Harvard i-lab | Startup Secrets Part 3: Business Model – Michael Skok

Marketing Management

https://www.youtube.com/watch?v=nZndv4HLVIg&list=PLWIZD6mtQezqGy4gWmcLj6ZH0u4bG44zH

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Okay I think we’ll get started um so we can have time to get through all of Michael’s material tonight on it
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then timely manner for all of you who have been here before you know Michael Scott he’s running a
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five session series on startup secrets how to give yourself an unfair competitive advantage tonight’s
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discussion is going to be around business model analysis and I know he’s brought a number of his portfolio
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companies to present as well so it’s going to be a lively session I’m really looking forward to it without further
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ado I’m going to hand you over to Michael and his team of people well welcome everybody we should have a lot
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of fun this evening we’re going to talk about one of a journey sense of these multiple things that we put on the
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original topic and that being business for those of you being at the other sessions this will feel like it’s in
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context those of you who haven’t been I just want to get a show of hands who’s new here therefore I can try to tell us
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on the background ok quite a number of you people actually ok so I will get this right before I get going in which
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case the value proposition session which is up on the website called catalyst comm provides the background to what is
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it that you do and how do you do it uniquely well for who that’s the simplification of very long one-hour
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monologue by me so there you go you skip the one hour you’ve got the essence of it and based on the value proposition
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the business model is all about figuring out how you take that to market as a viable financial sales marketing it and
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even service in support model so even though you’ve missed that just think about whatever idea it is you’ve got
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we’re going to figure out a business model around it today if you miss the company formation piece that
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was really around building the team and obviously hiring the people to make that successful basis to take your enterprise
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and execute and next session is very much the other side of the coin to the business model because business model is
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so closely aligned to go to market strategy so that gives you a little bit of context for those you haven’t been
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here all right first of all I just like to make some introductions we’ve got a number of the portfolio companies being
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kind enough to come in as case studies this evening and also to help out in the workshop so you’ve got real executives
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who have real dangers real entrepreneurs who have real ideas that can help you as you try to take yours and figure out
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what your business model is so first of all like to introduce the active endpoints to representative same October
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and Eric Atkinson if you just like Stella marks our CEO and Eric heads up sales thank you guys for coming
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and then aquiline we have David McFarlane and Orion staff the CEO and Founder respectively and then from demag
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Webb who is represented by James Driscoll I’ve just say before he says anything they are on the roadshow and so
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he’s basically been told not to say me so I don’t exist I was never here so unfortunately we can’t use this case
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study because it showed we will use one when they get through the rotation such a thank you for coming he’ll be part of
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at least the workshop so you can engage with you and then I’m lucky to have two of my pockets here tonight too I’m quite
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sure why that here except to check that I don’t say something out of order but Jim arrived from North Bridge and then
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we also have Carmichael Roberts who’s also brought some special guests with they’re coming
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Oh Michael no okay well we have don’t worry we’ll introduce him when he comes in he’s brought up another of his
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companies actually because Jim and I mostly work on software but we did want to make sure that people were not
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focused on software have a sense that business mall techniques is going to talk about tonight actually do apply
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many different kinds of ventures and so in fact he’s going to talk about one of his companies called MC 10 which is the
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material space very good so let’s jump in with our agenda as I said this is all about building a business model and I’m
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particularly going to focus on just all things first of all finding a disruptive business model you can all go and
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discuss what a business model is you can read about it many different ways but if your startup the really important thing
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you’re going to try to do is bring disruptive innovation into the marketplace and that shouldn’t just be
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about technology the business model is a fundamental piece of it but how do you find that or I’m going to show you three
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key things first of all finding your core differentiation that is absolutely critical to building a business model
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secondly what are the multipliers that help you spread that value proposition in an effective way getting great market
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share great reach and ultimately great revenue and then third very importantly how do you take the cost out of the
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equation Alvin levers and the levels as you’ll see are things that can be highly advantageous to companies that figure
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out how to use them in their business model and then last I’m going to give you a very quick insight into how that
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plays out in the life cycle of work with your customers and particularly important here is an example I’m going
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to bring to life for you how this plays out in the software world but again I would say it’s applicable to many
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different areas I mentioned earlier that this is really one side of the point the other side of it is go to market so you
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will feel in some cases like I’m transgressing a little bit into what does it take to go to market but that’s
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because there’s clear linkages here and then the most important thing about tonight is of course the workshop and we
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can have a lot of fun with that we’ve got ten teams again tonight and ten hoppers and journeys organized
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for us to have the white walls you see around the room everybody can go write their business
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models up and come in and present them we’ll have the usual voting at the end excellence over that in mind I’m going
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to get the boring stuff right out the way right away everybody can go read this on the web there are actually some
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great books on it the basics of business models are around creating the value so that’s things like creating your product
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or service delivering it that’s things like obviously how you take it to market and then how you harness or monetize or
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capture the value but we’re here for a reason we want to talk about startups and if you’re a startup I want you to
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stop thinking about business models creatively right away don’t take somebody else’s business was my first
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piece of advice to you there are plenty of business models around in fact it will be true to say that the best
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example of business models of a business model probably hasn’t been invented yet and that’s what I hope we’ll get from
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you is the next generation of interesting business models because this is all about how can you make a
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breakthrough here it’s not about picking somebody else’s business model and just applying it to your situation the
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chances are at that point you’re writing very little value in your startup and you’re probably not making any major
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impact so I really want you to think about this literally as how do you change the game if you could come in for
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example to a market place and literally rewrite the rules on your own game and call somebody else to have an innovative
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style em’ly much more powerful empathy I would argue that that is at least as important as having a disruptive
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technology there are many examples like that what I encourage you to do is to think about whatever it is you’re
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bringing to market in those kinds of ways don’t let somebody else write the rules you write them who could attract
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to find the whole new game the way that you have so what’s an example I’m really going to date myself I put an
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exclamation on here 20 years ago believe it or not there was this little company called Symantec it’s a multi-billion
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dollar company today that’s the good news but the bad news is at the time we were actually a struggling company in
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many ways and I will say that with tongue-in-cheek because you know
