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ENG491 Technology Entrepreneurship

ENG491 Technology Entrepreneurship. Fall 2011 – Fall 2012 Emre Oto. Building a Lean, Scalable Startup. www.eng491bu.org Follow on Twitter: @eng491. ENG491 Technology Entrepreneurship Week # 6 « Channels and Rev . Streams ». Channels.

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ENG491 Technology Entrepreneurship

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  1. ENG491 Technology Entrepreneurship Fall 2011 – Fall 2012 Emre Oto Building a Lean, Scalable Startup www.eng491bu.org Follow on Twitter: @eng491

  2. ENG491 Technology Entrepreneurship Week #6«ChannelsandRev. Streams» Channels • How does each customer segment want to be reached? • Through which interaction points?

  3. ENG491 Technology Entrepreneurship Week #6«ChannelsandRev. Streams» Test Hypotheses: Channel

  4. ENG491 Technology Entrepreneurship Week #6«ChannelsandRev. Streams» Two Critical Questions about Channels First one is obvious: How do you want to sell your product? 1 Second one is subtle, but more important than the first: How does your customer want to buy your product? 2

  5. ENG491 Technology Entrepreneurship Week #6«ChannelsandRev. Streams» How Do You Want to Sell Your Product? Yourself Through someone else Retail Wholesale Bundled with other goods or services ü ü ü ü ü

  6. ENG491 Technology Entrepreneurship Week #6«ChannelsandRev. Streams» How Does Your Customer Want to Buy Your Product? • Same day • Delivered and installed • Downloaded • Bundled with other products • As a service • … ü ü ü ü ü ü

  7. ENG491 Technology Entrepreneurship Week #6«ChannelsandRev. Streams» Nature of Product Impacts Channel: Atoms or Bits? • Access to customers changes dramatically • Logistics related to product complexity • People as products

  8. ENG491 Technology Entrepreneurship Week #6«ChannelsandRev. Streams» The Sales “Channel” Web System Integrators Your Company Your Customers Direct Sales Force Value-Added Resellers (VARs) Dealers Distributors Retail/Mass Merchants

  9. ENG491 Technology Entrepreneurship Week #6«ChannelsandRev. Streams» Types of Channels Direct Indirect Licensing • OEM • VAR • Reseller • Distributor

  10. ENG491 Technology Entrepreneurship Week #6«ChannelsandRev. Streams» The Channel as a Customer • Some products are embedded in others (OEM) • Some products are resold by others (VARs) • Some products are distributed by others • Who’s the customer?

  11. ENG491 Technology Entrepreneurship Week #6«ChannelsandRev. Streams» Distribution Complexity Global Systems Evangelists Systems Integrators WANs Mainframes Direct Sales Higher Volume Minis LANs VARs Marketing Complexity PC Servers Desktop PCs Higher Value Added Retail Printers Keyboards ServiceTechnicians Web, Telesales Toner Solution Complexity

  12. ENG491 Technology Entrepreneurship Week #6«ChannelsandRev. Streams» How Are Channels Compensated? • Commission • Percentage of sales price • Discounted pre-purchase

  13. ENG491 Technology Entrepreneurship Week #6«ChannelsandRev. Streams» How Are Channels Motivated or Incented? • Money! – what makes them the most? • Training • Marketing to the channel • SPIF

  14. ENG491 Technology Entrepreneurship Week #6«ChannelsandRev. Streams» Channel Economics: “Direct” Sales ListPrice Revenue Cost of Goods(Supply Chain) Profit + SG&A + R&D EU Discounts End Consumer Source: Mark Leslie, Stanford GSB

  15. ENG491 Technology Entrepreneurship Week #6«ChannelsandRev. Streams» Channel Economics: Resellers ListPrice Revenue Cost of Goods(Supply Chain) Profit + SG&A + R&D Reseller EU Discounts End Consumer Source: Mark Leslie, Stanford GSB

  16. ENG491 Technology Entrepreneurship Week #6«ChannelsandRev. Streams» Channel Economics: Distributors/Resellers ListPrice Revenue Cost of Goods(Supply Chain) Profit + SG&A + R&D Reseller Distributor EU Discounts End Consumer Source: Mark Leslie, Stanford GSB

  17. ENG491 Technology Entrepreneurship Week #6«ChannelsandRev. Streams» Channel Economics: OEM or IP Licensing ListPrice Revenue Your Product Becomes Your Customer’s COGs 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 Source: Mark Leslie, Stanford GSB

