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BUSINESS MODEL CANVAS:

PARTNERS, KEY RESOURCES,
KEY ACTIVITIES
REVENUE MODELS & COST
STRUCTURE
ENGR 112: Laboratory to Market, Entrepreneurship for Engineers
Winter 2016, Lecture 7
Schaffer Grimm, M.S., M.B.A.
Lecturer, Henry Samueli School of Engineering and Applied Sciences
Manager of Strategic Business Planning, Institute for Technology Advancement

Nathan M. Wilson, Ph.D., M.B.A.

Visiting Assistant Professor, Anderson School of Management
Visiting Assistant Professor, Department of Mechanical and Aerospace Engineering, Henry
Samueli School of Engineering and Applied Sciences

Syllabus: Lectures
Week

Session Description
Introduction to Entrepreneurship; Small Business Paths
Business Model Canvas
Hypothesis-Driven Entrepreneurship; Customer Discovery

Markets & Industries; Industry Analysis; Marketing

Partners; Revenues & Costs; Entrepreneurial Accounting

Mid-Term Exam & Entrepreneurship in Practice

Legal Issues and IP

Introduction to Business Plans & Elevator Pitches

Raising Capital

Disruptive Innovation and Technology Transfer

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Final Presentations

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Final Exam

Agenda Session 7
TA announcements
Business Model Canvas Partners
Business Model Canvas Key Resources
Business Model Canvas Key Activities
Business Model Canvas Economics:
Revenue Models
Cost Structure

Note: Slides courtesy of the NSF I-Corps Program

KEY PARTNERS
Who are your Partners and Suppliers?

2012 Steve Blank

What defines a Partner?

Shared economics
Mutual success / failure
Co-development/invention
Common customer

But remember - youre a startup

Why Have Partners?

Faster time to market

Broader product offering

More efficient use of capital

Unique customer knowledge or expertise

Access to new markets

Types of Partners

Partners Strategic
Alliances

Reduce the list of things your startup needs to build or

provide to offer a complete product or service.
Use partners to build the whole product

Using 3rd parties to provide a customer with a complete solution

Complement your core product with other products or services

Training, installation, service, etc

Example:
In 1996, Starbucks partnered with Pepsico to bottle, distribute
and sell the popular coffee-based drink, Frappacino

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Partners Joint Business

Development

Joint promotion of complementary products

Share advertising, marketing, and sales programs

One may be the dominant player

Example:
Intel offered advertising fees to PC Vendors

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Startup mistake
Strategic alliances and joint partnerships
Not needed for Earlyvangelists
Are needed for Mainstream customers

Usually fail

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Partners Coopetition
Joint promotion of competitive products
Competitors might join together in programs to
grow awareness of their industry
Tradeshows
Industry Associations
Example:
Automotive Suppliers form the Automotive Industry Action Group (AIAG) - 900 members

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Partners Key Suppliers

Outsource suppliers
Backoffice, supply chain, manufacturing

Direct suppliers
Components, raw materials, etc.

Example:
Apple builds the iPhone from multiple suppliers

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Traffic Partners Virtual Channels

Long-term agreements with other companies

Deliver long-term, predictable levels of customers

Cross referral or swapping basis
Paid on a per-referral basis
Partners drive traffic using text-links, with onsite promotions, and
with ads on the referring site
Partners sometimes exchange email lists
http://medical-tools.com/dental/

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Partner Risks

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Managing partners - Risks

Different underlying objectives in relationship

Longest of partners schedule becomes your longest item
No clear ownership of customer
Products lack vision shared product design
Churn in partners strategy or personnel
IP issues
Difficult to unwind or end

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Should I take an investment from a

Large Company?
Issues:
They are interested in their bottom line, not yours
Their objectives are not to make you a large company
Whos the sponsor? Whats the motivation?
Needs to come from the business side
Not the venture side

Mitigate by:
Try to get sales deals not investment
Or try to offer warrants based on sales success

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Startup Partner Strategies

Dont confuse partners for Earlyvangelists vs. mainstream
Dont confuse big company partnering with startup strategy
Find the one that gives you an unfair advantage
Recognize you dont matter to a large partner

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KEY ACTIVITIES

Whats Most Important for the

Business?

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Key Activities
Production
Problem Solving (Consultants)
Supply Chain Management

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KEY RESOURCES
Whats Are Your Most Important Assets?

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Four Critical Resources

Physical
Financial
Human
Intellectual

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Physical Resources
Company facilities
office space, company location
Product/services
supply of silicon wafers or iron ore, or

thousands of feet of warehouse space?

Many physical goods are capital

intensive

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Financial Resources
Friends and Family
Crowdfunding
Angels
Venture Capital
Corporate partners
Others: SBA or SBIR grants
Lease-lines
Factoring
Vendor-financing

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Human Resources
Qualified employees
Mentors, teachers, coaches,
Advisors

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Human Resources:
Qualified Employees/Culture
Are the difference between a good idea

that never went anywhere and a billion

dollar firm

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Human Resources:
Mentors, Teachers, Coaches
Mentors, teachers, coaches advance your personal

career
If you want to learn a specific subject find a teacher
If you want to hone specific skills or reach an exact goal hire

a coach
If you want to get smarter and better over your career find
someone who cares about you enough to be a mentor

Human Resources:
Advisors

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Advisors are people you need to help

advance your companys success

Founders fail when they believe their visions are

facts
Listening to experienced advice can help you
sort through whether your vision is a
hallucination
Getting an advisory board (by expanding your
circle of accumulated wisdom past their
investors) is so important that its an explicit
step in the Customer Development process

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Intellectual Resources (Property)

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REVENUE STREAMS
How do you Make Money?