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it’s become very successful but I think in more 20 products we had everything from add-ins for Lotus 1-2-3 if those of
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you remember back to that was the first spreadsheet to we had languages you know think si think Pascal on the Mac get all
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sorts of products we have database we have WordPress I mean it was just unbelievable and I’m particularly being
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brought this is all being brought back to me right now because we’re about to have a 20-year reunion for the first 20
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years of Symantec this weekend all these parts and so forth been coming to life and so this example just stuck in my
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mind it’s really a business model example the product that was selling best on the Macintosh back then
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something called symantec antivirus for mac and believe it or not the Mac was plagued with viruses in those days
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system 6 or 7 or whatever it was at the time was was really an issue it was very successful product for us and we were
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selling it as a licensed product so you know whatever it was dollars perpetual license you bought it through at the
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time you know your local retailer and because it was a chart-topping product you’d have said at that point great
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we’ve got that business model Dell we now to produce that product package and distribute it sell it top of the charts
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what should we do when we introduced the PC version the answer is when you just copy to this one I just told you I think
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that’s a really bad idea and so we also stopped and thought about that and initially we got it slightly right in
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that we decided it was important to introduce the PC model with more of a flavor of and upgrade service than an
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update service because there were many more viruses coming out for the PC and so in fact we were having to get people
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updates initially once a quarter now we rise while it’s happening sort of once a month then we realize hey this is
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happening regularly it’s probably hard to believe this at the time there were probably a maximum about 100 viruses on
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the planet when this came out now there are tens of thousands and they regulate so of course what we did was we
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flipped it all on its head we actually decided the software was worth nothing because we needed to get that out there
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as a platform for people to be able to get the virus definitions downloaded to prevent the viruses and so the real
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value was not in the software at all the real value was in having the virus definition before it ever attacked
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anyways machine and so that literally was the Italian point if you would ask because Li I think you are pretty much
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anyway it’s mad at the time on the fortunes of that company because we suddenly created a subscription model
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that was not a nice to hand it was essential for enterprises and they didn’t care about the software they
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cared about the person who had that virus definition first and suddenly we had a very predictable business because
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every time a virus came out we knew people were gonna want to download there for you they were going to want a
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subscription fee off today therefore we knew them and pay monthly therefore we can see what our revenue was going to be
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and it was very very game-changing so that’s an example from a price standpoint any questions on that before
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I go forward so did you after that tubes the Mac module yes yes we did and in fact I’ll give
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credit to one of my sales guys here who was one of the first guys who actually even flipped the entire product line on
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its head and said you know what we’re selling a bunch of things like backup for example and Norton utilities was
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another product we sold but people really don’t want to pay for the software what they’re really doing is
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trying to get deep security and prevent data loss and so forth so we came up with what he called and he really
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deserves a credit for a total solution today security and in the UK for example we took out full-page ads in the
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Financial Times and we went to an extraordinary lengths to get people to understanding what’s the most important
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thing to them that they’re actually producing with all the software is their data it’s their information so they
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really shouldn’t put that top in terms of creating data protection and suddenly as a result of that thinking we actually
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started selling a data protection service and we bundled all of our products together in what we call the
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total solution and sales just took off and if I would go into it even one more deep level of detail
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I tell you this which is we used to on average sell one to one and a half products per major enterprise per seat
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and by bundling five or six products together the actual natural average of that turned out to be 2.6 so in others
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we went from 1.5 to 2.6 the value just by bundling that correctly and by taking the game up to being a data security and
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information protection game extraordinarily successful and my investment the time we were quite
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concerned to say the least about us going and taking full-page ads out in major newspapers very quickly lost their
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concern saw tremendous results okay so next example this is not a technology example this is absolutely a pure-play
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business example at the time I was based in the UK and I was observing that every major product that came into the UK from
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a US publisher was largely failing failing because they didn’t have that investment in management marketing
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distribution sales services for wine because we look at the US market is 10 times roughly bigger than the UK market
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so let’s say you’re a 10 million dollar company in the u.s. you may have some at that point relative critical maxing 20
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million dollars going to the UK take the size and market you could be maybe a two million dollar company doesn’t really
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give you much room to invest in marketing or management the distribution of translation localization all these
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other things so it’s very tough for US companies to be successful and they typically went to just distributors and
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said here we go to great product you know put it in distribution well project that sell themselves and so
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without the marketing support or of translation in some cases it was very unsuccessful so I decided to come up
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with a business model that basically enabled US companies to bring them to bring their parts us as one entity
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Europeans ultra publishing and because we have multiple products we could get the critical mass in all the things I
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just put up on that management all the way through the distribution and as a result of that we were able to provide
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for example introductions to the top times 100 companies that’s a fortune well positive
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and if we already got that connection on one product when we took on another product very easy to open the door and
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say okay here’s the next product we do very selectively so it wasn’t like a you know a long list it was very successful
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financially for the US companies too because we would get these companies to about twenty to thirty million dollars
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in other words highly scaled highly profitable at that point and then we would enable them to acquire them back
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but it was also acquired back on a basis that of something called pooling of interest in those days but just think of
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it as a tax efficient way to do it it was non-dilutive so it cost them nothing in terms of earnings per share if you
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will and it was ultimately acquiring something that had growing earnings so the minute they acquired it was adding
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to their top line as well as the bottom line is therefore to their overall stakeholder value so it was like
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incubating if you will these companies till they go to the point that they were successful and then acquiring them back
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on this anti diluted basis it’s just highly profitable lists and as an example Symantec itself which is one of
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the companies that we brought over was a huge win I put this picture up there because I say it’s a huge win but then
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my wife always reminds me that the two Bibles that it took us that they were huge thick things conclude that deal was
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the pain involved in it so it was a lot involved in doing that but the win-win here for investors for the early
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investors was a 97x and their money your sense of it and yet semantics themselves doubled the value on a accretive basis
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acquiring the company so the day of the acquisition was acquired that was announced the company’s share price went