  18. ENG491 Technology Entrepreneurship Week #6«ChannelsandRev. Streams» Example: Book Publishing Publisher National Distributor Printer Wholesaler Retailer Customer

  19. ENG491 Technology Entrepreneurship Week #6«ChannelsandRev. Streams» Book Publishing Publisher National Wholesaler Distributor Retailer Customer • Percent of Retail 35% 15% 10% 40% $7.00 $3.00 $2.00 $8.00 $20.00 For their efforts, distributors take an additional 10% of retail. That means you get 35% of retail, the distributor gets 10%, the wholesaler gets 15% and the retailer gets 40% less any discount they offer the end customer

  20. ENG491 Technology Entrepreneurship Week #6«ChannelsandRev. Streams» Book Publishing Economics Publisher National Distributor Wholesaler Retailer Customer Allowances Wholesale costs Bills Markup Credit guarantees Payment guarantees Payment guarantees Return rights Credits Payments

  21. ENG491 Technology Entrepreneurship Week #6«ChannelsandRev. Streams» Book Publishing Delivery Publisher National Distributor Printer Wholesaler Retailer Prepare film (content) • Receive • Schedules • Print orders • Bundle counts • Film Determine allocations Merchandise titles Deliver orders Sell magazines • Establish identity • Create demand Prepare galleys Print and ship magazines Dispose of returns Acknowledge returns

  22. ENG491 Technology Entrepreneurship Week #6«ChannelsandRev. Streams» Bits vs. Atoms • Channel • Web • Physical • Bits • Product • Physical

  23. ENG491 Technology Entrepreneurship Week #6«ChannelsandRev. Streams» Product and Channel Are Bits • Channel • Web • Physical • Rapid Agile and Customer development • Fastest to acquire early customers and scale • Bits • Product • Physical

  24. ENG491 Technology Entrepreneurship Week #6«ChannelsandRev. Streams» Web 2.0 – Product and Channel Are Bits • Channel • Web • Physical • Google • Twitter • Facebook • Zynga • Cloud Services • Bits • Product • Physical

  25. ENG491 Technology Entrepreneurship Week #6«ChannelsandRev. Streams» Product Is Bits, but Channel Is People • Channel • Web • Physical • Rapid Agile and Customer development • Fastest to acquire early customers and scale • Rapid Agile and Customer development • Traditional sales channel • May require installation • Bits • Product • Physical

  26. ENG491 Technology Entrepreneurship Week #6«ChannelsandRev. Streams» Traditional Enterprise Software • Channel • Web • Physical • Google • Twitter • Facebook • Zynga • Cloud Services • Microsoft • SAP • Oracle • Bits • Product • Physical

  27. ENG491 Technology Entrepreneurship Week #6«ChannelsandRev. Streams» Physical Products Sold Over the Web • Channel • Web • Physical • Rapid Agile and Customer development • Fastest to acquire early customers and scale • Rapid Agile and Customer development • Traditional sales channel • May require installation • Bits • Product • Rapid Customer development • Logistics, shipping and manufacturing critical • Customer service • Physical

  28. ENG491 Technology Entrepreneurship Week #6«ChannelsandRev. Streams» Killing Traditional Storefronts • Channel • Web • Physical • Google • Twitter • Facebook • Zynga • Cloud Services • Microsoft • SAP • Oracle • Zappos • Amazon • Cafepress • Netflix • Consumer electronics • Bits • Product • Physical

  29. ENG491 Technology Entrepreneurship Week #6«ChannelsandRev. Streams» The Factories May Be in China • Channel • Web • Physical • Rapid Agile and Customer development • Fastest to acquire early customers and scale • Rapid Agile and Customer development • Traditional sales channel • May require installation • Bits • Product • Rapid Customer development • Logistics, shipping and manufacturing critical • Customer service • Longer customer feedback cycle • May require large capital requirements for scale • Physical

  30. ENG491 Technology Entrepreneurship Week #6«ChannelsandRev. Streams» We Still Make Things that Need Salespeople • Channel • Web • Physical • Google • Twitter • Facebook • Zynga • Cloud Services • Microsoft • SAP • Oracle • Zappos • Amazon • Cafepress • Netflix • Consumer electronics • Bits • Product • Cars • Solar panels • Wind turbines • Bookstores • Consumer electronics • Physical

