Last week I finished a course on building a Startup by Steve Blank. The guy is a genius. Here’s 5 slides worth your time.
Revenue forecast (aka hockey stick effect)
What you can expect vs what new business people get wrong (the straight line is wrong – by year 4 they are broke and go bust because their spending is based on an incorrect graph)
This graph refers to “New Market Startups”. There are actually 4 types of startups with different revenue forecasts. But as I am building a New Market startup this is the graph that I was most intrigued by.
Young startups price on what it costs them to provide the product.
If you understand the value you are providing, you can get a much better idea of what to actually charge your customers. Customers you talk to may tell you they won’t pay based on value, but they will. If the product however isn’t worth as much to your customer as it is costing you to build it, then that is a good place to stop and reevaluate what you are building (before it’s too late).
Revenue First companies
- This is for companies that are not Freemium. You need to know when you expect to hit these marks. Going in blind can be either disillusioning, or you might not have a plan when you do hit these marks and will be reacting rather than strategizing.
- “Important to know when you will hit these marks because it is very rewarding when you do” – S.B.
It’s a simple ratio formula. It is normal for a customer to cost more than you can make from them within one year. What matters is the LTV (how long the customer is with you multiplied by the total amount of money you can make on them including ad-ons and upgrades)
- At first this is based on guessing (but as Steve says, guessing is okay at first because its not possible to know when you are starting out, you get to validate assumptions later)
- Viral loop doesn’t work for every company (ie markets where users are competitors)
Validating customer needs -> Product market fit
- All very logical, but without validating the product market fit you can’t know if customers will actually use the product you are creating.
This is only a glimpse of what I’ve learned from the course. I will be posting more articles breaking down some of the pieces that were particularly useful to me. If you are building a startup I strongly recommending taking Steve’s course at Udacity.com
I help people build better web apps and make a difference in the world. I enjoy sharing what I am learning and find interesting. I live on the Left Coast of Canada with my wife. Follow me on Twitter.