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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. - PowerPoint PPT PresentationTRANSCRIPT
ENG491 Technology
Entrepreneurship
Building a Lean, Scalable StartupFall 2011 – Fall 2012
Emre Oto
www.eng491bu.orgFollow on Twitter: @eng491
Channels
How does each customer segment want to be reached?
Through which interaction points?
ENG491 Technology Entrepreneurship Week #6 «Channels and Rev. Streams»
Test Hypotheses: ChannelENG491 Technology Entrepreneurship
Week #6 «Channels and Rev. 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
ENG491 Technology Entrepreneurship Week #6 «Channels and Rev. Streams»
How Do You Want to Sell Your Product?
Yourself
Through someone else
Retail
Wholesale
Bundled with other goods or services
üüüüü
ENG491 Technology Entrepreneurship Week #6 «Channels and Rev. Streams»
How Does Your Customer Want to Buy Your Product?
Same day
Delivered and installed
Downloaded
Bundled with other products
As a service
…
üüüüüü
ENG491 Technology Entrepreneurship Week #6 «Channels and Rev. Streams»
Nature of Product Impacts Channel: Atoms or Bits?
Access to customers changes dramatically Logistics related to product complexity People as products
ENG491 Technology Entrepreneurship Week #6 «Channels and Rev. Streams»
The Sales “Channel”Web
System Integrators
Direct Sales Force
Value-Added Resellers (VARs)
Dealers
Distributors
Retail/Mass Merchants
Your Company
Your Customers
ENG491 Technology Entrepreneurship Week #6 «Channels and Rev. Streams»
Types of Channels
OEM VAR Reseller Distributor
Direct Indirect Licensing
ENG491 Technology Entrepreneurship Week #6 «Channels and Rev. 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?
ENG491 Technology Entrepreneurship Week #6 «Channels and Rev. Streams»
Distribution Complexity
Evangelists
ServiceTechnicians
Higher Value Added
Higher Volume Direct Sales
VARs
Retail
Web, Telesales
Systems Integrators
Mainframes
MinisLANs
PC ServersDesktop PCs
PrintersKeyboards
Toner
WANs
Global Systems
Solution Complexity
Mar
ketin
g C
ompl
exity
ENG491 Technology Entrepreneurship Week #6 «Channels and Rev. Streams»
How Are Channels Compensated?
Commission Percentage of sales price Discounted pre-purchase
ENG491 Technology Entrepreneurship Week #6 «Channels and Rev. Streams»
How Are Channels Motivated or Incented?
Money! – what makes them the most? Training Marketing to the channel SPIF
ENG491 Technology Entrepreneurship Week #6 «Channels and Rev. Streams»
Channel Economics: “Direct” Sales
Cost of Goods(Supply Chain) Profit + SG&A + R&D
End
Con
sum
er
EU
Dis
coun
ts
RevenueList
Price
Source: Mark Leslie, Stanford GSB
ENG491 Technology Entrepreneurship Week #6 «Channels and Rev. Streams»
Channel Economics: Resellers
Cost of Goods(Supply Chain) Profit + SG&A + R&D
End
Con
sum
er
EU
Dis
coun
ts
Reseller
RevenueList
Price
Source: Mark Leslie, Stanford GSB
ENG491 Technology Entrepreneurship Week #6 «Channels and Rev. Streams»
Cost of Goods(Supply Chain) Profit + SG&A + R&D
Channel Economics: Distributors/Resellers
End
Con
sum
er
EU
Dis
coun
ts
Reseller
Dis
trib
utor
RevenueList
Price
Source: Mark Leslie, Stanford GSB
ENG491 Technology Entrepreneurship Week #6 «Channels and Rev. Streams»
Channel Economics: OEM or IP Licensing
Your Product Becomes Your Customer’s COGs
End
Con
sum
er
ResellerProfit + SG&A + R&D
Cost of Goods(Supply Chain)
EU
Dis
coun
ts
Reseller
Dis
trib
utor
Mas
ter
Dis
trib
utor
Profit + SG&A + R&DCost of Goods(Supply Chain)
RevenueList
Price
ENG491 Technology Entrepreneurship Week #6 «Channels and Rev. Streams»
Example: Book Publishing
Publisher National Distributor Printer Wholesaler Retailer Customer
ENG491 Technology Entrepreneurship Week #6 «Channels and Rev. Streams»
Book Publishing
Percent of Retail
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
Publisher National Wholesaler Distributor Retailer Customer
35% 15% 10% 40%
$7.00 $3.00 $2.00 $8.00 $20.00
ENG491 Technology Entrepreneurship Week #6 «Channels and Rev. Streams»
Book Publishing Economics20
Publisher National Distributor Wholesaler Retailer Customer
Wholesale costs
Markup
Allowances
Payment guarantees
Payments
Bills
Credit guarantees
Payment guarantees
Return rights
Credits
ENG491 Technology Entrepreneurship Week #6 «Channels and Rev. Streams»
Book Publishing Delivery
Publisher National Distributor Printer Wholesaler Retailer
Merchandise titles
Sell magazines
Acknowledge returns
Determine allocations
Dispose of returns
Prepare film (content)
Establish identity
Create demand
Prepare galleys
Receive Schedules Print
orders Bundle
counts Film
Print and ship
magazines
Deliver orders
ENG491 Technology Entrepreneurship Week #6 «Channels and Rev. Streams»
Bits vs. Atoms
Bits
Physical
Product
Web Physical
Channel
ENG491 Technology Entrepreneurship Week #6 «Channels and Rev. Streams»
Product and Channel Are Bits
Bits
Physical
Product
Web Physical
Channel
Rapid Agile and Customer development
Fastest to acquire early customers and scale
ENG491 Technology Entrepreneurship Week #6 «Channels and Rev. Streams»
Web 2.0 – Product and Channel Are Bits
Bits
Physical
Product
Web Physical
Channel
Google Twitter Facebook Zynga Cloud Services
ENG491 Technology Entrepreneurship Week #6 «Channels and Rev. Streams»
Product Is Bits, but Channel Is People