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up but also more importantly the continuing learning streams continued to contribute and Symantec in the UK was
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their most profitable business outside of us at the time so everybody want we make customers happy we obviously made
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our shareholders happy and the middle this thing we made Symantec as an entity most successful adam-
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technology absolutely nothing although by the way it was very passionate about Debrecen stayed on and continued to
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actually really enjoy working with them but my point is here this is an example of something that you should be thinking
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about even if you’ve got a breakthrough technology what are the things that will make a win-win for you so tonight I’m
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going to talk to you about that and hopefully give you enough examples about it I don’t think I need to say more
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about this but I’ve hopefully made it clear to you that it is at least as important but now I want to give you a
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specific reason why the business model is as important technology so before I give you the answer and even tell me why
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in financial terms business model should be considered as important technology pain thoughts I’ve given you some
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examples but can anybody give me sorry go ahead technology doesn’t matter yeah you’re on exactly the right track
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products don’t sell themselves people don’t even know about them how they can even find them even if they are great so
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what does it cost to for people to find out about your product is that relatively the same as developing the
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product is it more is it less anybody somebody heard saying more I’m sure of hands who thinks it’s more this is an
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easy way to okay well those of you who said more you’re right the staggering thing is how much more it’s usually
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doubled if you look at a software company for example PNL you’ll see that on average companies will settle out and
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run 15 to 20 percent of their P&L being spent on R&D and 30 to 40% motors double on sales Mario so what I’m pointing out
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to you here is you need to go to a brilliant product how it’ll end up playing out your business model is that
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double the amount that you’re spending on your product is going to be spent just as we’ve all teared from the back
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then on taking the market and that’s what this business wall is all about it’s
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about how you get multipliers and levels to actually take the cost out and the revenue up and in fact I’ll go one step
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further I will say that a perfect startup storm by the time you finish this session of the next session should
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be very easy for you to fine it should be a disruptive business model with a disruptive technology and
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then you obviously focusing on a new market opportunity or target segment with an innovative way to get back you
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get those things things you have my attention now I’m not saying by the way the great companies that have formed one
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or even two of those but again all three you really have the perfect startup store so let’s get you started on
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thinking about some of these models give me why we attached my mic these models here are just a sampling of the ones
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that I want to pick out the wonderful thing about them the reason I picked the list many of these companies didn’t
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exist you know five or ten years ago one of the fastest growing companies ever is Groupon and they came out with
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completely new as number one one of my favorites which I use for a while and didn’t understand their business fall
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until I sort of thought about it was mint it’s not a company that’s actually trying to make money out of the software
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the way into it did to process your finances it’s actually a legion business that’s actually driving lead generation
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and many of the financial services providers in a neuro portfolio even though Jamis can’t talk about it
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Demandware has a very innovative business model which written in the s-1 is all about revenue share and i can say
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no more than that with but it’s an example of what I think I’m making a point over here that is every one of
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these companies is at least in part being successful because of it is drop you first of all and we will talk about
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some of these examples but there might be things that you’ve never even thought about associated technology pool such as
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for example how do you do crowdsourcing it’s an innovative company in Boston but you test that’s actually taking people
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from around the world to test mobile phones in all the different environments around the world you might say well why
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is that a big deal in a business model we’ll think about the alternative there are so many different phone types and so
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many different carriers that can be used in so many different places there’s no possible way you could recreate an
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environment so it would test all the different scenarios for mobile phones and mobile
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occasions but if you crowdsource it all around the world you can get a real sampling of what might be the way of
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testing so their business model actually not only solves that problem but actually applause and averages low-cost
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labor around the world as a lever to help them be very effective in that test so I would say any one of these examples
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is one of many I could pick two again hopefully get you thinking about what could you do to be this Roger so what
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are the sample questions I recommend you start with well amazingly people come in and they almost invariably say we have a
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product yes you may have a product but is it really a product or is there a process associated that product being
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used in which case is the process more valuable or the product do you really only have software or do you have to
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have services to actually make this successful which case is the service more important than the software in
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open-source you will find that software’s free so unless you have services there’s no value in is it open
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or proprietary and so on and so forth here’s why I’ll pick up for you which i think is rapidly emerging as an
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interesting business for as we get networks of people working around these products and services we’re collecting
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tremendous amounts of data on people and in fact the best example of that is probably going to be one of the most
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interesting new IPOs this year that’s Facebook Facebook’s values not as software means great software it’s
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impressive the PHP scale to be able to do you know to serve hundreds of millions of users but that’s not going
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to be painful we’re paying for ability to connect to people and guess what they’re monetizing
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they’re monetizing the fact that we’ve all connected and told them what we are doing all day so they can figure out
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what really is rather than the data behind that target us more effectively so their
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value is in that content or their data maybe they would say simply that data my point being here this is an example of
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where I would encourage you to question early what is the set of values that is at the core of your business so let’s go
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to exactly that your first key question should be what is your core value those of you haven’t heard me talk before I’ve
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said this many times I was one of those students who needed mnemonics to remember anything
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so you’ll find I use mnemonics everywhere I translate corny but just forgive me this is a way that hopefully
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you’ll remember these things the core of your capabilities should be literally what is it that you’ve got a really
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exceptional value at the center of your proposition that you could build around that you could create a model run and
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when you tell me it’s cool nine times out of ten I’m sitting with an entrepreneur and I’m really questioning
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they haven’t defined the core then define a bunch of stuff and what we really press are we can actually get
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even more focused so I’ll open here or we’ve got a great software product okay let’s talk about what that product
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doesn’t for who and then when we really get down to it we’ll find out that a small piece of what somebody’s actually
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building is really the core innovation so in the case that we’re going to talk about tonight with a given you’ll find
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out that they actually are in the database business but the core of their innovation is actually a very critical
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new piece of how you process data and they didn’t need to recreate the entire database infrastructure they’re
