Archive - Business Model RSS Feed

The Great Freemium vs Free Trial Debate | 3 Great Stories

May 18, 2012 in Business Model with 0 Comments

There’s always a goo debate around what’s best  Freemium vs Trial vs Paid for a software product. What’s mote never seems to be a right or wrong answer about this. Here’s 3 stories: they share similarities but they all have their unique flavor.

This topic is very current for me since I’m in evaluation mode as to what we should do with Flashissue.com from a pricing POV.

At the end of the day it comes down to what makes more money and this can only be determined by experimentation with different options, so take your pick.

The Great Freemium vs Free Trial Debate - Stu Green

 

 

The Great Freemium vs Trial Debate.

It’s generally accepted that startups should start charging as soon as possible. But for SaaS web apps the question is often whether to use a Freemium or Free Trial business model.

What is ‘Freemium’?

Freemium is a model often used by B2C services such as Twitter, Flickr and Evernote, where the user gets a Free version of the product by default and then is asked to upgrade when they want extra features beyond what the free plan offers. The signup rate is usually very high and the ratio of free users to paying users is usually very high (obviously).

via The Great Freemium vs Free Trial Debate – Stu Green.

 

Evernote Takes Off

After taking 992 days to reach 5 million members, Evernote said today it has now hit 10 million members just 208 days later. It has also eclipsed 400,000 premium members, putting the company well on its way toward its goal of 1 million paid users.

Evernote hit 5 million users on Nov. 10 last year and was up to 6 million users by the first of the year. It’s since grown by 67 percent in a little over five months to 10 million users with the last million signing up in 32 days. It had 3.6 million unique visitors in the last 30 days, up 70 percent since the beginning of the year. And perhaps most impressive is Evernote’s paid conversion growth. Premium users have more than doubled from 201,308 on Jan. 1 to 424,736 now, a 111-percent jump.

“Ten million users seemed like an inconceivable number when we were getting ready to launch the service into open beta less than three years ago. Well, it wasn’t literally inconceivable; we actually put it on business plans and investor pitch decks and everything. Yup. 10,000,000 users in three years. That what we told people. We had really pretty graphs showing the projections. Reality is much more impressive than projections,” wrote CEO Phil Libin in a blog post.

via Evernote hits 10m users as premium membership takes off — Tech News and Analysis.

Mailchimp comes to the party late with freemium

On September 1st, 2009 we announced that MailChimp was going freemium. On that day, we had 85,000 users. Now, slightly more than a year later, we have more than 450,000 users. We grew our user base five times in one year.

Earlier this month, we actually doubled our freemium plan from 500 subscribers to 1,000 subscribers. So now, even more people can take advantage of MailChimp’s powerful email marketing and social features. We had been averaging around 30,000 new users per month (about 1,000 per day), but since we increased the freemium plan this month, we’re seeing +2,000 new user days.

Another thing that’s increased dramatically since going freemium is the number of lunches I’m invited to; seems entrepreneurs and VCs really want to “pick my brain” about how freemium is doing for us. Usually, it’s because they think freemium might be that silver bullet they’ve been searching for. It can be, but you’ve really gotta be careful not to point that bullet at yourself…

via Going Freemium: One Year Later | MailChimp Email Marketing Blog.

73 Must-Measure Metrics for Your Online Business | SlideDeck Web Slider

February 24, 2012 in Business Model with 0 Comments

73 Must-Measure Metrics for Your Online Business | SlideDeck Web SliderFrom unique visitors to e-commerce conversion rate, email unsubscribe rate to lifetime value, there are dozens of metrics that can help you track the health and performance of your business. While everyone has their favorites, we’ve compiled a list of 73 of the most important analytics for online businesses of all types. While not every metric will apply to your business (and you might kill yourself trying to track all 73!,) we hope this list will inspire you to identify opportunities to improve how you measure your venture. Read our mega-list and see if there are any you’re missing. And if you don’t see your must-measure metric of choice below, let us know in the comments; we’ll continue to update this post as we find more metrics that help move your business needle.

via 73 Must-Measure Metrics for Your Online Business | SlideDeck Web Slider.

The Four Steps to the Epiphany | Founder Machine

November 22, 2011 in Business Model with 0 Comments

 

 

The essential book for anyone bringing a product to market, writing a business plan, marketing plan or sales plan. Step-by-step strategy of how to successfully organize sales, marketing and business development for a new product or company. The book offers insight into what makes some startups successful and leaves others selling off their furniture. Packed with concrete examples, the book will leave you with new skills to organize sales, marketing and your business for success.

About the Author

Steve Blank is an entrepreneur, business strategist, and retired marketing executive in Silicon Valley. He began his career 32 years ago and has been at the heart of emerging technology industries ever since. He has been involved in numerous startups and established companies, in operational roles running the gamut from CEO to VP of marketing. The breath of his experience makes him a sought-after board member, advisor and speaker. SteveÂ’s successes include E.piphany, an enterprise software company started in his living room; two semiconductor companies (Zilog and MIPS Computers), a workstation company (Convergent Technologies), a supercomputer firm (Ardent), a computer peripheral supplier (SuperMac), a military intelligence systems supplier (ESL) and a video game company (Rocket Science Games). These startups resulted in five IPOÂ’s, and three very deep craters. Steve currently.

