Five Innovations
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Startups 2013 how five innovations have changed the startup world, forever Keith McGreggor Director of VentureLab @
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Five innovations that have changed the startup world forever. Presented at two locations in Puerto Rico in August, 2013.
Transcript of Five Innovations
Startups 2013how five innovations have changed
the startup world, forever
Keith McGreggorDirector of VentureLab @
1980 1990 2000 2010
South
ern B
ell
Lock
heed
Apple
Coca C
ola
Yaho
oGeo
rgia T
ech
BS MS PhD
Michele
Andrew
Sarah
school
life
work
startups
Milton
AI Atla
nta
Pixel
Resou
rces
BeInfi
nite
AnselNetr
oads
how
MediaT
ools
TheCon
cepto
ry
Guard
edNet
21e Refl
ex Se
curit
y
Back
noise
Iterat
ed Sy
stems
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
 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
75 Fifth St NW, Suite 202, Atlanta GA 30308