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leveraging a lot of open source to do that so let’s have a look at some examples from the ones we just talked
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about I already gave you a sense of how to think about core in the example of Facebook they’re real innovation is
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probably the user network but if you went to the core I think it’s data and what they do with that data obviously in
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terms of using it for advertising is really interesting now they may change that they may decide at some
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point there are the battery if they haven’t got that cool right earlier I think we’re being very difficult another
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one I think that’s it’s just gone public so it’s topical would be yelled Yelp could have been thought about as
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community could have been monetized in many different ways but in the end the contents become really the core of the
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value that again if you look at what’s going on now in the world of the net in particular a lot of times where people
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are building is some form of user-generated content around the network and there are many ways you can
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monetize that but I would say to you the most important thing you should do is again instead of just saying well how
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can i monetize it just say oh well advertise this always think before you do that say well who else might painting
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with and if everybody is advertising I started using advertising in the same way as you are people don’t have a
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competitive advantage so try to flip it try to create an innovative Stiletto you think about what christian centers has
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talked about many years which is creating some way to do something that can’t be followed as opposed to just
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falling what everybody else has done and so when you think about monetizing your core
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think about where others are most vulnerable where you could do something but again change the game go back to
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that bad bug and rewrote the rules and gave you somewhere monetizing there was really tough for others to follow
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I’m a huge proponent of open source if you haven’t figured that out do a lot of investments in that space the reason I
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love it is that it’s tough to compete with free which is really what open sources is at its core but it’s very
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easy for open source companies therefore to attack existing market places with an offering that is delivering the same
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value at no cost and focused on making a custom successful with support because a customer loves that and the competitor
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can’t compete with free so think of things in those ways whatever whatever it is that you’re addressing and if open
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source helps you think about it and having to talk to you more about we love that as a business form okay so
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core is first point now I’m going to introduce you to the next two concepts multipliers and levers and they work
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around your core so these are not in a separate term once you know what your pull value is how can you multiply it
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meaning increase the revenue increase the reach of customers you get two or increase the coverage or market share
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that you get that’s really what multipliers are all about and I’m going to bring this to life with some examples
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of that on the other side levers reduce the costs reduce the time and reduce the resources involved in
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producing a product or getting it to market or in capturing that value and if you get both of these things working for
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you as the diagram suggests they really can create extraordinary value on top of your business form and core or your
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value proposition so what are some examples as you all know my experience comes from software so let me pause the
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question I’m going to go to use resources above unit to have a lot of it great question so the question just so
00:27:14
everybody heard it is what did I mean by reducing resources when we just said that for example taking products the
00:27:19
market requires a lot of resources what I mean is how could you reduce the resources that are required still to the
00:27:25
market so I’ll give you a simple example just I’m going to preview what I’m about to talk about but if you could create
00:27:30
viral marketing where your user was actually selling for you that’s obviously going to reduce your cost does
00:27:38
that make sense so that’s an example of a level and by the way people talk about viral marketing all the time it’s a very
00:27:43
tough thing to define they’re all sort of models people have and coefficients they create everything else I can be a
00:27:48
really example about important example of viral marketing record selling if you really love something and you refer it
00:27:56
to somebody else that’s that’s the beginning of viral marketing like that so making happy customers is the
00:28:01
beginning of viral marketing and figuring out get a very happy customer armed with the right way to wrap itself
00:28:07
just giving them the basics of you know what typically is in most people which is they want to justify the purchase
00:28:14
they’ve already made if they like it anyway so give them the tools to do that and then of course you can do all sorts
00:28:21
of offers and things to promote it anyway does that answer your question oh great any other questions before I
00:28:26
move on okay so for examples as I said I’m in software so I’m going to use these as talking points but I think this
00:28:36
apply to many different businesses so the first category that we’re talking about is exactly what we just discussed
00:28:42
which is sales marketing it’s usually such a huge part of the P&L that if you can start to get a multiplier working
00:28:48
for you here it’s very valuable and things that MIT may make the difference here are things like tiered pricing so
00:28:54
in other words if you start a product at one price in all flavors that’s possibly they’re exactly the right thing to do
00:29:01
for simplicity sake but wouldn’t it be better if you could get people to get it free first of all so it was literally
00:29:07
frictionless to start off with and then upgrade an upsell and add value and obviously add capabilities and so forth
00:29:13
going forward because every time you acquire a customer song as you keep them the ability to upsell is
00:29:18
obviously a lot less expensive than creating a whole new customer relationship so I know that sounds
00:29:24
obvious but that’s right they’re an example of a multiplier and it’s a reason why tiered pricing and models
00:29:29
like freemium can be so helpful the other typical mod multiply you’ll hear is channels this is definitely
00:29:35
applicable to almost any business you could go I haven’t create a sales force for every product I’m sure but wouldn’t
00:29:42
it be more effective to use somebody else’s sales force do you somebody has already got the customer relationship
00:29:45
who’s already written the contracts with major part enterprises and just leverage those I can tell you that’s one of the
00:29:53
biggest challenges for startups is that just the contracting process alone in the Fortune 1000 is horrifying I sing a
00:30:01
few smiles at the front here because constantly sit in boardrooms with you know the forecast and we know that the
00:30:06
deal is closed but the contract is still to come and like okay is it emc we’re dealing with
00:30:13
or is it HP and you know everybody knows their stories that the point is the channel in many instances will already
00:30:20
have the relationship with that end customer and so they were rewritten and contracts and angular to just add this
00:30:26
an addendum or slide it in on an existing contract you just pull that fresh now reduced your cost of selling
00:30:31
and obviously are able to get a multiplier in your business so next example will be in the product
00:30:36
most people think about products in a very straightforward way as being you know it’s obvious that this is going to
00:30:44
be great value and therefore people should want to buy it that should be the case but you can get a lot smarter than
00:30:49
that I’m going to introduce two concepts to you tonight Slippery products yes I said slippery another Vitamix which is
00:30:58
another way of saying friction free and what I call Russian doll packaging and I think you’ll have some fun with these
00:31:05
tonight when you get to the workshop but the last of which is technology stacks and again
00:31:10
example of it this is how you can insert yourself if somebody else’s technology stack again a multiplier I’m going to
00:31:16
market your room so consider the levels I would take the crosstab well the world has changed
00:31:21
dramatically since that 20 year old example I was talking about the semantic will use that itself through two-tiered
00:31:26
distribution and we used to have to spit salespeople at these ridiculously large distributors that sold thousands of
00:31:33
products and so we have to get their attention and now you can get anybody’s attention anytime you want on the web
00:31:39
and focus on doing it in a very cost-effective way with inbound marketing using inside sales for example
00:31:45
and creating things such as we were talking about like viral campaigns that dramatically takes down the cost of
00:31:51
stock market that will need an emotion when I started this industry and so I would use it and I would spend time
00:31:56
thinking right from the get-go about how would you get your awareness your interest your understanding up using web
00:32:03
and low-cost techniques like that and that’s why I said this is one side of the coin the other side bingo to market
00:32:08
that we’ll talk about in the next session the second example is less obvious and people typically think about
00:32:15
this too late in the game so I’m encouraging you to think about it right up front which is how do you take the
00:32:20
cost out of producing your product creating a product and supporting it and there are many ways you can do this you
00:32:26
can do it through offshoring or outsourcing or crowdsourcing in that example we talked about or something
00:32:32
called co-creation which I’m going to give you an example of tonight and again technology stacks so probably a lot of
00:32:39
words up there all I’ll say is every one of them can be thought of as a potential level I don’t think I need to explain
00:32:44
everyone but I will pick as I said co-creation to go into as a differentiation and then here’s the last
00:32:51
piece of this startup secret which is you really want to find examples of things that we work together you’ve got
00:32:59
to kill a strategy on your hands if you can figure out how you can get focused on your core find a partner to work with