Many of the principles presented in the book were used and fine-tuned in the creation of these companies and in SteveÂ’s many years as a high-level advisor and company board member for companies both living and dead. Steve currently teaches entrepreneurship and customer development at Stanford University School of Engineering and at U.C. Berkeley Haas School of Business. In the classroom, his ideas, methodologies, and principles on customer development are presented and proofed each day in dialogues and analyses with the best business students as well as some of the most accomplished executives in the country.

Steve is an ardent conservationist and a board member of Audubon and Audubon California.

Purchase

Full Article:  The Four Steps to the Epiphany | Founder Machine.

Subscription business. Using the Rule of 78 to estimate revenues in less than 78 seconds.

June 17, 2011 in Business Model, Finance, My Blog with 0 Comments

The Rule of 78 can be used with subscription business models to estimate revenues extremely quickly. The R78 is often used in the mortgage business but it is also very useful in the context of recurring revenue-based businesses, where a customer pays you a monthly recurring fee.

 

Who is the Rule of 78 useful to?

People running the following types of businesses:

  • SaaS (Cloud) software services – e.g. book keeping online
  • Publishing – e.g. paid monthly news letter
  • Consulting services – e.g. a monthly retainer charged by marketing consultant
  • Product rental – e.g. video rentals

What is the purpose of the Rule of 78?

To quickly calculate, back of the napkin style, my Total Annual Revenue from subscriptions. It’s very useful for comparing annual revenues when prices change, looking at revenues quickly over a number of years, without needing a spreadsheet or exploring the power of recurring revenue models.

Example scenario:

“ I run a business that hosts people’s websites; I charge them $100 per month for hosting, email and storage; I add 50 customers per month to my business. What will my Revenues be over a 12-month period? (Assuming we lose zero customers during the year. I.e. Churn = 0)

Basis of Rule of 78

If I added one dollar of recurring each month the accumulated revenue over 12 months would be $78

New Revenue Total Revenue

January                      $1                                $1

February                    $1                                $2 ($1+$1)

March                         $1                                $3 ($2+$1)

April                            $1                                $4 (etc.)

May                             $1                                $5

June                            $1                                $6

July                             $1                                $7

August                        $1                               $8

September                 $1                                $9

October                      $1                                $10

November                  $1                                $11

December                  $1                                $12

TOTAL           ==============> $78

 

Now, applying this to our website hosting business example:

Assumption #1: Monthly Subscription = $100

Assumption #2: New Customers / month = 50

Therefore,

Total Annual Revenues = ($100 x 50) =  $5,000 x 78 = $390,000

Using the Rule of 78 we have just calculated our annual revenues based on our 2 two business assumptions about subscription amount and customer acquisition. We could take this step further and ask, what if we tweak our assumptions? Assume we know, that if we drop our price to $75, we gain customers at a rate of 90 per month. What happens to revenues?

Total Annual Revenues = ($75 x 90) = $6,750 x 78 = $526,500

We’re better off by $136,500 per year if we drop our price by $25.

 

4 steps to testing a new product before you even think about creating it.

June 15, 2011 in Business Model, My Blog, Product Management with 2 Comments

A few weeks ago I boldly stated that I was going to test a number of business ideas quickly with a budget of $2,500 (see post). So, how has testing a new product gone? The premise was to avoid spending a big wedge of cash (and time) on building / launching something that nobody really wants – or more importantly, nobody wants to pay for. Side note – having something that people want but don’t want to pay for is more dangerous than having something that they don’t want at all; the former you should call a ‘hobby’. When ‘I want’ meets ‘I’ll pay’ you have permission to call it a business.

First thing to report back is that this stuff is harder than I thought. It’s become a frustrating sinkhole of time working out whether the idea is a good or not. On the positive side I’ve only spent $169 in cash and I have avoided any emotional attachment to an idea, which has been a killer in the past.  To get things back on track my first task is to get in front of customers and discover want they want.

In this post I want to focus on testing a new product by qualifying my hypothesis (I’ve set up a list of hypothesis it doesn’t matter what mine are you should have your own). The goal behind this part of discovering what my customers want to validate my assumptions.

I’m currently testing a new product around mobile publishing. Some of my key assumptions are:

  1. Entrepreneurs struggle to find good ways to have basic business concepts explained to them quickly and simply e.g. how does raising money for a business work?, what is a balance sheet?, why are early adopters important?
  2. A good way to explain these would be using short-form video and voice i.e. replicate how a buddy would explain something to me drawing on a back of a napkin while I’m having a beer at the bar.
  3. A good time to learn about these things is when I’m on the go and have a spare 5 or 10 minutes. i.e. people would want these packages up as mini video pocket guides they could watch on their phone or tablet.

