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BUSINESS MODEL CANVAS:
PARTNERS, KEY RESOURCES,
KEY ACTIVITIES
REVENUE MODELS & COST
STRUCTURE
ENGR 112: Laboratory to Market, Entrepreneurship for Engineers
Winter 2016, Lecture 7
Schaffer Grimm, M.S., M.B.A.
Lecturer, Henry Samueli School of Engineering and Applied Sciences
Manager of Strategic Business Planning, Institute for Technology Advancement
Nathan M. Wilson, Ph.D., M.B.A.
Visiting Assistant Professor, Anderson School of Management
Visiting Assistant Professor, Department of Mechanical and Aerospace Engineering, Henry
Samueli School of Engineering and Applied Sciences
Syllabus: Lectures
Week
Session Description
Introduction to Entrepreneurship; Small Business Paths
Business Model Canvas
Hypothesis-Driven Entrepreneurship; Customer Discovery
Markets & Industries; Industry Analysis; Marketing
Partners; Revenues & Costs; Entrepreneurial Accounting
Mid-Term Exam & Entrepreneurship in Practice
Legal Issues and IP
Introduction to Business Plans & Elevator Pitches
Raising Capital
Disruptive Innovation and Technology Transfer
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Final Presentations
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Final Exam
Agenda Session 7
TA announcements
Business Model Canvas Partners
Business Model Canvas Key Resources
Business Model Canvas Key Activities
Business Model Canvas Economics:
Revenue Models
Cost Structure
Note: Slides courtesy of the NSF I-Corps Program
KEY PARTNERS
Who are your Partners and Suppliers?
2012 Steve Blank
What defines a Partner?
Shared economics
Mutual success / failure
Co-development/invention
Common customer
But remember - youre a startup
Why Have Partners?
Faster time to market
Broader product offering
More efficient use of capital
Unique customer knowledge or expertise
Access to new markets
Types of Partners
Partners Strategic
Alliances
Reduce the list of things your startup needs to build or
provide to offer a complete product or service.
Use partners to build the whole product
Using 3rd parties to provide a customer with a complete solution
Complement your core product with other products or services
Training, installation, service, etc
Example:
In 1996, Starbucks partnered with Pepsico to bottle, distribute
and sell the popular coffee-based drink, Frappacino
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Partners Joint Business
Development
Joint promotion of complementary products
Share advertising, marketing, and sales programs
One may be the dominant player
Example:
Intel offered advertising fees to PC Vendors
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Startup mistake
Strategic alliances and joint partnerships
Not needed for Earlyvangelists
Are needed for Mainstream customers
Usually fail
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Partners Coopetition
Joint promotion of competitive products
Competitors might join together in programs to
grow awareness of their industry
Tradeshows
Industry Associations
Example:
Automotive Suppliers form the Automotive Industry Action Group (AIAG) - 900 members
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Partners Key Suppliers
Outsource suppliers
Backoffice, supply chain, manufacturing
Direct suppliers
Components, raw materials, etc.
Example:
Apple builds the iPhone from multiple suppliers
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Traffic Partners Virtual Channels
Long-term agreements with other companies
Deliver long-term, predictable levels of customers
Cross referral or swapping basis
Paid on a per-referral basis
Partners drive traffic using text-links, with onsite promotions, and
with ads on the referring site
Partners sometimes exchange email lists
http://medical-tools.com/dental/
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Partner Risks
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Managing partners - Risks
Different underlying objectives in relationship
Longest of partners schedule becomes your longest item
No clear ownership of customer
Products lack vision shared product design
Churn in partners strategy or personnel
IP issues
Difficult to unwind or end
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Should I take an investment from a
Large Company?
Issues:
They are interested in their bottom line, not yours
Their objectives are not to make you a large company
Whos the sponsor? Whats the motivation?
Needs to come from the business side
Not the venture side
Mitigate by:
Try to get sales deals not investment
Or try to offer warrants based on sales success
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Startup Partner Strategies
Dont confuse partners for Earlyvangelists vs. mainstream
Dont confuse big company partnering with startup strategy
Find the one that gives you an unfair advantage
Recognize you dont matter to a large partner
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KEY ACTIVITIES
Whats Most Important for the
Business?
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Key Activities
Production
Problem Solving (Consultants)
Supply Chain Management
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KEY RESOURCES
Whats Are Your Most Important Assets?
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Four Critical Resources
Physical
Financial
Human
Intellectual
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Physical Resources
Company facilities
office space, company location
Product/services
supply of silicon wafers or iron ore, or
thousands of feet of warehouse space?
Many physical goods are capital
intensive
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Financial Resources
Friends and Family
Crowdfunding
Angels
Venture Capital
Corporate partners
Others: SBA or SBIR grants
Lease-lines
Factoring
Vendor-financing
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Human Resources
Qualified employees
Mentors, teachers, coaches,
Advisors
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Human Resources:
Qualified Employees/Culture
Are the difference between a good idea
that never went anywhere and a billion
dollar firm
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Human Resources:
Mentors, Teachers, Coaches
Mentors, teachers, coaches advance your personal
career
If you want to learn a specific subject find a teacher
If you want to hone specific skills or reach an exact goal hire
a coach
If you want to get smarter and better over your career find
someone who cares about you enough to be a mentor
Human Resources:
Advisors
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Advisors are people you need to help
advance your companys success
Founders fail when they believe their visions are
facts
Listening to experienced advice can help you
sort through whether your vision is a
hallucination
Getting an advisory board (by expanding your
circle of accumulated wisdom past their
investors) is so important that its an explicit
step in the Customer Development process
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Intellectual Resources (Property)
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REVENUE STREAMS
How do you Make Money?
