Startups 2013how five innovations have changed

the startup world, forever

Keith McGreggorDirector of VentureLab @

1980 1990 2000 2010

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NSF

America’s Best Engineering Graduate Schools 2012

1. ! Massachusetts Institute of Technology2. ! Stanford University3. ! University of California — Berkeley4. ! Georgia Institute of Technology5. ! California Institute of Technology (CalTech)6. ! University of Illinois — Urbana-Champaign 7.! Carnegie Mellon University 8.! University of Michigan — Ann Arbor9.! University of Texas — Austin10.! Cornell University!

Eighth Year!

7/14/09 Enterprise Innovation Institute

GT Research Distribution

Over half a billion dollars total R&D on campus for FY2009!

12

College ofEngineering

GTRI

College ofSciences

Research Centers

College ofComputing

Other

> $500,000,000 / year

EACH YEAR AT

research is the transformation of money into knowledge

EACH YEAR AT

annual invention disclosures 400

unencumbered inventions 250

startup ideas 25

license ideas 200

early ideas 25

VentureLab

at least one new invention every day

innovation is the transformation of knowledge into money

Decisions

LICENSE

Inform Office of Technology Licensing

START-UP

Assign to Catalyst

LIFESTYLE COMPANY

Advice team on viable commercialization strategies.

SCIENCE PROJECT

Put technology on hold Contact professor every

six months for an update

Research { 80%

10%

10%

inventions reviewed 250+

new projects 35+

ongoing projects 83

new companies created 30

external investment in new and existing VL companies in 2012 $185M

total of angel & VC investments in VL companies $700M+

2012

1 Rice Alliance for Technology and Entrepreneurship Rice University United States

2 VentureLab Georgia Tech United States

3 UB Technology Incubator State University of New York, Buffalo United States4 NDRC LaunchPad Trinity College Dublin Ireland5 SETsquared Universities of Bath... United Kingdom6 Innovation Centre University of the Sunshine Coast Australia7 Tech 20/20 University of Tennessee United States8 ATP Innovations University of Sydney Australia9 STING KTH Royal Institute of Technology Sweden10 NCTU Innovation Incubation Center National Chiao Tung University Taiwan11 Youngstown Business Incubator Youngstown State University United States12 I3P Politecnico di Torino Italy13 Vermont Center for Emerging Technologies University of Vermont United States14 Jon Brumley Texas Venture Labs University of Texas at Austin United States15 Startup Sauna Aalto University Finland16 InNOLEvation Accelerator Florida State University United States17 TEC University of Alberta Canada18 ASU Venture Catalyst Arizona State University United States19 Oxford Entrepreneurs Incubation Centre Oxford University United Kingdom20 Mason Enterprise Center George Mason University United States21 NYU-Poly Incubator Polytechnic Institute of NYU United States22 profund - Die Gründungsförderung der Freien

Universität BerlinFreie Universität Berlin Germany

23 Sid Martin Biotechnology Incubator University of Florida United States24 Advanced Science & Technology Commercialization

CenterUniversity of Kentucky United States

25 Incubateur HEC HEC Paris France26 StarTau Tel Aviv University Israel

&#1 Engineering/Science Incubator#1 Early Stage Incubator

How?

about startups ...

1996 1998 2000 2002 2004 2006 2008 2010 2012

NASDAQ

1000

2000

3000

4000

5000

$1,000,000,000,000

we know something now that we didn’t know before

...

we know something now that we didn’t know before

we know how to build startups

we know something now that we didn’t know before

we know how to build startups

engineer

five innovations

what is a company?

A organization which sells a product or service in exchange for

revenue and profit

A bit of history...

Dutch West India Company 1620

1856 - First Org Chart

1908

Tools for the 20th Century“Century of the Corporation”

... but what about startups?

Startups are a Smaller Version of a Large Company

Startups are a Smaller Version of a Large Company

Startups are something else.

five innovations

what is a startup?

A startup is a temporary organization designed to search for

a repeatable and scalable business model.

innovation

Startups Search Companies Execute

Business Model Product/Service

Startups Companies

Old School of Startups(before 2010) ...

