Allan Chao Startup Consultant Startup V8 allan@startupv8.com UC Berkeley Extension, Summer 2012

Question of the day:

What is the difference between an idea, a product, a business, and a company?

Humor of the day:

The Agenda Quiz

Quick review of last session

Marketing

Distribution, Advertising, and Promotion

Revenue Models and Sales

Quiz Time

Good luck!

10 minutes max

Quick review of prior material Hosting

Server

Data Center

Hosting Options

Dedicated Hosting

Shared Hosting

Virtual Private Server (VPS)

Colocation

Cloud Hosting

Buying hosting

Cheap options

Rackspace, Softlayer

Deployment

FTP = File Transfer Protocol

Filezilla

Multiple environments

Dev > QA > Staging > Production

Build Process

Advanced Deployment tools

Release planning

Firefox example of staggered releases

Project Management

Gantt Chart

Agile Development

Project Management tools

Budgeting

Ninety-ninety rule

Deployments on closed platforms

Hiring Developers

Managing developers

Extreme Programming

Code Reviews

Outsourcing

Positioning and Targeting Once sentence description of what your product is and who

the customer is In-class exercise, go around the room, everyone say your

one-sentence description.

Position Differentiation from Competitors Value Proposition = what’s special about your product

Targeting Who is your target audience Demographics, psychographics Segmenting

Differentiation Positioning and Targeting

USP = Unique Selling Proposition What do you offer that no one else does?

What do you offer better than competitors?

Examples Newest, coolest, best?

Cheapest, Best value?

Most convenient?

Most prestigious?

Most features?

Unique features?

Competitors There will be competitors

They could have VC funding

Their team is equally or more passionate than you

As soon as an opportunity is recognized, competitors pop up everywhere.

Usually not exact clones, but have some differentiation

Generally, only one big winner will emerge.

Network-effect startups are in winner-take-all markets

Handling Competitors What are your competitors doing right? What are they doing wrong? Use their mistakes to differentiate and push them out

Portable music existed before iPods Search existed before Google Social networks existed before Facebook

First Mover Advantage is a myth Why?

Finding the product-market fit is much harder Market may not be ready for your product, even if it is better

Product is much costlier to build

Make all the “first timer” learning mistakes

Investors are wary of first-to-market Highest risk among the high risk

If there are no competitors, maybe there is no opportunity (other entrepreneurs tried and failed)

Requires high capital to “land grab” If there is an opportunity, competitors will appear quickly

Focusing on Niche Niche = small section of the total market

E.g. Facebook

Why? Better product for the niche

Focused marketing message

Easier to reach critical mass

Brand recognition

Exclusivity effect

After success, expand

Policy Year

Harvard Feb, 2004

Stanford, Columbia, Yale

Mar, 2004

Ivy league schools 2004

All universities 2004

Universities internationally

Oct-Dec 2005

High schools Sep 2005

Anyone Sep 2006

Critical Mass Is the minimum number of users you need for your

service to be useful for a new user. Reaching “traction”

Mostly relevant to startups with strong network effects Social Networks

Facebook

Crowdsourcing sites Yelp

Anything requiring concurrency Real time gaming

Two sided markets

Two-sided markets Most commonly buyers and sellers

Ebay

Airbnb

elance.com

Which side are you making free or cheap?

Which side are you charging?

Source Data analysis

Conversion Funnels

If you build it, they won’t come.

If you build it, they won’t come.

Options for a Web Startup Online marketing

SEO

PPC

Social Media

PR

Offline Marketing

“on-the-ground” campaigns

Events

Traditional marketing

TV, radio, magazines, etc.

SEO = Search Engine Optimization aka “organic” listings

“I want to be on the top of Google!”

For small businesses, target “long-tail” keywords. E.g. “San Francisco flood repair”, not “flood repair”

Very complex algorithms, constant changes

Can be very challenging, depending on market saturation

“Guaranteed rankings” are “blackhat”! Google will ban the site!

Trust is very important, fraud/cheating is pervasive

SEO Implementation Search engine friendly website design and code

URLs

HTML tags

Keyword research and keyword targeting

Content Create meaningful content, bring people to your site

Blog

Links

Learn more SEOmoz.com

SEM = Search Engine Marketing aka Keyword advertising

Google Adwords, Bing, Yahoo

Pay per click, $0.50-$20, depending on keywords

Much more stable source leads

Must be set up correctly, or else could be wasting money

Many factors still at play, such as quality score

Google Adwords Pay-per-click

Set up ads

Set up keywords

What about Social Media? What is Social Media?

