business model for startups

Business Models

Steve Blank

www.steveblank.comClean Tech Open Accelerator 2009, San Jose, California

II ʼ̓m Confusedm Confused

• What is a Business Plan?• How does it differ from a Business Model?

Business Business PlanPlan

1. A document your investors make youwrite that they don’t read

2. A useful place for you to collect yourguesses about your business• Size of Opportunity• Customers• Channel• Demand Creation• Revenue/Expenses/Profit

Business Business ModelModel

1. A diagram that shows all the flowsbetween your company and itscustomers

But FirstBut First……

Market Risk

Clean Tech MarketsClean Tech MarketsTransportSmart

PowerRenewablesGreen

BuildingEnergy

EfficiencyAir, Water& Waste

Clean Tech Markets -Clean Tech Markets - RiskRiskTransportSmart


BuildingEnergy


• Which markets have technology risk?• Which markets have customer risk?• Which have both?

Clean Tech Markets -Clean Tech Markets - Risk DefinitionsRisk DefinitionsTransportSmart


BuildingEnergy


• Technology Risk– risk is in development of the product (i.e. fuel cells, thin-film arrays,

etc.) then customers automatically adopt

• Customer risk– risk is in customer and market adoption

• Which have both?• You spend your time differently depending on risk

NextNext……

Business Plan Hypothesis

Size of Opportunity

LiquidityFollow-onSeed FinancingTeamManufacturingProd Dev ModelTime to MarketRegulatoryIP/PatentsBus/Rev ModelCustomer DevBiz DevMarketingSalesCompetitionCustomer

Clean Tech Markets - HypothesesClean Tech Markets - Hypotheses

• Your business plan is a set of untestedhypothesis

• What are they?• How do you test them?• How do you execute them?

Clean Tech Markets - HypothesesClean Tech Markets - Hypotheses

• Size of Opportunity– TAM, SAM

• Customer– Who’s the end user? Economic buyer? Reimburser?

• Sales– What’s the distribution channel?

• Marketing– How do you create end-user demand

• Customer Development– How do you test your hypothesis

• Business Model– How do all the parts work to create profits?

• Financing– What is the path to cash flow positive

Size of Opportunity


FinallyFinally……

Your Hypothesis Go Here



BuildingEnergy

EfficiencyAir, Water

Waste

Size of Opportunity




BuildingEnergy

EfficiencyAir, Water

Waste

Size of Opportunity

ImportantIsThis

Liquidity

Follow-on

Seed Financing

Team

Manufacturing

Prod Dev Model

Time to Market

Regulatory

IP/Patents

Bus/Rev Model

CustomerDevelopment

Biz Dev

Marketing

SalesCompetition

Customer

BusinessBusiness PlanPlan - Sum of Hypotheses - Sum of Hypotheses

• Business plan collects your hypothesis• Adds facts as you know them today• Contains a plan of how to turn hypothesis into facts• Extrapolates results if hypothesis turn into facts• Has a business model which is clearly articulated

Business Business ModelModel……

Start with the Pieces

Business Business ModelModel

• Goal is to get to a single diagram of yourbusiness

• Start by drawing pieces of your business– Problem/Opportunity– Market Size– Distribution Channel– Demand Creation– Financial assumptions

• Then put it all together

Problem/OpportunityProblem/Opportunity

Why Are You in Business?

+Pain Points in Inter-DistrictDevelopment of Curricula

Recognize Your Market TypeRecognize Your Market Type

Can Save a Ton of Dollars

Market Type?Market Type?

• Existing Market• Resegment a Niche• Resegment on Low Cost• New Market

Definitions: Types of MarketsDefinitions: Types of Markets

• Existing Market– Faster/Better = High end

• Resegmented Market– Niche = marketing/branding driven– Cheaper = low end

• New Market– Cheaper/good enough can create a new class of product/customer– Innovative/never existed before

New MarketResegmentedMarket

Existing Market

Type of Market Changes EverythingType of Market Changes Everything

• Market– Market Size– Cost of Entry– Launch Type– Competitive

Barriers– Positioning

• Sales– Sales Model– Margins– Sales Cycle– Chasm Width

New MarketResegmentedMarket

Existing Market

• Finance- Ongoing Capital- Time to Profitability

• Customers- Needs- Adoption

How Big is It?How Big is It?

So if You Succeed Do I Care?

TotalAvailableMarket

Total Available Market, Served AvailableTotal Available Market, Served AvailableMarket, Target MarketMarket, Target Market

25

ServedAvailableMarket

Target MarketSAM = how many can I reach

with my sales channel

TAM = how big is the universe

Target Market (for a startup) = who will be the most likely buyers

sizing up the market

SF

$123 billion tourismindustry inside the U.S.