All I Need to Do is Execute the Plan

All I Need to Do is Make the Forecast

What we know now(and have known all along)...

Business Plansare

FICTION

"Everybody has a plan until they get punched in

the mouth."

Five year forecast?

MAGICALTHINKING

Crystal ball...

2007 2013

Previous 5-Year Plans

BusinessModel

BusinessPlan>

five innovations

what is a business model?

Business Model Generation

segmentsvalue prop.

revenue streams

customersofferinfrastructure

cost structure

activities

partners

resources

relationships

channels

financial

innovation

the Canvas

segmentsvalue prop.

revenue streams

customersofferinfrastructure

cost structure

activities

partners

resources

relationships

channels

financial

still fiction...

segmentsvalue prop.

revenue streams

customersofferinfrastructure

cost structure

activities

partners

resources

relationships

channels

financial

? ? ?

?

??

?

?

?

?

?

?

?

??

?

... and we want facts!

segmentsvalue prop.

revenue streams

customersofferinfrastructure

cost structure

activities

partners

resources

relationships

channels

financial

✔✔ ✔

?

✔✔

?

✔

✔

✔

✔

✔

?

✔?

✔

How?

pick one...

segmentsvalue prop.

revenue streams

customersofferinfrastructure

cost structure

activities

partners

resources

relationships

channels

financial

?? ?

?

??

?

?

?

?

?

?

?

??

?

design experiment ...

segmentsvalue prop.

revenue streams

customersoffer

cost structure

activities

resources

relationships

channels

financial

?? ?

?

??

?

?

??

?

A controlled experiment generally compares the results obtained from an experimental sample against a control sample, which is practically identical to the experimental sample except for the one aspect whose effect is being tested (the independent variable).

run it in the world ...

segmentsvalue prop.

revenue streams

customersoffer

cost structure

activities

resources

relationships

channels

financial

?? ?

?

??

?

?

??

?

A controlled experiment generally compares the results obtained from an

... and iterate!

segmentsvalue prop.

revenue streams

customersoffer

cost structure

activities

resources

relationships

channels

financial

✔? ?

?

??

?

?

??

?

A controlled experiment generally compares the results obtained from an

five innovations

the scientific method applies to business

©2006

innovation

64

the key idea

There are NO FACTS

in the building!

65

the big secret

Conduct 100+

Interviews

66

A manwho carriesa cat by the

tail learns something he

can learn in no other way.

Why do Startups fail?

Startups don’t fail

because theyfail to makesomething...

Startups don’t failbecause theyfail to makesomething.

Startups failbecause theyfail to makesomethingsomeone

wants to buyfrom them.

segmentsvalue prop.

revenue streams

customersofferinfrastructure

cost structure

activities

partners

resources

relationships

channels

financial

Business Model

segmentsvalue prop.

revenue streams

customersofferinfrastructure

cost structure

activities

partners

resources

relationships

channels

financial

Product / Market Fit

“If you build it, he will come...”

Tools for managing

Engineering RiskTools for managing

Customer Risk

?Waterfall Development

Porter’s Five ForcesSWOT Analysis

Project ManagementBaseline Risk Assessment

Stress TestingConcentration Methodology

Quantitative Risk Management...

five innovations

how to reducecustomer risk

Customer Discovery

innovation

Customer Discovery

Startups Search

Companies Execute

Customer Discovery

Understand the Problemthen

Develop the Solution

I find out what the world needs. Then I go ahead

and try to invent it.- Thomas Edison

Customers wantyour technology.

MYTH

Customers don’t careabout (your) technology.

TRUTH

Customers just want their problem solved.

Customer Discovery

key ideaCustomer POV

Customer Discovery

WHO CARES?WHY will they BUY?

segmentsvalue prop.

revenue streams

customersofferinfrastructure

cost structure

activities

partners

resources

relationships

channels

financial

Product / Market Fit

How do you know you have product / market fit?