  31. ENG491 Technology Entrepreneurship Week #6«ChannelsandRev. Streams» Revenue Streams

  32. ENG491 Technology Entrepreneurship Week #6«ChannelsandRev. Streams» Revenue StreamsTwo types of companies • Companies that care about revenues • Companies that don’t

  33. ENG491 Technology Entrepreneurship Week #6«ChannelsandRev. Streams» Revenue StreamsCompanies that care about revenues • Time to doublings for monthly revenues • Key questions: • When will I get to $100k/month in revenues? • When will I get to $1M/month in revenues? • What assumptions about my business am Imaking when I reach these milestones?

  34. ENG491 Technology Entrepreneurship Week #6«ChannelsandRev. Streams» Revenue StreamsCompanies that don’t care • If you say your business is advertisingbased, then revenues are related to number of users/viewers: • How do you get to 10M monthly users • How do you become one of the top 5 websites visited?

  35. ENG491 Technology Entrepreneurship Week #6«ChannelsandRev. Streams» • This lecture is for those of uswho need to care about revenues

  36. ENG491 Technology Entrepreneurship Week #6«ChannelsandRev. Streams» Revenue StreamsKey Questions • How many customers, value propositionsand revenue models do I have? What are they? • What are my customers paying for? • What capacity do my customers have to pay? • How will you package your product? • How will you price the offerings?

  37. ENG491 Technology Entrepreneurship Week #6«ChannelsandRev. Streams» Revenue StreamsKey Questions (cont.) • What constitutes cost for the company? • What are the key financials metrics for your business model? • What are the risks involved? • How will my competitors react?

  38. ENG491 Technology Entrepreneurship Week #6«ChannelsandRev. Streams» Revenue StreamsCommon categories of revenue models • Asset sale: • Sale of ownership right to a physical product

  39. ENG491 Technology Entrepreneurship Week #6«ChannelsandRev. Streams» Revenue StreamsCommon categories of revenue models • Usage fee: • Usage of service. Fee is proportional tothe usage of the service.

  40. ENG491 Technology Entrepreneurship Week #6«ChannelsandRev. Streams» Revenue StreamsCommon categories of revenue models • Subscription fee: • Fee for continuous access to a service

  41. ENG491 Technology Entrepreneurship Week #6«ChannelsandRev. Streams» Revenue StreamsCommon categories of revenue models • Renting: • Fee for temporary access to a good or service

  42. ENG491 Technology Entrepreneurship Week #6«ChannelsandRev. Streams» Revenue StreamsCommon categories of revenue models • Licensing: • Fee for use of some IP (including software)

  43. ENG491 Technology Entrepreneurship Week #6«ChannelsandRev. Streams» Revenue StreamsCommon categories of revenue models • Intermediation fee: • Often found in marketplaces of varioustypes, a fee for bringing together two ormore parties involved in a transaction

  44. ENG491 Technology Entrepreneurship Week #6«ChannelsandRev. Streams» Revenue StreamsCommon categories of revenue models • Advertising: • Fee paid by brands and companies to getin front of potential customers

  45. ENG491 Technology Entrepreneurship Week #6«ChannelsandRev. Streams» Revenue StreamsAdditional Components of Pricing • Exclusive vs. non-exclusive • What do you price? What do you give away for free? • How does cost vary at different production levels?

  46. ENG491 Technology Entrepreneurship Week #6«ChannelsandRev. Streams» Revenue StreamsAdditional Components of Pricing • Cost + markup • Typically not a strategic way to price • Driven by internal economics and not customer insight Cost-based pricing • Based on buyer’s perception ofvalue (e.g. time saved, new efficiency created, etc.) • Understanding the customer’s willingness to pay is the key.. • ..but this is one of the hardest problem in a startup (Customers don’t necessarily feel that they want to pay this way) Value-based pricing

  47. ENG491 Technology Entrepreneurship Week #6«ChannelsandRev. Streams» Revenue StreamsTake competition into account • Cost + markup • Typically not a strategic way to price • Driven by internal economics and not customer insight Cost-based pricing • Based on buyer’s perception ofvalue (e.g. time saved, new efficiency created, etc.) • Understanding the customer’s willingness to pay is the key.. • ..but this is one of the hardest problem in a startup (Customers don’t necessarily feel that they want to pay this way) Value-based pricing

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