Step 1: Friendly 1st Contacts

Your goal to TALK to customers face-to-face

  • List 50 prospective customers that loosely fit your profile
    • It doesn’t matter where in the food chain they live or whether they are the big buyer, this is just a starting point
    • You probably know or someone you know knows them
  • Direct customers and indirect influencers are both good
  • Make 50 calls and you’ll get 10 people to meet with. Don’t hide behind email, pick up the phone as old fashioned as it might be.
  • THIS IS NOT SALES you are in research mode. People are very open to helping.
  • Let me say it again, do not get drawn into selling your product, no matter how tempting. Your ego may get fluffed that you have a killer idea but you’ll miss gems of information.

Step 2: Problem Presentation

  • Get something ready to show people when you visit them
  • Draw up a sheet like the one below and use it in your visits

  • Goal is NOT to convince them of your idea, it’s to illicit information
  • Avoid any product features.
  • Focus on understanding problems
  • Get in “detective” mode (do not sell your product)

Step 3: Customer Understanding

  • Have the customer state their problems in their words
  • YOU CAN NOW TELL THEM SOMETHING OF YOUR PRODUCT IDEA (STILL AVOID FEATURES)
  • Understand how the customer day flows by answering the following 10 questions:
    • If they are in a company how do they interface with other departments
    • What other products to they use?
    • Is their problem limited to them or do others share it?
    • Can the problem be quantified (dollars, time, costs etc.)?
    • Will they use the product themselves?
    • Does it depend on other workers / friends using the product before they would?
    • What percentage of their time could they save by using your product?
    • How mission critical is this problem
    • Would the product solve the problem they mention
    • What barriers would there be to adopting a product like this?

Step 4: Market Knowledge

  • Go broader with your discovery
  • Interview / research
    • Analysts
    • Competitors
    • Key influencers
    • Press / bloggers
  • Friendly customers (again, this time about broad market)
  • Do it face-to-face, online / reading and at trade shows

Once this is complete you can now go back to your broader team and overlay the findings onto your product hypothesis. Remember your goal is to come up with the broadest and least features in a product that will allow you to test your hypothesis. NOW YOU HAVE PERMISSION TO TAKE A PRODUCT PROTOTYPE OR DEMO TO YOUR CUSTOMERS (BUT STILL STAY OUT OF SALES MODE).

The big challenge with this when you’re all fired up and excited about your idea is to try and sell it or convince people of it’s merits. This is not the time. If you do this you’ve already rang the death knell for your product. Avoid it like the plague. I try and put myself in the mindset of trying to find reasons why people WOULD hate my product. It’s like when I used to do cold calling in my first sales job; the only way I could deal with the rejection was to set myself a goal of being rejected 20 times a day. I would celebrate when somebody said no  to an appointment and act indifferently to myself when they said yes. I knew however that by celebrating 20 rejections I would guarantee 5 appointments. I’m not trying to get all Tony Robbins on you but the it shaped my mindset and the same thing applies as a tactic to avoid destructive emotional attachment to ideas. What you want is unimportant: what a customer wants is important.

Here’s a slightly messy mimdmap I drew when summarizes the concepts around all this (click to enlarge):

 

 

 

 

 

 

 

 

And finally…Credit Crisis Explained in South Park

Authors note: I give much credit to these ideas to Steve Blank and his book, The Four Steps to the Epiphany. Here’s a related post and link to his book.

Starting business model experiments: How i’m doing it for $2,500.

April 19, 2011 in Business Model, Marketing, My Blog, Product Management, Small Business with 1 Comment

It’s time to get going on looking at some new business ideas. Here’s the process i’m following:

  1. Generate Business Model(s) – Create different business model variations around my concept. There are 9 building blocks to my business (see list below) but I’m going to primarily test around the value proposition (VP) block.
  2. Experiment – I’m setting up real life quick and easy (and cheap) tests to validate the hypothesis behind my biz models. i.e. i’m testing customer responsiveness – aka “customer need”. Online and offline.
  3. Evaluate and iterate – as i gather feedback over the next few weeks i’ll add multiple new tests and tweak the hypotheses i’m running the tests against. Once this is done i’ll make a decision on how to move forward.

I’ve given myself a budget of $2,500 to test this model and it’s needs to be completed by end of May.

Here’s a list of the component parts in the business model process i’m using – there are nine. I created a short YouTube video for each (i’need to upload the videos but i have included one as an example). I’ve done this to help myself get understanding of the process because i’m trying it out for the first time. BTW – the concept of business modeling i’m using is from a book called “Business Model Generation” by Alex Osterwalder.

Here’s the 9 building blocks (you can see my rendition of this canvas at the top of the page):

9 Building Blocks to a Business Model

9 Building Blocks to a Business Model

Here’s one segment (Customer Segment) explained in a video i created.

The business experiment concept i’m following is a mish-mash of ideas developed by Eric Ries (Lean Start-Up) and Steve Blank (4 Steps to the Epiphany).

I’ll post a video later about Business Experiments.

I’m looking for some feedback on my business model as i move forward, so please get involved. If you sign up for my newsletter, you’ll be added to the test group (see top right of this page to sign up).