Blogs (Wordpress, Blogger) Social Networks (Facebook, LinkedIn) Microblogs (Twitter) Location-based (Foursquare) Events (meetup.com, Eventbrite) News and Bookmarking (Digg,

Delicious) Much, much more

Free or very cheap, but massive time investment without obvious ROI

Very common, almost necessary, for startups

Public Relations Hiring PR too early is a

common mistake for startups Newsworthy?

First Launch Launch or feature or offer Current events, like

partnerships

What’s the message? Message for the startup

Target a specific writer Someone who already writes

about the topics

Launch Strategy Do a hot launch, not a cold launch (Launch page)

Optimize SEO and blog

Advertise if necessary

Use social media

List the company on startup sites (e.g. Crunchbase)

Target specific PR journalists

Learn more here: http://www.quora.com/Whats-the-best-launch-strategy-for-a-web-startup

Analytics Track everything!

Usage statistics

User sources

Referrals

Errors

Etc.

Google Analytics

HubSpot

SEOMoz

Virality K-factor

On average, how many new users will one user refer

>1 … sustained growth

<1 … sustained loss

must be covered with advertising

All those sharing buttons

The most effective marketing Word of mouth, personal referrals

Money… Profit (or pursuit of profit)

is the difference between a hobby and a business

You need revenue to make a profit. Lots of revenue.

Importance of a Revenue Model? How high are you aiming?

IPO / acquisition / lifestyle business

The higher you aim, the less important revenue is at the beginning But without revenue… need venture capital

Different Business Models Business to consumer

Fastest, highly analytics driven

Business to SMB

Medium, sales cycle with analytics

Business to enterprise

Slowest, long sales cycle

3 Basic Revenue Models (for websites)

Advertising

Subscription

Freemium = Free + Premium

Transaction

http://startupmodels.blogspot.com/2012/02/revenue-models-for-startups.html

Advertising

If you’re not paying for it, you’re not the customer; you are the product being sold

Significantly Detracts from user experience

Requires broad reach and massive scale to generate large revenues

Easier for lifestyle business, much more difficult for IPO/Acquisition

Revenue depends on conversion rate, which depends on many factors

RPM (revenue per mille) How much to make $1000/month

General: $1 RPM 1 million pageviews/month

Demographic targeting $5 RPM 200,000 pageviews/month

Endemic advertising $20 RPM 50,000 pageviews/month

Subscription based Freemium = Free + Premium

Free plan to get registered users

Free plan is limited, must pay monthly for more

Metrics

Conversion rate

Churn rate

CLTV Customer lifetime value

CPA Cost per acquisiton

Conversion Funnel Starts at all visitors

Loss at each step

Eventually, a small number

Free Paid conversion rate tends to be around 1-3%

Those few paying users must cover the expenses of free users

Churn Rate = the rate of people unsubscribing

Example 500 monthly subscribers at $10/month

each $5,000/m

8% monthly subscribers leave each month 40 leave

Just to stay steady, you need 40 new paid subscriptions monthly To grow, you need more than 40 per month

Conversion rate applied (in reverse) 40 new subscriptions

2,000 (2% CR) total subscriptions

10,000 (20% CR) total new visitors

Other Revenue Models (for websites)

These models are less common

Selling data to data miners

In-app sales

Virtual items in games

Patenting technology and Licensing it

Donations / pay-what-you-want

Product Market Fit Achieving “Product Market Fit” means success

How to do it?

Customer development

Release early

Listen to feedback

Sell it to customers

Learn and iterate

The Pivot Back to disruptive innovation

Never been tried before

No one knows if it will be successful

It’s like an experiment If it fails, change your hypothesis, try again

Change a core section of your business model Product-market fit

Examples Online game “Game Neverending” → Web photo sharing (Flickr)

PDA payments → Email/web payments (Paypal)

Animation equipment → Animated movies (Pixar)

Homework Individual, read the following:

10 business models that rocked http://www.slideshare.net/boardofinnovation/10-business-models-that-rocked-2010-6434921

Browse this: The noob guide to online marketing http://www.seomoz.org/blog/the-noob-guide-to-online-marketing-with-giant-infographic-11928

Browse this: How to get Media Coverage for your Startup http://onstartups.com/tabid/3339/bid/80121/How-To-Get-Media-Coverage-For-Your-Startup-A-Complete-Guide.aspx

(Team) Prepare your Final Presentation Use the pitch deck from class 2 as a basis Product Demo should be max 5 min of your 10-15 min presentation

(Team) Keep Going!! Keep programming Keep working on the pitch deck Keep marketing your new startup Occasionally review the market research data (Google Analytics, etc.)