00:33:05
who will give you a multiplier market and a lever in taking the cost out of either building or delivering or
00:33:12
supporting a product and so two examples of that laughter ooh now first of all while I’m
00:33:17
creating value then another and delivering and captioning so what is co-creating well the idea here is pretty
00:33:27
simple and it’s going to come to light in a software world I think fairly easily you could sit has a single
00:33:34
organization and build your product with one development team or you could say what is that the core of our product and
00:33:42
let’s take an example that would make it easy for everybody to think of Linux it’s an operating but at the absolute
00:33:51
core of Linux is literally a car and Linus thought about that and realized that the problem of the existing
00:33:56
operating systems was they’ve got huge and bloated why they got bloated because basically people had to have different
00:34:02
versions that for every single different kind of laptop or PC or server and every kind of device driver and everything
00:34:08
else that went associated along with it was yet another piece that had to be added onto it so he wrote a brilliant
00:34:14
call superfast super efficient and he made it possible in a modular way for people to add on to it using open source
00:34:20
created a community and got people thinking about how could they extend the product and as a result of that people
00:34:27
liked idea it was literally the time nowhere any other existing business in fact because argue was really struggling
00:34:35
with many different operating systems as 400 the Z series on mainframes etc were able to take learn Linux and unify their
00:34:42
entire platform strategy with it and they themselves using open ap is add the open source nature of this were able to
00:34:50
write all the drivers for all of our different products and get what they needed which is a unified operating
00:34:55
system what that did till the next was unbelievable it literally accelerated actually I should have Carlos telling a
00:35:01
story since he’s been involved in first time but it literally accelerated the adoption of a single operating system
00:35:07
that swept through the enterprise very quickly because it was free open source and instantly much more valuable to
00:35:14
people and they were able to focus on their differentiation and people started
00:35:17
building on phone so that’s an example that’s an open-source example but if I jump to the top and I give you just a
00:35:24
little bit of thinking around extensibility this is a simple concept if you build something that everybody
00:35:33
wants to add value to needless to say that’s going to multiply your value I’m going to start at the most basic level
00:35:39
that you can think of imagine you went to the kitchen you put on a pot of boiling water and you knew that
00:35:45
everybody wanted soup the first thing they’re going to need is the pot of boiling water if you’re the only guy
00:35:50
who’s got the pot of boiling water people are going to come to you and put the ingredients in the good news is they
00:35:54
can add the stock to start off with and if they decide oh they want to add vegetables to that they could add
00:36:00
vegetables but maybe some people don’t want that so they’ll take a little out of it and they’ll create their own
00:36:03
version derivative of it and they’ll add you know lot of vegetables but maybe need to because those where they are the
00:36:09
next thing comes on wants to pasta to the point is somebody thought about that in a very basic way and it’s exactly
00:36:16
what I encourage you to do with the product they said what is the core thing at the base of soup boiling water
00:36:23
think about your value prop in that same way and then think about how easy would it be for people to come in and take a
00:36:29
ladle and take some out and create their own version of it or add to it if you can find ways to do that that’s why I
00:36:36
love extensible open api is for software for example which is just a fabulous way for people to do this and if you can do
00:36:41
that really early on you’ll be very successful here’s the next little detail but a super important one if you do it
00:36:49
in a way that internally you test that right away so in other words let’s say you’re building an application but the
00:36:55
application requires certain core services like for example user input user
00:37:01
why did you write those as capabilities in your platform that you had to build on internally so you had your team of
00:37:08
apps builders you know what the app application logic should be but they have to internally build on the api’s
00:37:15
for user validation user input user experience etc immediately you’re creating a customer internally that is
00:37:22
testing your openness in your extensibility of those api’s and when I see software companies to do that they
00:37:27
build on themselves i watch product development go way way way quicker and I’ve seen it over and over again the
00:37:32
Monro actually although James can’t talk has done super probably well internally and exactly that very classification of
00:37:38
disagree so it’s a smooth tip but it’s a good starting point figure out how even entirely you can build around your core
00:37:46
and you can have customers from you know one part of your organization working on another piece of the capability that’s
00:37:53
where it’s literally eating your own cooking being around customer summarizing this I would say as follows
00:37:59
you can get smart about creation by thinking about who will the other people can contribute and if you can find a way
00:38:06
to actually incent them to get value out of co-creating with you you’re in a great starting point it’s going to be
00:38:12
both the lever in terms of taking your cost down it’s going to be a multiplier terms of those people obviously
00:38:17
spreading the word okay now it’s sort of another example of levers and multipliers in delivering and capturing
00:38:25
by delivering and capturing value here is one which is pulled from a list of 20 I could have talked about which again is
00:38:35
a favorite for me it’s as simple as a strategic partnership and yet it’s a significant as to be a major level
00:38:43
multiplier here again every software company I work with figuring this out and I’m going to give
00:38:49
you a specific example of what what might make a great strategic function we’re both levers and multipliers around
00:38:56
the core connectivity so if you are a software company you’ll notice without me telling you you have to figure out
00:39:02
what the key capabilities the available drive and it always involves basic things when computing network and
00:39:08
storage database I’m going to added 20 things you probably don’t have those as distinctions unless you’re a security
00:39:13
company or David’s home and you want to go to ultimately exposure applications and services at the top of them if your
00:39:20
core capability can fit into somebody else’s stack right in the middle and fill a gap for that for example if you
00:39:26
are able to be a load bouncer that enables people to scale out and you do that on top of people’s database storage
00:39:33
capabilities then why not fit into that stack why not go build for their capabilities so that you literally
00:39:38
neatly can integrate and create a much more fulfilled product experience anybody is trying to build applications
00:39:44
at scale and each load box or obviously that’s what the opportunity is in a hole provide strategic partnership and whole
00:39:51
product is in jeopardy more term as you know I’m a student of his he’ll be here at the end of the series and it really
00:39:56
describes how you deliver a complete solution to your customer so if you’re going to got a piece of it you can find
00:40:01
partners you’ve got the rest of it I would say this is a great example of a lot of I remember they can work for me
00:40:07
what happens when you do this is best discovered and subscribe to an example in one of the companies I started in the
00:40:16
analytics world we had a capability to do what we call real time inline analytics but how did that mean it meant
00:40:23
that before that point everybody who was doing analytics was typically getting reports you know week after things
00:40:28
happened or maybe a laughter in some cases and we said guess what before you even transact with a
00:40:34
customer wouldn’t be helpful to find out if they’re a profitable customer to deal with what their preferences are what the
00:40:39
things are that they might also want to buy from you and that required real-time inline analytics for the trouble that is
00:40:44
analytics is a tiny piece of the challenge of getting that data putting in a database cleaning it with what’s
00:40:51
called ETL systems and then getting into a place where you could actually do what we did which was the real-time inline
00:40:57
analytics and then on top of that you had all things people want to do with them like present them and you know even
00:41:02
allies them further in Excel etc so we rise the big giant in this space was idea so guess what we did an
00:41:09
unbelievably obvious thing which was we worked right into the core of IBM stack and make sure we work better than
00:41:15
anybody else did with IBM’s db2 product settles so that WebSphere products and the middleware and also with that
00:41:21
tooling even and the result was not terribly surprising we ended up getting huge revenue out there not just because
00:41:28
people were able to sell our product in IBM but because it brought credibility to us that IBM was actually partnering
00:41:35
with us and was taking our products to market it opened all the doors and on the other side of things of course it
00:41:40
dramatically reduced our time to market because we weren’t waiting all their technology around us and reduced our
00:41:45
development costs excuse me and ultimately resulted in them acquiring the company which in many instances by
00:41:52
the way even though it wasn’t our intention is a great backstop for a small company to have had that strategic
00:41:59
partnership be so successful that you know that if nothing else plays out in your own you know ultimate success
00:42:04
somebody’s going to have you so integrated in to apply so I think strategic
00:42:10
partnerships and example getting a whole product strategic partnership on great levels great multiplies and great back
00:42:15
scoffs for for small companies one little detail and the devil often is in the details and certainly it’s true with
00:42:25
startup companies I hear people all the time so it’s fantastic I’ve got this new big company
00:42:32
very interested in me and they’re going to co sell everything okay who’s in sense because if they don’t have that
00:42:37
Salesforce incentive to do it they might be getting more advantage out of you than you are of them there are always
00:42:43
details like that it’s really worth paying attention to if you get them to reset it might be great but if they
00:42:48
suddenly bring you a thousand customers and you’ve got all the support cost you might actually find you’re losing money
00:42:54
likewise I often see small companies make this mistake too they go and write om deals and they think they’ve got
00:43:00
tremendous distribution reach but they’ve got no upsell capabilities they basically just get away the golden goose
00:43:06
huge mistake so here are some things you can do first is actually strategy not just om but also from in general helping
00:43:15
you with your products and how you get multiplies another each other it’s what I call building a Russian doll
00:43:21
it’s going to be very obvious I hope where you might do this and then I’m going to get one of our companies come
00:43:28
and talk about how they do this come up with a version that’s free then find some way to give limited access to it
00:43:35