$1 billion English travelguides sold annually

$210 million 20-35 yearold travelers

(Initial test market)

OLED’s ‐ Billion Dollar Opportunity

($790 million)TAM: En@re consumer electronics market

SAM: Size of TV market

Target Mkt: $155million!

($500 million!)

OLED TV market will grow to $15.29billion by 2015

Target products: Camcorders, DVDplayers and recorder, digital cameras,computer monitors, LCD and Plasma TV

YEAR 1 PROJECTIONS

Our target market is the FlatPanel display market.

Units sold : 1,000,000Price per unit : $700 - $1,000

Revenue from Royalties (assuming .5-1.0% of shelf price):Worst case = $3,500,000 Best Case = $10,000,000

Apex: ≥ 3.5M

Distribution ChannelDistribution Channel

How Does Your Product Get to Your Customer?

+Sales Ecosystem

Superintendant

IT Director

Dept. Head

TeacherTeacher

District

School

Discussion channelMandate channel

Sale

Engagement(Early Stages) Another

schoolin thedistrict

Anotherdistrict

Manufacturing IP DistribuDon RetailAPEX

2 patents owned by Apex!• Technology patent - SOLED• Long-Brite and inkjet printing process

Licensed Partners:• Sony• Samsung(Other possibilities - LG, Toshiba, Panasonic,DuPont)

Partners’ distribution channels• Sony• Samsung(Other possibilities - LG, Toshiba, Panasonic,DuPont)

Consumer electronics• Flat Screen TVs through

Fry’s, Best Buy, Magnolia,etc

Dollar flows:

License feesRoyalties

APEX

Wages: founders &ConsultantsIP Costs: Lawyer& Patent costs.

Premises: Dev’t labs.

Patents

PARTNERS

Distribution Channel

Demand CreationDemand Creation

How Do You Drive Demand Into Your Channel?

+Demand Creation

State-by-state rollout: educational standards

Continuous iteration of feedback

Hypotheses: Willthey adopt, use,and pay?

10 schools f2f:

Sales: $1,066

Travel: $1,000

CA Pilot

Hypothesis: Howwell does it sellitself?

All telemarket

$533/dist

GrowAdoption

Hypotheses: Willthey buy hands-off? Can it scale?

CA telemarket

F2f elsewhere

BroadAdoption

distribution and demand creation Unique Idea: website and iPhone app form

symbiotic relationship

traffic

traffic

AdWords

Blogs (ex.Travelblog.org)Magazines

TravelApp

Listing

TravelSpy.com iPhone App

FinancialFinancial AssumptionsAssumptions

What are the Ten Numbers that Matter?

FinancialFinancial AssumptionsAssumptions

• Ten Numbers that matter depends onyour business

– Average selling price– Life time value– Material cost– Distribution channel cost– Customer Acquisition cost– Time to market– Time to cash flow positive– Etc.

• Do this before 45 pages of financials

Business ModelBusiness Model

How Do The Pieces Work Together?

Bird’s Eye View of our Business ModelHardware

($155)

Software (in-house)($1.00)

MyNote($156.00)

Online Distribution• Own website ($208+.3x)• Amazon.com ($40+32x)• eBay ($300+25x)

Offline Distribution• College bookstores($0.02)

Viral

Marketing

Target Market

$399.99

CustomerAcquisition

Cost:($41)

Demand Creation• SEO/SEM

• Blogs• Forums

• Bookstorepromotion

• Sales force• Viral marketing

• Website

END-USERS END-USERS

CITYBEATS.COMREVENUEREVENUE

SERVICE SERVI

CETwo Revenue StreamsTotal Revenue (year 1) = $ 90 KTotal Revenue (year 2) = $ 2.2 M

BUSINESS MODELiPhone Application Subscription Based Service

Nightlifevenues

Thirdparty

affiliates

$ 5/monthYear 1: $ 50KYear 2: $1.2 M

$ 2.99 (x.7)Year 1: $ 40KYear 2: $1M

March | 2011Critical Mass: 500,000 users

Planet Batteries

End Usersi.e. college students

EndUserSale$125

Corporate Investors•Partner router companies•Intel (they are interested inwireless technology)

Smaller Routercompaniesie Netgear,

Meru

IP license for WiBattechnology

$3.01

(See appendix E for figures)

Distributorsie Windsor$60.19

ManufacturedProduct

Retail Storesi.e. Best Buy, Fry’s

$93.75

ProductDelivery

Other Investors/ChannelsOther Investors/Channels

• Mission Point [email protected]

• Westly Grouphttp://www.westlygroup.com/

• California Public Utilities Commissionhttp://www.cpuc.ca.gov/SMBUS/

business model for startups

Education