Bits
Physical
Product
Web Physical
Channel
Rapid Agile and Customer development
Fastest to acquire early customers and scale
Rapid Agile and Customer development
Traditional sales channel
May require installation
ENG491 Technology Entrepreneurship Week #6 «Channels and Rev. Streams»
Traditional Enterprise Software
Bits
Physical
Product
Web Physical
Channel
Google Twitter Facebook Zynga Cloud Services
Microsoft SAP Oracle
ENG491 Technology Entrepreneurship Week #6 «Channels and Rev. Streams»
Physical Products Sold Over the Web
Bits
Physical
Product
Web Physical
Channel
Rapid Customer development
Logistics, shipping and manufacturing critical
Customer service
Rapid Agile and Customer development
Fastest to acquire early customers and scale
Rapid Agile and Customer development
Traditional sales channel
May require installation
ENG491 Technology Entrepreneurship Week #6 «Channels and Rev. Streams»
Killing Traditional Storefronts
Bits
Physical
Product
Web Physical
Channel
Zappos Amazon Cafepress Netflix Consumer electronics
Google Twitter Facebook Zynga Cloud Services
Microsoft SAP Oracle
ENG491 Technology Entrepreneurship Week #6 «Channels and Rev. Streams»
The Factories May Be in China
Bits
Physical
Product
Web Physical
Channel
Rapid Customer development
Logistics, shipping and manufacturing critical
Customer service
Rapid Agile and Customer development
Fastest to acquire early customers and scale
Longer customer feedback cycle
May require large capital requirements for scale
Rapid Agile and Customer development
Traditional sales channel
May require installation
ENG491 Technology Entrepreneurship Week #6 «Channels and Rev. Streams»
We Still Make Things that Need Salespeople
Bits
Physical
Product
Web Physical
Channel
Zappos Amazon Cafepress Netflix Consumer
electronics
Google Twitter Facebook Zynga Cloud Services
Cars Solar panels Wind turbines Bookstores Consumer
electronics
Microsoft SAP Oracle
ENG491 Technology Entrepreneurship Week #6 «Channels and Rev. Streams»
Revenue StreamsENG491 Technology Entrepreneurship
Week #6 «Channels and Rev. Streams»
Revenue StreamsTwo types of companies Companies that care about revenues
Companies that don’t
ENG491 Technology Entrepreneurship Week #6 «Channels and Rev. 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 I
making when I reach these milestones?
ENG491 Technology Entrepreneurship Week #6 «Channels and Rev. Streams»
Revenue StreamsCompanies that don’t care
If you say your business is advertising based, 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?
ENG491 Technology Entrepreneurship Week #6 «Channels and Rev. Streams»
This lecture is for those of us who need to care about revenues
ENG491 Technology Entrepreneurship Week #6 «Channels and Rev. Streams»
Revenue StreamsKey Questions How many customers, value propositions and
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?
ENG491 Technology Entrepreneurship Week #6 «Channels and Rev. 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?
ENG491 Technology Entrepreneurship Week #6 «Channels and Rev. Streams»
Revenue StreamsCommon categories of revenue models
Asset sale: Sale of ownership right to a physical product
ENG491 Technology Entrepreneurship Week #6 «Channels and Rev. Streams»
Revenue StreamsCommon categories of revenue models Usage fee:
Usage of service. Fee is proportional to the usage of the service.
ENG491 Technology Entrepreneurship Week #6 «Channels and Rev. Streams»
Revenue StreamsCommon categories of revenue models
Subscription fee: Fee for continuous access to a service
ENG491 Technology Entrepreneurship Week #6 «Channels and Rev. Streams»
Renting: Fee for temporary access to a good or service
Revenue StreamsCommon categories of revenue models
ENG491 Technology Entrepreneurship Week #6 «Channels and Rev. Streams»
Revenue StreamsCommon categories of revenue models
Licensing: Fee for use of some IP (including software)
ENG491 Technology Entrepreneurship Week #6 «Channels and Rev. Streams»
Revenue StreamsCommon categories of revenue models
Intermediation fee: Often found in marketplaces of various
types, a fee for bringing together two or more parties involved in a transaction
ENG491 Technology Entrepreneurship Week #6 «Channels and Rev. Streams»
Advertising: Fee paid by brands and companies to get
in front of potential customers
Revenue StreamsCommon categories of revenue models
ENG491 Technology Entrepreneurship Week #6 «Channels and Rev. 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?
ENG491 Technology Entrepreneurship Week #6 «Channels and Rev. Streams»
Revenue StreamsAdditional Components of Pricing
Cost + markup Typically not a strategic way to price Driven by internal economics and not
customer insight
Based on buyer’s perception of value (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)
Cost-based pricing
Value-based pricing
ENG491 Technology Entrepreneurship Week #6 «Channels and Rev. Streams»
Revenue StreamsTake competition into account
Cost + markup Typically not a strategic way to price Driven by internal economics and not
customer insight
Based on buyer’s perception of value (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)
Cost-based pricing
Value-based pricing
ENG491 Technology Entrepreneurship Week #6 «Channels and Rev. Streams»