for a different price some upsell give a personal addition err once it gets reused by lots of people make a work
00:43:43
repetition if lots of work groups start using make a corporate Edition once it goes global
00:43:48
make an Enterprise Edition it isn’t that hard but you’d be amazed how many times this is the difference between for
00:43:54
example I am deal working or not if you know you’ve got all those editions and you just do an OEM Edition for example
00:44:00
on the personal edition or the workgroup Edition you know you can go back itself all the capabilities that corporate
00:44:06
the Enterprise Edition and therefore getting the reach from area may tremendous sense because you can do the
00:44:12
upsell but don’t go in there without that in your back pocket know upfront what you’re going in there with know
00:44:17
exactly upfront what you’re going to do is it upsell and then to the point about going to market in general this strategy
00:44:24
works out for lots of other reasons you’ll find that it’s a great way of giving an adjustable starting on to
00:44:30
people it’s a great way of allowing people in the center taste the school piece of the value and if they do that
00:44:37
free that’s a great strategy in many instances and then it gives you all these upsell options and it gives you
00:44:43
tremendous channel flexibility not just for their EMS but you can go to for example different channels for a
00:44:47
personal addition then you would for example for an Enterprise Edition or you can go to VARs you want to build around
00:44:53
for example or systems integrators you want to build around a very small piece of your core functionality because they
00:44:58
want to differentiate though all the capabilities they might bring in a vertical market let’s say they you go to
00:45:03
a bar for example that takes just the core and takes it to a medical market and yet another one who takes the core
00:45:09
and goes after the financial market that’s a great strategy that can play out if you do rush it all packaging
00:45:15
others if you figure out how to get these capabilities before you come out with this one galactic Edition which has
00:45:21
everything for everybody in every market it’s going to be really hard for people to deal with you and you’ll be again
00:45:27
amazed how many times the biggest problem when we see startups is they try to put every feature for every person in
00:45:32
the first product and you’ll know that the result of that is it using classes under design way since I will be able to
00:45:39
read very recent book on Minimum Viable Product Minimum Viable Product is one example what I’m talking about I’m
00:45:44
really talking about the business model associated with it that’s the technology piece this is how do you create the
00:45:49
business flexibility around it by packaging it in a way that you can go to mock in a different okay
00:45:56
I’d like to introduce a keeper now they’ve fallen to give his example of how he’s created somewhat of a good
00:46:03
example not just in open source but also we’re packaging different options and giving himself this this capability of
00:46:10
David practical joint so just an opportunity to maybe walk you through how we’ve actually taken several
00:46:20
of these capabilities and combined them in this in this I’ve got a market strategy just to reminder some of you
00:46:26
might open the prime minis but at the very core of what Keaton does well I’ll keep our secret sauce isn’t it was this
00:46:31
man in the middle here who invented it is something we call table grouping simply put we understand how an
00:46:36
application uses data and then we group that data together and the net result is that transactions and queries run 10 to
00:46:43
100 times faster it’s a huge breakthrough in terms of capability so what we’ve done is that we’ve taken that
00:46:49
core capability and we’ve released that as an open source product the idea is to drive as much viral business as possible
00:46:56
its developers who drive these technology decisions it’s the developers that is the ten thousand 100,000 strong
00:47:03
sales force that we can use to compete with the likes of Oracle’s what we’ve also done is allowed those developer
00:47:11
communities to extend our product by integrating it into their own development environments so for Ruby and
00:47:18
hibernate we integrate into their environment so it becomes a value add to their stack and again they drive it
00:47:23
through their own distribution and they own that value and they drive that value but what we did is we created a
00:47:30
pluggable architecture and as a pluggable architecture it means that we can add critical additional components
00:47:36
that will add unique value to the product so the first is something we call my sequel replication it just means
00:47:41
that you can take this and now plug it into a pre-existing my sequel application if you build something on
00:47:47
the lamp stack it’s not scaling well it’s running slowly you can take this akedan stack plug it in redirect the
00:47:52
queries and we’ll run those queries really quickly for you and that’s just one example but the key point here is to
00:47:57
have a whole series of these capabilities that you can add and extend the product with which is what we’ve
00:48:02
done and you can also use that in terms of a multi-tiered pricing strategy and then finally as you build community out
00:48:08
there in the market we’ve added a series of electronic services that you can add things that you can deliver as a SAS
00:48:15
capability back out to that market it makes it easy for them to a dog but it also kind of locks them in to your
00:48:21
service and your brand and even within those editions there are certain community aspects like
00:48:26
the grouping algorithms you get lots of people to combine together to contribute to different grouping strategies that
00:48:31
then can be shared across the community so those are just so many examples of how we extend it okay thank you David
00:48:37
now to leave that up for one second I think is use pretty much every example that I’ve already said tonight there’s
00:48:41
effectively a calling very clearly defined and actually made a difference also people get extended and these also
00:48:48
say look we can have several additions in that Russian bowl model so we can sell this through many different
00:48:53
channels and sell different capabilities and he’s also said we’re going to have upsell and cross-sell capabilities from
00:48:58
that and in effect he’s got cost being taken out through open source and co-creation
00:49:03
he’s got multiplies being created on his thing through the community and he’s got obviously multiple options through the
00:49:09
Rushville packaging so it’s a great example and I can tell you that what we fencing well you tell me I shouldn’t
00:49:15
leave the witness have how much time have you spent on the business model than the CEO relative to other things in
00:49:21
your business like building product well one thing I would say is like you know from the very inception of the product
00:49:27
we had these ideas in mind so one of the things that was very important I would say to people is that you really want to
00:49:33
think about how you’re going to package this value up and deliver it to the market it isn’t necessarily that it was
00:49:38
hugely time-consuming for us to do that but it was really important that you think about it right up front you don’t
00:49:43
wait to the end of the development cycle to apply it it’s a terrific point what David’s
00:49:48
saying just underline it is if you develop the product in a monolithic fashion then always going to be very
00:49:52
hard if you lean to decide you want to slice it up sell it in different ways so thinking about the business model as
00:49:58
early as you’re starting your product development is actually not your own it’s exactly right so thank you Dave
00:50:04
great Monday okay I’ve made the launch today know Steve Jobs so I’m going to have to do is the poor substitute one
00:50:12
more thing and actually I think it’s a really fundamental thing there is actually a tendency for people to think
00:50:18
about these things ie business models as snapshots but in fact what you
00:50:24
do is think about on an ongoing basis how is it referring to services sold and so I’m going to take you through a
00:50:30
series of things that will give you a sense of the product life cycle and it starts with something that I’ve always
00:50:37
really enjoyed watching companies who get it right do and that is creating what I call slippery products but I told
00:50:46
my daughter she said that was that was got to do with price kind of miss the point because if I can get it at golf
00:50:52
tonight okay the first thing is creating a product that is simple to use obviously the simpler it is the more
00:50:59
likely it is for people to instantly get the second is low to no initial cost that takes more friction out of it the
00:51:08
third is installs easily you’d be shocked how many times even if something’s free as an app on your
00:51:14
iPhone think about it it takes a while for you to install it and it actually isn’t immediately functional it doesn’t
00:51:20
have some component or fill in too much data or whatever it is to get it going you’re not going to use it and then how
00:51:27
does it prove its value really quickly if it instantly delivers something back to you before you have to put a lot of
00:51:33
stuff into it you’re going to start using it next on the list is obviously does it play well with others in the
00:51:40
enterprise this is incredibly important because it disrupts everything even if it’s free and it’s incredibly easy to
00:51:46
use and you’re getting value from it a chapter a place everything before you can use that it’s going to be really
00:51:50
tough next is obviously ease of use but I say this and yet it’s amazing how many people spend zero time upfront thinking
00:52:00
about user experience the user experience is everything it’s usually what the president describes obviously
00:52:06
defined excuse me how often you get used gets circulated and so forth and so pay attention that up front from a business
00:52:14
standpoint we’ve been talking about this the customer is going to look at payback and ROI and so make it obvious make it
00:52:20
obvious right up front why this pays for itself why justifies itself in the end my
00:52:25
favorite one is the why why not why customers can’t live without this should be
00:52:31
they should be thinking not why might they try it but why can they literally not live without it that’s back to that
00:52:37
game pain equation for those of you here if you give them so much gain and there’s no pain is it’s so slippery
00:52:43
friction free to adopt this product diet so I would actually say well the most important elements of the business model
00:52:50
is in fact creating slippery products it’s creating friction free products and often times people say well are these go
00:52:57
back to you in business model I’d say it’s got a ton to do with it we just talked about one example which David
00:53:01
gave which is about how you chuck it up but actually if you right from the get-go figure out what your business
00:53:06
model is and you decide to create a slippery product you can take a ton of the friction in other words the cost of
00:53:12
marketing distribution sales service and support so it’s worth taking that thought really early on into your
00:53:20
thinking as you define your business plan and to help bring this to life I’m going to introduce Mark Taper our CEO
00:53:27
from active endpoint and his mom comes up I’m going to tell you a little bit of story to set him up because I actually
00:53:34
inherited this investment and that’s never an easy thing but you’re a partner at a venture firm now I didn’t inherit
00:53:41
mark I was lucky enough to get her a present but it was a middleware product it was a tiny piece before that she
00:53:48
