT com | skype://djinoz | Cell:+61 412 683 111 | @djinoz

17. assert(CPA < LTV) LTV’s in startups • How can you possibly know LTV at the start? • Everything in Dave McClures AARRR • (Acquisition, Activation, Retention, Referral Revenue) • In consumer measure rates: • crossing free to paid • In-app purchase rates david DOT jones AT gmail DOT com | skype://djinoz | Cell:+61 412 683 111 | @djinoz

18. assert(CPA < LTV) Viral Engine of Growth Add a Default Footer: “Filtered by Mail Filter X” ARPU: $200 per month Customers on average stay with you for 36 months. Margin after channel partners and operational costs is 50% The LTV is = 200 * 36 * 50% = $3600 You use Google Adwords to acquire users is $100 So you are $3500 ahead OK, not a killer viral engine but you get the idea – just a non-Facebook example ;) Credit: Thiel http://blakemasters.tumblr.com/post/22405055017/peter-thiels-cs183-startup-class-9-notes-essay david DOT jones AT gmail DOT com | skype://djinoz | Cell:+61 412 683 111 | @djinoz

19. Tip of the day: NONE OF THAT MATTERS david DOT jones AT gmail DOT com | skype://djinoz | Cell:+61 412 683 111 | @djinoz

20. Validation Tip of the day: Look them deeply in the eye and ask for money david DOT jones AT gmail DOT com | skype://djinoz | Cell:+61 412 683 111 | @djinoz

21. Validation Tip of the day: Look them deeply in the eye and ask for money • Because if you can’t get to product/market fit • you will never get to sustained ARPU • You will never get initial purchases • If you do, the leaky bucket has a big hole. david DOT jones AT gmail DOT com | skype://djinoz | Cell:+61 412 683 111 | @djinoz

22. The Business Model drives the Business Plan Product Focus: Core Utility Company Focus: Right Business Model The “right” business model takes iteration. But this BM framework prescribes what activities you SHOULD focus on (the business plan being covered by Ryan Junee) david DOT jones AT gmail DOT com | skype://djinoz | Cell:+61 412 683 111 | @djinoz

23. david DOT jones AT gmail DOT com | skype://djinoz | Cell:+61 412 683 111 | @djinoz

24. The Business Model Canvas david DOT jones AT gmail DOT com | skype://djinoz | Cell:+61 412 683 111 | @djinoz

25. david DOT jones AT gmail DOT com | skype://djinoz | Cell:+61 412 683 111 | @djinoz

26. david DOT jones AT gmail DOT com | skype://djinoz | Cell:+61 412 683 111 | @djinoz

27. david DOT jones AT gmail DOT com | skype://djinoz | Cell:+61 412 683 111 | @djinoz

28. ThreatMetrix early BM (fail) Big Data aggregation & combine Conferences Security Vendors Security Vendors Ummm? (2-sided market problem) BotNet Detection will make you more secure BizDev Security incident/infection data Banks? eCommerce? CERTS & Governm White Label OEM in Security Products Business Development Telcos Super Super Large Data Processing Reqs (boil the ocean problem) Talented Security Staff Flat Monthly Fee (peril of OEM) Talented Programmers Can this Scale? david DOT jones AT gmail DOT com | skype://djinoz | Cell:+61 412 683 111 | @djinoz

29. ThreatMetrix 2008-2011 Per Transaction Assessment Webinars/Demos/Evals Close/Customer Service Research/DM Conferences eCommerce Data Center Support Realtime SaaS Fraud Protection for eCommerce Marketing Evangelism Awareness Social & Dating Device Intelligence BizDev Geo Data Providers Cloud Service Software Payment Processors Banks Security Data Credit Card Companies Customer Transactions are accretive Resellers in new Territories Super Super Large Data Processing Reqs Upfront Purchase Transaction Blocks Talented Security Staff Autorenew Talented Programmers david DOT jones AT gmail DOT com | skype://djinoz | Cell:+61 412 683 111 | @djinoz

30. Summary: Benefits of BM Canvas • Won’t stop you being deluded • Won’t stop you arguing black==white BUT • Surfaces assumptions • Structures dependencies • Scopes debate • Use it to test the logic of a new activity david DOT jones AT gmail DOT com | skype://djinoz | Cell:+61 412 683 111 | @djinoz

31. Drill-in Example 1 Key Partners Who are our Key Partners? Who are our key suppliers? Which Key Resources are we acquiring from partners? Which Key Activities do partners perform? motivations for partnerships: Optimization and economy Reduction of risk and uncertainty Acquisition of particular resources and activities david DOT jones AT gmail DOT com | skype://djinoz | Cell:+61 412 683 111 | @djinoz

32. Drill-in Example 2 Cost Structure What are the most important costs inherent in our business model? Which Key Resources are most expensive? Which Key Activities are most expensive? is your business more: Cost Driven (leanest cost structure, low price value proposition, maximum automation, extensive outsourcing) Value Driven ( focused on value creation, premium value proposition) sample characteristics: Fixed Costs (salaries, rents, utilities) Variable costs Economies of scale Economies of scope david DOT jones AT gmail DOT com | skype://djinoz | Cell:+61 412 683 111 | @djinoz

33. Questions?

34. Good News… The local startup community is building: StartupCamp, Startup Weekend, SiliconBeach StartMate, MentorConnect, SeedAccelerator, Fishburners Courses like this…. Lots of global information Aussie “mafia” in Silicon Valley StartupHouse Links into CRV Southern Cross presence

35. Paper MVP vs Hacked MVP The jury is still out but hacked MVP gives more accurate CustDev feedback david DOT jones AT gmail DOT com | skype://djinoz | Cell:+61 412 683 111 | @djinoz

36. Focus or FailIf you have limited resources and cash reserves then focus is yourmost valuable discipline – if your hypothesis wrong at least you “fail fast” Don’t let Perfect be the Enemy of the Good (picture credit: Mick Liubinskas/Pollenizer) david DOT jones AT gmail DOT com | skype://djinoz | Cell:+61 412 683 111 | @djinoz

37. Ye Olde Startup Funding Model(too early to talk about but I know your thinking about it) Market Product Team Team Market Product @djinoz david@dealsta.com.au

38. New, New Angel Funding Model Naval AngelList @djinoz david@dealsta.com.au