METRICS

METRICSVanity

METRICSVanity

five innovations

build to measuremeasure to learn

learn to build

Lean Startup Methodology

innovation

Agile Development

MVPMinimum Viable Product

LOWFIDELITY

HIGHFIDELITY

Minimum Viable ProductMVPBuilt to LEARN

Not to SELL

Moneyball!

METRICSActionable

the Pipeline

$$$

METRICSAARRR

acquisition activation retention revenue

referral

98

SaaS Example

$500 / user / month

$$$

100

Paid Demand @ $1500 / 1k Clicks

Organic Traffic @ $0.00

Google Adwords= $1.50 per Visitor

= $0.00 per Visitor

101

Paid Demand = $1.50 / Visitor

Organic Traffic = $0.00 / Visitor

50%

50%

102

Cost per Visitor = $0.75

103

Cost per Visitor = $0.75Visitor to Raw Lead

3%

104

Cost per Visitor = $0.75Visitor to Raw Lead

3%Raw to Qualified Lead

20%

105

Cost per Visitor = $0.75Visitor to Raw Lead

3%Raw to Qualified Lead

20%

Qualified Lead Cost = 0.75

0.03 * 0.20= $125

106

Cost per Visitor = $0.75Visitor to Raw Lead

3%

Raw to Qualified Lead

20%

Closed Deal Cost = 0.75

0.03 * 0.20 * 0.10= $1250

Qualified Lead to Closed Deal

10%

107

Cost per Visitor = $0.75Visitor to Raw Lead

3%

Raw to Qualified Lead

20%

= $1250

Qualified Lead to Closed Deal

10%

Marketing CostSales Cost

Marketing Cost Sales Cost = ?

108

VisitorsRaw Leads (RLC)

50 Qualified Leads (QLC)

10Closed Deals (CDC)

1

Sales Cost

Sales Cost = (1,667 * RLC) + (50 * QLC) + (10*CDC)

1,667

109

VisitorsRaw Leads

50 Qualified Leads

10Closed Deals

1

Sales Cost

Sales Cost = (1,667 * $2.00) + (50 * $20. 00) + (10 * $200. 00)

1,667

= $3,334 + $1,000 + $2,000 = $6,334

$2.00

$20.00

$200.00

110

3% 20%

$1,250 + $6,334

10%

Marketing Cost Sales Cost= $7,584CAC =

Customer Acquisition Cost (CAC)

111

LTV = ?

Lifetime Value of a Customer (LTV)

112

Lifetime Value of a Customer (LTV)

Average Revenue Per User (ARPU)

ARPU = Total Revenue

Customers

113

Lifetime Value of a Customer (LTV)

Average Revenue Per User (ARPU)

ARPU = Total Revenue

CustomersGross Margin =

Revenue - CostRevenue

114

Lifetime Value of a Customer (LTV)

LTV = ARPU * Gross Margin not quite...

115

Churn

churn =leavestay

116

Lifetime Value of a Customer (LTV)

LTV = ARPU * Gross Margin

Churn

117

Lifetime Value of a Customer (LTV)

LTV = 0.01

Suppose ARPU = $500 per month& Gross Margin = 40%& Churn = 1% per month

1%

$500 * 0.4 = $20,000

118

$1,250 + $6,334Marketing Cost Sales Cost

= $7,584CAC =

LTV = 0.01$500 * 0.4

= $20,000ARPU Gross Margin

Churn

Balancing a SaaS model

3xCAC < LTV

recover CAC < 12 monthswhy?

churn < 3%

the equation that matters...

segmentsvalue prop.

REVENUE

customersofferinfrastructure

COST

activities

partners

resources

relationships

channels

financial

<

... is this one: CAC << LTV

acquisition activation retention revenue

referral

CAC LTV

ifCAC << LTV

COST < REVENUEand

then COMPANY!

five innovations

define: “startup”business model generation

the scientific methodcustomer discovery

lean startup methodology

Customer Discovery

Business Model Generation

Lean Startup Methodology

Startup Engineering

venturelab.gatech.edu

@venturelab / @keithmcgreggor

keith@venturelab.gatech.edu

75 Fifth St NW, Suite 202, Atlanta GA 30308