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The Two Key Questions
Whats my revenue model?
Within the revenue model how do I
price the product?
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REVENUE MODEL =
the strategy the company uses to
generate cash from each customer
segment
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Revenue Streams
1. How many will we sell?
2. Where/who is the money coming
from?
3. How do we price the product?
4. Does this add up to a business worth
doing?
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How Many Will You Sell?
Whats the Market Size & estimate of Market
Share?
How many can your channel sell?
How much will the channel cost?
How many customer activations?
Revenue? Churn/Attrition rate? customers/?
How much will it cost to acquire a customer?
How many units will they buy from each of these efforts?
Top down: 10% of a million-person market=100,000 customers
Bottom up: 1,000 customers/month 1st year => 3,000/month 3rd year
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Where is the money coming from?
Revenue Model Choices
Channel
Web
Physical
Direct Sales
Products
License
Bits
Subscription
Upsell/Next Sell
Direct Sales
Products
Subscription
Add-on services
Upsell/Next Sell
Referrals
Ancillary Sales:
Direct Sales
Products
Service
Upsell/Next Sell
Referrals
Leasing
roduct
Physical
Referral revenue
Affiliate revenue
E-mail list rentals
Back-end offers
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Key Revenue Model Questions
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?
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PRICING MODEL =
the tactics you use to set the price
in each customer segment
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How to price the product?
Pricing Models - Physical
Cost plus
Competitive
pricing
Volume pricing
Value pricing
Portfolio pricing
Razor/razor blade
model
Subscription
Time/Hourly Billing
Leasing
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Common approaches to pricing
Cost based
Value based
Cost + markup
Typically not a strategic way to price
Driven by internal economics and not
customer insight
Based on buyers perception of value
(e.g. time saved, new efficiency
created, etc.)
Customers dont necessarily feel that
they want to pay this way
Additional components of
pricing
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Exclusive vs. non-exclusive
What do you price?
What do you give away for free?
How does cost vary at different production
levels?
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Competition as an influence
Nature of
Market
How they will
react?
Pure competition
Oligopoly
Monopoly
What is their product?
What are their costs and prices?
What pricing will make them feel the
worst?
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Single versus
Multi-sided
Markets
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Single/Multi-side Markets
Single-sided markets care about
revenues
Multi-sided markets may care about
users first, revenues second
Often Web-based
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Users First Companies
If you say your business is advertising based:
How do you get to 10M monthly users?
How do you become one of the top 5
websites visited?
How much do the payers actually pay?
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Revenue First Companies
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 I
making when I reach these milestones?
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Market Type and
Revenue
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Other Issues
Distribution channel affects revenue
streams
Market type affects revenue streams
Demand curve affects revenue streams
Consider lifetime value
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Common categories
of Web/Mobile revenue
models
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Direct revenue models
Sales: Product, app, or service sales
Subscriptions: SAAS, games, monthly
subscription
Freemium: use the product for free:
upsell/conversion
Pay-per-use: revenue on a per use basis
Virtual goods: selling virtual goods
Advertising sales: unique and/or large
audience
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Ancillary revenue models
Referral revenue: pay for referring
traffic/customers to other web or mobile sites or
products.
Affiliate revenue: finders fees/commissions from
other sites for directing customers to make
purchases at the affiliated site
E-mail list rentals: rent your customer email lists
to advertiser partners
Back-end offers: add-on sales items from other
companies as part of their registration or purchase
confirmation processes, or sell their existing
traffic to a company that strives to monetize it and
share the resulting revenu3
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Asset Sale
Sale of ownership right to a physical
product
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Usage Fee
Usage of service. Fee is proportional
to the usage of the service.
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Subscription Fee
Fee for continuous access to a service
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Renting
Fee for temporary access to a good or
service
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Licensing
Fee for use of some IP (including software)
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Intermediation Fee
Often found in marketplaces of various
types, a fee for bringing together two or
more parties involved in a transaction
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Advertising
Fee paid by brands and companies to get in
front of potential customers
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COST STRUCTURE
Metrics that Matter
plans
Startups search for them
Income Statement, Balance
Sheet, etc are execution
documents
You first need to derive the
metrics that matter
Existing companies execute
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Search vs. Execution Metrics
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Metrics That Matter
Value proposition: product cost, mkt size/share,
competition?
Customer Relationships: customer acquisition costs,
conversion rates, lifetime value?
Market Type: revenue curves
Operating Costs: basic operating costs of the business?
Channel: Channel margin, promotion, shelf-space charges?
Revenue Streams: average selling price, # of
customers/year, achievable revenue?
Burn Rate: per month? When will the company run out of
cash?
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Example:
Enrou:
http://www.forbes.com/video/4261048598001/
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Readings for next class
Course Reader: Overview of Financial Accounting