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The Two Key Questions

Whats my revenue model?
Within the revenue model how do I

price the product?

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REVENUE MODEL =
the strategy the company uses to
generate cash from each customer
segment

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Revenue Streams
1. How many will we sell?
2. Where/who is the money coming
from?
3. How do we price the product?
4. Does this add up to a business worth
doing?

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How Many Will You Sell?

Whats the Market Size & estimate of Market

Share?
How many can your channel sell?
How much will the channel cost?
How many customer activations?
Revenue? Churn/Attrition rate? customers/?

How much will it cost to acquire a customer?

How many units will they buy from each of these efforts?
Top down: 10% of a million-person market=100,000 customers
Bottom up: 1,000 customers/month 1st year => 3,000/month 3rd year

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Where is the money coming from?

Revenue Model Choices
Channel
Web

Physical

Direct Sales
Products
License
Bits
Subscription
Upsell/Next Sell

Direct Sales
Products
Subscription
Add-on services
Upsell/Next Sell
Referrals

Ancillary Sales:

Direct Sales
Products
Service
Upsell/Next Sell
Referrals
Leasing

roduct

Physical

Referral revenue
Affiliate revenue
E-mail list rentals
Back-end offers

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Key Revenue Model Questions

What are my customers paying for?
What capacity do my customers have

to pay?
How will you package your product ?
How will you price the offerings?

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PRICING MODEL =
the tactics you use to set the price
in each customer segment

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How to price the product?

Pricing Models - Physical
Cost plus
Competitive

pricing
Volume pricing
Value pricing
Portfolio pricing

Razor/razor blade
model
Subscription
Time/Hourly Billing
Leasing

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Common approaches to pricing

Cost based

Value based

Cost + markup
Typically not a strategic way to price
Driven by internal economics and not
customer insight

Based on buyers perception of value

(e.g. time saved, new efficiency
created, etc.)
Customers dont necessarily feel that
they want to pay this way

Additional components of
pricing

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Exclusive vs. non-exclusive

What do you price?

What do you give away for free?

How does cost vary at different production

levels?

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Competition as an influence
Nature of
Market

How they will

react?

Pure competition
Oligopoly
Monopoly

What is their product?

What are their costs and prices?
What pricing will make them feel the
worst?

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Single versus
Multi-sided
Markets

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Single/Multi-side Markets
Single-sided markets care about

revenues
Multi-sided markets may care about

users first, revenues second

Often Web-based

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Users First Companies

If you say your business is advertising based:
How do you get to 10M monthly users?
How do you become one of the top 5

websites visited?
How much do the payers actually pay?

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Revenue First Companies

Time to doublings for monthly revenues

Key questions:
When will I get to $100k/month in revenues?
When will I get to $1M/month in revenues?
What assumptions about my business am I

making when I reach these milestones?

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Market Type and

Revenue

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Other Issues
Distribution channel affects revenue

streams
Market type affects revenue streams
Demand curve affects revenue streams
Consider lifetime value

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Common categories
of Web/Mobile revenue
models

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Direct revenue models

Sales: Product, app, or service sales
Subscriptions: SAAS, games, monthly

subscription
Freemium: use the product for free:
upsell/conversion
Pay-per-use: revenue on a per use basis
Virtual goods: selling virtual goods
Advertising sales: unique and/or large
audience

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Ancillary revenue models

Referral revenue: pay for referring

traffic/customers to other web or mobile sites or

products.
Affiliate revenue: finders fees/commissions from
other sites for directing customers to make
purchases at the affiliated site
E-mail list rentals: rent your customer email lists
to advertiser partners
Back-end offers: add-on sales items from other
companies as part of their registration or purchase
confirmation processes, or sell their existing
traffic to a company that strives to monetize it and
share the resulting revenu3

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Asset Sale
Sale of ownership right to a physical

product

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Usage Fee
Usage of service. Fee is proportional

to the usage of the service.

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Subscription Fee
Fee for continuous access to a service

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Renting
Fee for temporary access to a good or

service

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Licensing
Fee for use of some IP (including software)

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Intermediation Fee
Often found in marketplaces of various

types, a fee for bringing together two or

more parties involved in a transaction

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Advertising
Fee paid by brands and companies to get in

front of potential customers

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COST STRUCTURE
Metrics that Matter

plans
Startups search for them
Income Statement, Balance
Sheet, etc are execution
documents
You first need to derive the
metrics that matter

Existing companies execute

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Search vs. Execution Metrics

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Metrics That Matter

Value proposition: product cost, mkt size/share,
competition?
Customer Relationships: customer acquisition costs,
conversion rates, lifetime value?
Market Type: revenue curves
Operating Costs: basic operating costs of the business?
Channel: Channel margin, promotion, shelf-space charges?
Revenue Streams: average selling price, # of
customers/year, achievable revenue?
Burn Rate: per month? When will the company run out of
cash?

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Example:
Enrou:

http://www.forbes.com/video/4261048598001/

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Readings for next class

Course Reader: Overview of Financial Accounting