Along the lines of my recent series on what makes a good platform (part one, part two) Shaival Shah has a post on how Hunch uses its API to drive growth.
Wow. This chart from Quantcast is really powerful:
And Android’s share is clearly coming from the iPhone:
I wonder how much of this is because consumers are not happy with AT&T? Or is it people who, for whatever reason, didn’t love Apple’s products? Or is it because some Android phones are cheaper? Finally, how many of these Android users are first time smartphone users (like RazrDude) vs. people who switch from the iPhone?
AT&T recently announced new pricing plans for smart phones that limit monthly bandwidth usage, in theory to reduce the strain on their mobile networks caused by Apple’s products. The reaction in the mobile development community has been to become pretty depressed, as everyone now believes that new apps will have to be more efficient in how they use their subscribers’ data plans.
But what if this could actually be good for mobile app startups’ ability to monetize their apps?
Let me explain!
A large number of smaller ecommerce companies make money from 1) selling products and 2) marking up the shipping of their products. In fact, when I was a VC, I saw a surprisingly high percentage of actual cash flow coming from shipping at a large number of the online retailers I evaluated. In some cases, over half the margin was coming from shipping. This is because, as a bulk shipper, the retailer got a substantial discount off of standard shipping rates. The retailer charged the consumer something similar to what the consumer would expect from walking into a UPS store and captured the difference.
If mobile apps could bundle a certain amount of bandwidth with the purchase/subscription to their app then they might be able to capture a similar margin from marking up bandwidth. In other words, if AT&T is willing to act like UPS and sell bandwidth to the mobile startups in bulk, these startups could then mark up the bandwidth and sell it to consumers bundled along with their app.
If the pricing of data plans really starts to bug consumers, AND if AT&T is willing and able to provide bulk bandwidth purchases to startups – including the ability to meter/assign bandwidth to an individual consumer at the moment they are using a particular mobile app – then this could be a way for data-hungry applications to monetize. While a consumer may never be willing to pay for, say online content/video, they may be very willing to pay for the data plan needed to actually consume the content. This could be an entirely new way for startups to actually sell something to consumers who typically expect everything to be free.
What do you think? Am I crazy? Is there anyway AT&T would ever do this sort of a thing? I’d think that the billing would have to be done by the startup or Apple, which is something that AT&T may not like. I also think there is a bit of technical work that would need to be done since the ability to meter additional purchased bandwidth would have to created.
Mark MacLeod just put up a good piece on metrics SaaS companies should track.
One of the co-founders of my company recently posted his thoughts after attending the Startup Lessons Learned conference, from the perspective of a startup product manager. It’s worth a read!
I have just re-read for the third time Steve Blank’s awesome post on business plans vs. business models. I have been thinking about something writing along a similar idea for quite a while, but obviously don’t have the same level of experience as Steve Blank! However, since I’m currently living this I feel like I can justifiably write about it.
My startup, OfficeDrop, doesn’t have the traditional 30 to 60 page word processor written business plan. We’ve written a lot down, but haven’t created a traditional 60 page business plan to supposedly guide our growth. And the writing we do do is usually done in a slide deck.
Steve writes about capturing a business model on slides. We’ve sure got a lot of slides! They are a good way to put our thoughts together and communicate them with each other and our investors.
I think the most important document in our startup is our financial model, which is build in a spreadsheet. It “memorializes” our assumptions and contains our results from operations. (I say memorializes in quotes because our assumptions change pretty quickly.) I call it our “business model.”
I prefer spreadsheets for business models, probably because of my financial background. I like the ability to put the important assumptions into a “living” sheet, so that when an assumption is changed the entire output changes and then compare actuals to our key assumptions. You don’t quite get that flow in a PowerPoint presentation or a Word doc.
