Unit 4 - Business model development & validation Flashcards
Minimum Viable Product (It is a:)
Version of a new product which allows the team to collect the maximum amount of validated learning about customers with the least effort
- It needs the critical features for your test to yield meaningful results
- Rule 20/80: Only put 20% of the features that 80% of customers will use
• We are building something to measure actual customer behaviour (something clients are buying) instead of sending surveys or trusting our intuitions
Minimum Viable Product (Is Not:)
- Concept test (assesses technical feasibility: could the product be developed?)
- Prototype (determines how to develop the product: design, shape, materials…)
- Proven product with all the functionalities that the market wants
Minimum Viable Product - why is it useful?
- Start the create-measure-learn cycle with maximum speed and minimum budget
- Check basic business hypotheses (channels, costs, sales process…) and know how to pivot if necessary
- Teach key partners and budget
Minimum Viable Product - Goals
- Focus on customer’s needs
- Quickly reach the market
- Get information from the market
- Reduce risks when developing the model
Minimum Viable Product - How to create it
SMOKE TEST MVP
Creating an illusion that you have a great product without having finished it. Implies marketing a product and collecting orders before having a finished product
Minimum Viable Product - How to create it
CONCIERGE MVP
Developing a manual and labor intensive method to test an automated process.
Minimum Viable Product - How to create it
SPLIT TEST OR A/B TEST MVP
Methodology that allows to test two versions of the same variable to see which one is more effective
Minimum Viable Product - How to create it
CROWDFUNDING TEST MVP
Elaborate a campaign to crowdfund the idea before spending major time and money building the idea
Stages of entrepreneurial process - from idea to company
- Value proposition: development & validation
- Business model: growth & return
- Business plan
Metrics or KPI by phases
- Development and validation
Objectives: To discover and to validate customers
Keys: Activation and retention (traction) - Growth and return
Objectives: To generate demand
Keys: Acquisition, referral and return (Growth hacking)
Traction metrics
- Activation rate/conversion rate
- Rotation/ Recurrence/ Engagement rate
- Churn rate
- Cash burn rate
Activation rate
- It gives information on the ability to convert interested in potential customers
- Activation needs to be defined (From those people who have seen my add, flyer, visited my web site… how many have reacted)
“activated” audience / acquired audience
Conversion rate
Ability to monetize the business model (By turning interested in customers)
Number conversions / Total visitors
Engagement rate
- Audience that has a high “interest” (measured by time dedicated, visits to the web…).
- % of customers or users that are engaged
- This ratio is important for Facebook, Instagram and other social networks
“engaged” audience / activated audience
Total engagement/total followers
Retention rate
% of users or customers that still use the product in period t
Recurrence rate
Number of actions (eg.purchases) of users/customers in the period t of relation with the firm
Churn rate
- Rate of customers who stop buying our products or services for a particular period of time t
- Shows the speed at which we lose customers
- The difference between activation rate and churn rate shows the growth of the business (In number of customers)
Lost audience in t / Initial audience
Cash burn rate
- % of monthly consumption of funds in ordinary activity of the firm
- It is usually negative
- Will be positive at the moment when cash breakeven point is reached
- Allows to calculate cash runaway or the remaining life period if there is no income
(Cash at t - cash at t-1) / Cash at t
Phases of funding
- Pre-seed capital
- Seed capital
- Early stage
- Later stage
Pre-seed capital
- The project is an idea, perhaps with a prototype, and with part time workers
- The goal is to develop the MVP and to launch it into the market
- Is the financing phase with the greatest risk and uncertainty, it is difficult to obtain funding
- Usual solution: Bootstraping (revenues from each sale) and auto finance FFF
INVESTORS PROFILES PRE SEED PHASE:
- Founder (savings)
- Friends and Family (3Fs or just F&F)
- Accelerators (For some projects)
- Business Angels (rare during this phase)
Accelerators
”Training, coaching and investment programs during pre seed phase for small firms with several founders”
Business Angel
”Individual investor providing capital and expertise to a start-up company in pre seed or seed phase”
Seed capital
- The business model is almost validated, but breakeven point is not reached
- The goal is to pivot in order to obtain a good product/market fit
- With the product in the market traction metrics can be obtained as well as pivoting plans that may allow to obtain funds
INVESTORS PROFILES SEED PHASE:
- Business Angels
- Syndicated investors
- Crowdfunding
- Venture capital firm (rare during this phase)
Syndicated investors
“A business angel spots an interesting firm and offers more people to invest in exchange for a commission”
Types of crowdfunding
- Reward crowdfunding
- Equity crowdfunding
- Crowdlending
- Donations
Reward crowdfunding:
the sponsor receives something in exchange for his contribution (eg. pre-sale of the product, special access…)
Equity crowdfunding:
offers participation in the company for the funds
Crowdlending:
requires return of contribution and interest
Donations:
nothing is offered to sponsors in return (for social entrepreneurship)