definitely would be blended yeah doesn’t need to know what that is all just tended to feature and so building a
00:53:54
whole product and Mark came on and the first thing he said to me when we were going through recruiting is I don’t want
00:54:00
to talked about the product I’m talking about the business ball I’ve got a vision for how I could take this thing
00:54:03
to market in them and you can use the little slippery although I think I’ve coached him into using it now way and
00:54:09
it’s not up and he’s figured out how to sell complex very difficult stuff to sell anyway
00:54:15
well in an exciting way typically sigh you know something out of the order of tens of hundreds of thousand dollar
00:54:23
value over time this is a company that’s doing millions of dollars of Revenue and there’s literally being growing at
00:54:29
phenomenal rates every year without having a single outside salesperson sort of tamaak how did you do yeah so in
00:54:39
actuality we we did structure the whole company out of this concept of making it simple and how we bring it to market
00:54:47
process automation which is what we do it’s been around for a long time business process management the
00:54:53
corporate IT people have been you know able to accomplish things for their users for a long time but it’s it’s way
00:55:01
too hard and so the concept of active endpoints has been how can we enable the business user to make their life simpler
00:55:10
by doing these things themselves and so the example that I that I’ve shown here is hopefully make the life of a
00:55:18
salesperson easier they interact with an application most of them use something called Salesforce comm which is really
00:55:25
just a database to collect information but sales people don’t want to write reports they don’t want to gather the
00:55:32
information because of that they frequently miss common things that they that they know they should do but they
00:55:39
just forget and and they don’t do it consistently over time so what we did was we invented some technology to allow
00:55:47
a business user to do their own automation so in fact you could use a mobile phone and the text-to-speech
00:55:55
capability speech-to-text capability that is for example in an iPhone using Siri you can talk into the phone and say
00:56:03
show me my meetings today a guide will come up and you can just speak into it what happened at the meeting you can hit
00:56:10
a button if you want to thank you email to go out or whatever whatever it is you normally do after a meeting you want to
00:56:17
set up a follow-up or something like that it will automatically happen in the background and so this this is it’s
00:56:24
great in the fact that we’ve done the real innovation is the fact that we allow the business user to do it
00:56:30
themselves and so we took that concept and really our entire go to market really everything about the technology
00:56:38
and what we do encompasses this company you know this concept of slippery though I didn’t know the acronym until
00:56:44
yesterday Michael but you know it was but it but it’s exactly what it’s exactly what we do we try to make this
00:56:53
this product is easy to use as possible we try to make it as frictionless as possible so in fact you could just go to
00:57:02
our website you can just enable yourself you can try it you can use it you can interact it you interact with it you can
00:57:09
get a free version of it to use I have Eric Erickson our head of sales maybe you want to share like a you know how
00:57:16
some of our customers are doing that sure sure mark I’ll just I’ve mentioned one customer on Plymouth Rock energy
00:57:22
down in New York City area traditionally it in an old-line supply or a coal and oil to large facilities that business
00:57:30
isn’t such a great business anymore so they transform themselves into a broker of energy including electricity and
00:57:36
natural gas and they use salesforce.com for all of their new customer sign ups so they had to customize salesforce.com
00:57:44
tremendously when you sign up a new customer as an energy broker you have to specify the supplier who the
00:57:50
distribution channel is going to be whether they’re going to pay a premium for
00:57:53
energy sources and it turned out for the salesforce.com users the sales rep signed up a new customer is a very
00:58:00
complex process they had to go through the Salesforce screen so we met a gentleman down at a Salesforce calm
00:58:07
event in New York City on Wednesday the following Monday we gave him a demo via GoToMeeting via a web meeting he was
00:58:15
able to get on our cloud hosted product started building his little process wizard the next day that his sales reps
00:58:23
could use to go through this complex process of onboarding a new customer by the end of the week he had it working
00:58:30
and the following money plus the order little so going back to some of the points you can probably map what
00:58:34
happened there into these points but installs easily he’s able to sign up on the web
00:58:39
your crew value in just a couple of days by creating a wizard that walked their users through these complex processes
00:58:46
and what else do I want to pay plays well with others having the a salesforce.com integrations
00:58:52
been tremendously valuable to us Mike I would call those believer because it reduces our marketing cost tremendously
00:58:58
we know who our market is and we’re able to get to them through Salesforce and its multiplied because we’re able to
00:59:05
increase revenue by seven users last one was we sell it per user per month the guy was concerned he’s only have 15
00:59:12
users to start out we said that’s fine you can buy a 15 user license when we had 10 more next year we just fight some
00:59:18
more lessons Duncan guys going on and I think you know you could pick lots of companies
00:59:24
that the reason I chose active end points is it could be a horribly complex saleable maybe they’ll sell it away all
00:59:29
their competitors by the way people like IBM are going it with three legged sales sorry three person sales calls six
00:59:35
legged salesman’s ugly and they’re spending a lot of money and they’re having as a result to charge
00:59:40
orders of magnitude in some cases more for their products and services and this company is taking market share away on a
00:59:46
consistent doubling your own urine in some cases in in the product sells through the
00:59:51
slippery co-op concept and thanks to the team for being so innovative approach in that way but we’re at the technology at
00:59:57
the core of it it’s interesting but very highly competitive market so let’s put it all together I want to give you a
01:00:05
very clear metric which you’ve probably seen if you haven’t you certainly should know about and that is this notion of
01:00:10
coming up with an understanding of if your business model is working or not and for startups the metric that people
01:00:17
now are getting used to is lifetime value that is how can you how much can you get from a customer of the lifetime
01:00:23
of working with them divided by the cost of acquiring that customer and in general if your lifetime value from a
01:00:30
customer isn’t around three or greater the time times the cost of acquiring that customer you probably don’t have a
01:00:37
palpable desktop and unfortunately in startups most times people don’t really spend time to think about this upfront
01:00:44
either but all the multipliers and others that I talk to you about should be factored into what is it that you’re
01:00:50
doing to obviously increase on the one hand the lifetime value how can you get more out of customers over time with for
01:00:56
example that Russian doll packaging we’re talking about more and more questions or additions or in reducing
01:01:02
the cost of acquiring customer in the ways we just talked about the things like strategic partnerships and there
01:01:08
are many examples that I didn’t go through like channels and so forth that can give you reach and take cost up to
01:01:14
in the end though when you boil it all down you should find that this ratio plays out as I said to roughly three or
01:01:21
more x value the value you’re capturing than the cost you’re implying that happens example now that models being a
01:01:30
I’d say pretty successfully adopted by many my customers but I noticed something over the last few years as
01:01:37
it’s become accepted that’s been missing and so I want to introduce this because what we found is almost every startup
01:01:44
just as you heard Eric described gets in at one and that has a relationship to maintain
01:01:51
the customer to get the full value and I find most people ignore that latter set of engagement of the customer so I’m
01:01:58
going to give you a sense of what you really need to think through this refinement to me keep it interesting is
01:02:05
a matter of life and death I’m going to talk about a customer lifecycle a very simple methodology start with C try buy
01:02:15
fly diet think about it for a second that’s basically what happens when you look for products you see it you try it
01:02:22
you buy it you run it flying and ultimately it does somehow death and that cycle is typically described by
01:02:30
people in this kind of a bell curve and the problem with it at least in the software business and many b2b
01:02:35
businesses is if it really looks like this you have a long costly customer acquisition cost a slow payback period
01:02:42
and very short lifetime value and if that’s really what your business model looks like in my opinion you’re in
01:02:49
trouble and I’m fortunate it’s what a lot of startups I see exactly has a business model and so I’m going to try
01:02:55
to help you think about ways that you can get beyond that we’ll talk about this more in the go-to-market session
01:03:02
next week but one of the first things I always see when I do post mortems with companies is that they haven’t broken
01:03:08
these stages down from the sophistic see try buy fly model I talked about into much more granular stages and granule
01:03:15
stages just to give you an example this would be awareness how do you even discover somebody interest how do you
01:03:21
get their interest how do you get them to understand what your capabilities are then engage with you then try it then
01:03:26
purchase it and I can go I can probably pick 30 or 40 more if I really want to we’ll talk about more of this as I said
01:03:32
next week but just but now think about this as follows once I bought the product how do I stay engaged with you
01:03:40
what is it that I do intervene Duchess so I’m going to introduce an obvious constant of an obvious idea here and
01:03:47
that is how do you reengage the customer after they’ve bought how do you actually get them to retry the next capability
01:03:54
that you introduce either the upgrade or the update or the whole new version that you just came out with so in this cycle
01:04:03
of reengagement and repurchasing it there are a lot of steps that are basically the same as you did when you
01:04:08
first use the product or connect to the customer and if you get them right it turns out you really dramatically change
01:04:15
the cycle fact what you really want to do is of course have the cycle of caring over and over again the customer keeps
01:04:20
coming back to you as your preferred supplier or as your trusted source or as a person where they’ll buy the next set
01:04:27
of capabilities and if you can do that successfully what you’ll find you can do is dramatically extend the life cycle of
01:04:34
the customer and if you use things like slippery products just go to that you’ll have a much more simple experience
01:04:43
upfront and take a reproach nap you’ll have a much rapid more rapid adoption with that Russian gold packaging as
01:04:50
things are how you might do that and then very importantly you’ll have a much extended life cycle because you’ll find
01:04:55
ways to re-engage the customer over and over again so it’s a lot to take in and what I felt like I should do is give you