We need to know how much experimenting we can do with our current pot of cash. We also need to carefully monitor the cash we gain from our revenues. As the marketing guy, I also need to understand the cost of acquiring a customer and how much they are worth – (stuff like churn rate and average monthly revenue per customer really matters to me.) A spreadsheet allows me to automatically update at the end of each month and compare against the assumptions. Oh yeah, and understanding the initial cash flows of our startup is pretty important. Spreadsheets do that, not Word docs or PPT.
Spreadsheets do have problems capturing some of the pivots a startup has to do. For example, we have just release a free desktop scanning software download that helps get paper scanned directly into Google Docs from most standard scanners. This is a pretty big departure with our current model of providing subscription scanning services and online document management. But it is a test that plays off our all of the technology we developed and all our experience in cost effectively scanning small batches of paper documents.
What is the problem with a spreadsheet as the basis for a business model during a pivot? Well, I think we understand the costs of launching our desktop software, which are captured in the spreadsheet. But the upside is a lot more complicated. The issue I find when introducing a potentially major change in a business model captured in a spreadsheet is that it takes a freaking long time to create a legitimate Excel model vs. a legitimate potential strategy captured in a PowerPoint slide. But as we test our assumptions and generate data, I’ll be sure to fill out our spreadsheet and see where the chips are falling.
On a side note:
I do think business plans have a purpose and could be useful for a traditional set of startups. If I was launching a restaurant or a law firm, I’d probably write a business plan. Obviously I like to write, and putting things down in a structured business plan could be helpful when business innovation is less important than finding a way to make an existing business concept work. The nice thing about a lot of the business plan templates floating around is that they are a bit like Mad Libs for starting a business. But I’d still build a financial model spreadsheet!
I’d like to give a virtual high five to a friend of a friend who has created a startup that is trying to help make the world a better place. In 2006 Ben Munoz suffered a life threatening brain hemorrhage – and realized during his recovery that connecting with others who were recovering from the same illness was incredibly powerful. He decided to make it easier for others like him to find each other online through BensFriends.org – a patient community and health care social network for people recovering from and helping others recover from life threatening illnesses.
Ben is building networks for aicardi syndrome, brain aneurysms and more. He’s also showing us the power the internet has to help people. I know I always talk about new businesses and how large companies like Google and Apple are fighting with each other, trying to make a buck… but sometimes it seems like I need to take a step back and remember one of the most important functions of the net has nothing to do with money or growing a business – it’s about connecting people.
A while ago my company changed its name from Pixily to OfficeDrop. While we briefly talked about this on our blog, two recent posts have talked about this change. Dharmesh Shah’s OnStartups has a piece on coming up with a company name written by me (and OfficeDrop’s fearless marketing intern Matt Fellows). Matt and I detailed the name change brainstorming and customer validation/involvement process. I’m glad Dharmesh published this piece – he and I have had some pretty involved/heated discussions on the importance of choosing your startup’s name and the ramifications of actually getting a particular name.
Ivana Taylor, a small business technology and marketing professional, posted an interview she did with me on the QuestionPro blog on how we changed our name from Pixily to OfficeDrop. It was nice of her to do such and extensive writeup on our process.
Startup naming is a very difficult thing to do. It’s hard to find a name that customers will remember, that is somehow descriptive or evokes what it is that you do – and finally one that you can get the domain name of. Domain name hording isn’t too bad of an idea – OfficeDrop owns over 200 domains, and I’ve been collecting a ton recently too around the concept of the smart grid and smart grid applications.
Brent Frei has a post on VentureBeat on increasingly interesting SaaS “app store” battle. I really care about this battle because Pixily has integrated with Intuit’s AppCenter, and it is an important part of our distribution strategy.
While Brent argues that Microsoft is losing out and will not become the powerhouse platform for the next generation of internet applications for business, I’m not yet so sure. In my mind the platform that best drives new customer growth for the largest number of third party applications will be the winner.
I think that the winner will be determined by applying the most marketing muscle plus the best user experience (both for the app developers but also very importantly from the end customer’s perspective.)
That’s my two cents; read his article.
