STARTIAP 2016

BUILD A STARTUP IN FOUR WEEKS

Elaine Chen

Business models 101

January, 2016

What are you leaving with today

• A list of possible business models relevant to

your venture

• Everything you need to know to hallucinate a

5-year forecast for your venture (hopefully)

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Before we begin:

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“FREE” IS NOT A BUSINESS MODEL

WhatsApp, FB, Twitter are anomalities. Why won’t you do the hard work now and play to win?

>40 out of 940

companies funded

by America’s most

elite accelerator

are woth more

than $100M (4%)

Read this in your spare time

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But really, it ’s very simple

• 3 classes of approaches

– Transaction based

– Subscription based

– Advertising based

• One factor that drives the LTV/COCA ratio

– One and done versus recurring revenue stream

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Some examples

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Transactional Subscription Ad-based

Common wisdom

• Simple is beautiful

– You are building a hypothesis of what works, so you can test in the field. Complexity will befuddle you.

• Ad based is hard

– Ad-based needs scale, scale needs awareness, awareness needs time and money startups don’t have

– Most investors will be skeptical

• One and done is hard

– Recurring revenue stream creates much needed sanity in the chaos of a startup

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Why is one and done hard?

8Source: David Skok’s 2015 SaaS survey infographic

Anything can be made recurring

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Ways to get to a recurring business model

• Gillette Razor blades, transactional

• Keurig K-cups, transactional

• Uber, transactional

• Amazon Subscribe-and-save, subscription

• Industrial automation field service plans, subscription

• Industrial automation field repair, transactional

• C-space – subscription

• LinkedIn – subscription (true freemium)

• Atlassian –subscription (pseudo-freemium)

• Rackspace – subscription (no freemium)

• AWS – metered transactional

• …

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Workshop activity: Business Models

Enumerate all the business models you can think

of that is relevant to your venture and classify

them by the 3 approaches (transactional,

subscription, ad-based). Think about ways to

maximize life time value. See if you can come up

with a recurring revenue model.

Pick the one you think works best and explain why.

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Sharing!

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Case study: Atlassian

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• Market leading software dev and mgmt tools

• Profitable for 10 years, 48.5% growth YOY ‘15

• Revenue $320M in 2015

• IPO late 2015 – Valued at $5.8B

• 48,000 paying corporate customers

• >5m active users

• 864 customers spent $50,000+

• Great customer retention (Cisco, Kroger, Verizon were customers since 2003)

“Pseudo-freemium”

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Pricing tiers

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It’s not all self service, but close

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Simple template: B2C SaaS

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Y1 Y2 Y3 Y4 Y5

Average annual subscription fee per user ($$)

# New users this year

%Churn

# Install base this year (= #new + #old last year –churn)

Revenue this year ($$)

Example forecast: Product +

subscription (e.g. traditional MCAD)

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Example forecast: Consumer

electronics – connected device

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Example forecast: B2B SaaS

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Example forecast: Consumer marketplace

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End

Questions?

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