01:05:03
an example of how actually you can avoid the death that happens here in the software world with an example
01:05:09
executive so how you’re going to have a long happy life is really the question in the Zocalo
01:05:17
well when I started out as I said I’m dating myself ah IT was the only person who installed stuff they were the only
01:05:25
people have customized it they were in frequent upgrades most of the stuff actually sat a shelf where as we called
01:05:31
it it was all proprietary and people licenses on perpetual basis the poster child for this probably would have been
01:05:36
Oracle quite frankly but it’s all changed and in fact you use all the techniques we’ve just said what you can
01:05:44
use is the web to make it easy for people to trial stuff you can then make it easily self-service as you just heard
01:05:51
you know Eric give that example their customers enough to come in for training or figure out how to configure or
01:05:57
install the thing they were just using it on their way of life trying it in their own situation it can be on-demand
01:06:02
so there’s absolutely nothing for them to actually buy initially can be available literally over the cloud and
01:06:08
software as a service is very much the poster child for that and now see if you make it open source or extensible
01:06:14
somewhere they can extend it right to those capabilities themselves and ultimately through a subscription model
01:06:20
they can buy as they need it and pay for it as they use it the result of all of that is what is extended lifecycle he
01:06:29
praises incredibly easy basically people try things about them and I’ll say again startups is they
01:06:50
think they’ve got the customer and they think that just continuing to introduce new innovations is the answer maybe you
01:06:57
might have that kind of customer but how many times have you downloaded an iPhone app recently for example and then never
01:07:01
used it again sure has okay Laurie that’s exactly lining by this blue circle I will tell you that’s a big
01:07:11
problem for mobile app developers and it’s just a bigger problem or than every example result great in b2b or other
01:07:19
worlds too so you really got to think about this blue circles I put up there this notion of acquiring I’ll just go
01:07:25
inquire I’m going to reengage your customers so let’s bring that back to the model I said earlier and just add
01:07:32
that extra layer what this is about is not just the levers and multipliers around your core but also thinking about
01:07:39
how you’re not just acquire the customer but re-engage them and continuously stay in touch with them so that you don’t get
01:07:46
that iPhone app dying but in fact you find some way to reconnect them it might be a new map if you send them out of the
01:07:52
GPS or it might be some new set of content movie set about it’s a recommendation service or might be some
01:07:57
new data that you send them out that makes it obvious for them how they can connect if it’s a dating application
01:08:02
those things turn out to be the difference between products that have long life cycles that engage the
01:08:07
customers they get more lifetime value either than anything else and so I reinvented that acronym and pull it
01:08:13
across multiple customer acquisition and we engage the author and instead of it being lifetime value its lifecycle value
01:08:22
that’s the L a C in there and it really is important to think about LCV the lifecycle value of your customer what
01:08:30
can you get out of them over and over again not just once and also was it cost you to re-engage so
01:08:36
when I describe this to startups I find that most people have initially getting all right Dean by
01:08:41
those kinds of things so here’s an example reengagement costs are typically things like support support should
01:08:49
absolutely be factored into it it’s not just sales and marketing keeping up customers often involves customer
01:08:54
service and if you’re in a b2b environment that you’re selling anything like a complex product it often involves
01:08:59
professional services so all those costs should be factored in to the CA RC and cost of acquiring and reengagement
01:09:06
customers any questions before I move on we nearly be able to get you to your workshop okay so now you have a model
01:09:16
which i think is really quite compelling to be able to work with things and for those of you who were here when we
01:09:23
talked through the value proposition on game pane it also is exactly the same concept and
01:09:29
principle as we talked about in game pane they’re just two views of the same
01:09:34
problem those of you worked with therefore this workshop we talked about how could you take the pain out of a
01:09:40
customer getting to grips with your product and give them all visibility of the game well think about it for a
01:09:46
second that is how the customer view what you’re going to view on the other side is the measurement of how much cost
01:09:51
is it taking for you to actually get the customer to describe that’s the C AR C and how much can you get from that
01:09:58
customer as they get those gains over time throughout that lifecycle that’s the LCB so they’re just two sides of the
01:10:04
same principle and they work around this whole notion of the core of your value proposition so good business models
01:10:10
you’re constantly going back I can make this single template a basis for discussion in every startup what we does
01:10:17
to take the pain out how is that reducing our cost to acquiring the customer what are we going to make
01:10:22
obviously cuspidor game [ __ ] right upfront and how can you make that work overtime will be a very large lifetime
01:10:29
value I psychological company so with that I’m going to summarize and get us onto a
01:10:35
workshop I have a question I guess I I was it wasn’t clear to me the concept around in Russian trolls yeah it’s a
01:10:45
message that if you’re recommending to have various versions of a probably the single you hear a small
01:10:53
enterprise I guess the counter for that is what happens if your product is only geared towards enterprise large company
01:11:02
I no you actually got a great example for challenging so in your product new super
01:11:12
heat question does the Russian gold strategy work for example if you’ve got a part is only valuable for such an
01:11:18
entire front the answer is yes I believe it does because very ready will you be able to get an entire encrusted of
01:11:25
product in Monga it’s just an adjustment I mean I made this mistake as Jelena I’ve tried to go sell people like wiser
01:11:32
an entire Salesforce package for analytics and say hey why’d you buy this whole thing is your car sales because
01:11:38
we’re getting value out of it people please see in the data or robots or so Oh kind of work because it’s so
01:11:45
difficult to get up again price to adult any change the huge pain doing that and it’s going to take you months of a sales
01:11:53
cycle and because my lot of my dreams but even though the value might be the whole sales force if you gave them
01:11:59
something right off your back itches look here is some data on the benchmark or chosen one of your sales teams maybe
01:12:07
not yes a small region for example of how they’re well to be a point in terms of that sale effectiveness that’s an
01:12:13
injury valuable craft and a small team kabocha very quickly about team see success rate they’ll recommend where
01:12:19
every single gap of groups divisions of campuses that so the reason why most excited is that
01:12:29
it’s all down to the same paying game equation good take the upfront cost daebak come and you make me suggestible
01:12:37
easy for the custom so if you don’t go to Russian doll you are –court and chunky alpha the point is find
01:12:43
adjustable ways to get that first interest with any introduction to your customer as painlessly as possible and
01:12:52
then obviously if it’s if it’s a great product that you can keep me engaging and that’s why this piece is separate or
01:12:57
you can keep me engaging in adding more value opening up more more of a adult if you will be sizable by then you will get
01:13:04
more more lifetime value of that customer that awesome and it sounds like it’s a way those who graduated absolute
01:13:13
absolutely the biggest how much dollars have it’s amazing how many times struggle this is just that one word is
01:13:20
credibility I think I mentioned it up on my slides oftentimes the strategic culture is at the top of the list
01:13:27
providing a company credibility an example from artful failures to give people another real-world case study was
01:13:34
we had a great entrepreneur in fact him again actually Ashutosh in a storage world came up with a concept the company
01:13:42
called have IQ to make it possible people to store there’s an independently underlying infrastructure so those
01:13:50
storage from the application above we use out like to store em across the track of time so brilliant idea
01:13:59
compromise applications on mission critical storage is sold by big companies that I fight over the world is
01:14:06
on that marketplace and how the heck was a little company that can the middle of those two very you know the genius thing
01:14:13
had found a way to make it possible for that to become effectively very simple for people hang-ups between petroi and
01:14:20
then he went to the deal with Wanda major vendors and then it made it obvious that all the other four needed
01:14:26
to play otherwise that would be compared increasing he owned that marketplace had a great accident ended up being CEO
01:14:31
storage and HP and now we’re back years later start articulating it all over again but he really understands this
01:14:38
very very well maybe I’ll get up to one of the workshops so that answer your question maybe any other questions from
01:14:44
people before we summarize here okay so as you go off your workshop what I want to try to get you being about is what is
01:14:53
your disruptive model going to be how can you make it as significant as your technology can you focus on a core
01:14:59
differentiation not twenty things that you do but hopefully one and what will be the multipliers and leverage that you
01:15:07
will get it with innovations like you talked about seem like co-creation or strategic
01:15:11
partners Russian doll packaging or slippery products and then how would you measure that not just once but over the
01:15:19
extended customer lifecycle with LCD and CA RC so I hope everybody had some fun this evening I must say I continue to be
01:15:27
blown away by what a great group this is because if you look at some of the things we were trying to do and we were
01:15:32
trying to figure out you know could you come up with a core value problem number of you took some pretty bold moves and
01:15:37
not declare it as the obvious thing that technology but focused on things like data or data analytics or content in one
01:15:43
case you were quick to figure out what your multipliers and your levers were some of you found some really great ways
01:15:49
to make partnerships that win-win that would work on both sides of that so multipliers and levers and that
01:15:56
a lot of you were talking very clearly about just as you heard how important the slippery product concept is to make
01:16:01
it easy for people to get instant value out of this and and instantly they’re obviously start spinning the wheel a few
01:16:07
people definitely picked up all this lifecycle concept in this notion of keeping people engaged and I heard some
01:16:12
good examples of that and overall although we didn’t try to get you down to you know actually calculating your
01:16:17
lifecycle value and your customer acquisition and reengagement cost I felt that order you’ve crossed us so well
01:16:23
that you can have no problem doing those kinds of things so I want to take my hats off to
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