I was invited to judge business plans being presented by students taking the Entrepreneurship and New Ventures class at the Harvard Extension School yesterday. Of all the business plans I judged, the one that stood out the most was Kiwilimon. Having had the experience of pitching Pixily over 25 times to investors in the last 8 months, there are a number of things I found this team got it right:
- Passion: The most important element of a great pitch is passion. Presenting with passion will demonstrate how much you believe in what you are bringing to the market and also has the positive side effect of grabbing and maintaining the attention of the audience. Passion is something that you cannot put on but is something that comes from your heart. It is ironic that a passionate pitch is not spontaneous but one that is practiced. If you practice enough times and make sure you keep improving with each pitch, you will start exhibiting passion. Like they say, if you say it enough times, you start to believe in what you are saying.
- Simple, Short and Concise: A great pitch is one that is simple, short and concise. Of all the pitches that I made, the best ones were those that lasted no more than 10 minutes. Yes, it is possible to pitch your entire business plan in 10 minutes. If the investor does not get your business in 10 minutes it is very unlikely they he/she will get it in an hour. Of course, you need to have a lot of detail and backup information but that is something you can address when questions are asked. Make sure the appendix has all the slides you need to support the details.
- Pictures are worth a thousand words: The best pitches I have seen are those that tell the story using pictures. With pictures, people can easily and quickly relate to the problem and how you plan to solve it. They tend to remember the details well after the pitch is made. With Google images and micro-stock sites, you can find pictures for everything that you want to convey.
- Convey what your business is in 90 seconds: Even though this is obvious, not everybody gets this right. It took a good five minutes before we got what one of the pitching teams was selling. Identify the problem/need and how your solution is the best there is in the first 90 seconds. If you cannot convey what you are selling in that time, you will start to loose your audience.
- Keep text in a slide to no more than three lines: If you cannot use pictures, make sure you do not include more than three lines of text. Anymore than three lines will take much longer to go through and makes it harder for the audience to remember. With more lines of text, the audience is reading ahead of what is on the slide and not listening to the story you are telling. You want the audience to pay attention to you so that they can get how passionate you are about the business.
- Target market and market size: As you are defining the need, define the target market. Knowing and conveying whom you are selling to is an essential element of a good business. If you can backup the market need with either primary or secondary research, your story will be even stronger. The size of the market is very important as it tells the audience how big the market potential is.
- Marketing: These days it is much easier and cheaper to build the product and is much harder and expensive to market it. Spend a lot of time thinking about how you are going to sell the product, what channels you are going to employ, the partnerships you are going to create, and how many customers each marketing program would bring in. For the pitch, focus on the go-to-market strategy and the marketing strategy in the first year.Leave the mid to long term marketing strategy to the appendix.
- Competition: Research your competition thoroughly, list the top three competitors, what makes them a success and identify why your solution is better than the competition. Also, make sure you are prepared for the “Barriers to Entry” question.
- Product: If you have defensive intellectual property, make sure you identify it early on. If not, focus on the proprietary technology you have built or what makes your product unique. If you have customer testimonials, this would be a good time to share those.
- Revenue potential: Identify all sources of revenue, how much they would bring in each year and over five years. Obviously, you are making a lot of assumptions to build this model but you will prove or disprove those assumptions as time passes. Do not be conservative when demonstrating revenue potential. Remember, investors are going to discount whatever you say by at least 100%. At the same time, do not be overly optimistic as the investors will not believe anything you have said.
- Costs: Identify all the operational and non-operational costs including salaries, data center costs, product manufacturing costs, inventory costs, and customer acquisition costs. Make sure you show which of the costs reduce with scale.
- Team: In a 10 minute pitch, I recommend that you leave the team slide to the end. In the team slide, quickly describe the background of the founding or management team and demonstrate why you are the best team to execute on the plan.
Kiwilimon got all these elements right and delivered the pitch flawlessly. I hope the lessons that I learned first hand and from others will help you in your pitches. If there are others that I have missed, please feel free to share.