Entrepreneurship

WPMM: EPSH
Winter 2015

Sebastian Schfer
Sebastian.schaefer@wiwi.uni-frankfurt.de

Thomas Funke
funke@wiwi.uni-frankfurt.de

Good Questions
Did or Do NEVER
would
Dont assume
problems
Dont ask for opinions,
rather let them speak
about
experiences/examples
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Opinions are worthless!

Facts about their life!

Commitments!
Think vs. Do!

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The Interview Process!

Know what you want to learn!

1. Find Customers
2. Validate Problem
3. Validate Solution
4 Learn & Iterate

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Validate the problem! The interviews

Talk to the people! Dont be awkward:
- We are looking for expert feedback or we are doing a survey
- Dont: We do Customer Development
- Ask open questions
- Let them speak
- Let them be the expert
- In Person, No Skype, no phone, no email.
Stop if the responses remain the same!

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Validate the problem! The interviews

Never delegate interviews!!!

Interviews should be done by the founders
Especially if they hate sales (they need to learn it)

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Validate the solution!

Come back to the interviewees!

- Focus first on their current solution
- Discuss flaws of their current solution
- Show mockups, prototypes etc.
- Get improvement feedback
- Get them to commit
- or iterate!

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Validate the solution!

If you were wrong, be happy!

most start-ups started out wrong

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Learn & Iterate

Review in the team!

- Use exact customer wording
- Understand their answers and context
- Dont try to be correct with your assumptions
- See what you learned

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Learn & Iterate

Review in the team!

- Write down what you learned
- See which old assumptions were wrong
- Adapt your solution

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The startup process in 24 steps: 12-24

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Six key topics

1.
2.
3.
4.

Who is your customer?

What can you do for them?
How do they acquire your product?
How do you make money off your
product?
5. How do you design and build your
product?
6. And how do you scale?

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Step 12: Determine the customers decisionmaking unit (DMU)

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Step 12: Determine the customers decisionmaking unit (DMU)

Goal: Map out all the people who influence the

purchasing decision: from the end user to the
primary buyer to champions, as well as other
influencers, people with veto power, and the
purchasing department (for B2B).
Hint: The Champion and the Primary Economic
Buyer are most important; but you may have to
learn to sell to or at least neutralize some of these
other parties (e.g. with Veto Power).

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Step 13: Map the process to acquire a paying

customer

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Step 13: Map the process to acquire a paying

customer

Goal: Create a step-by-step timeline of

how a customer will determine a need for
your product, find out about it, analyze it,
acquire it, install it, and pay for it.

Hint: Estimate how long the sales cycle

will be, and any big obstacles you might
encounter in budget, regulations, or
compliance, because selling a product can
be more far more difficult than simply
meeting the Personas need.

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Step 13: Map the process to acquire a paying

customer
A Long Road from Lead Generation to Sales Conversion

Potential hurdles:

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Negotiations on the
terms and conditions
Approval levels
Education of several
people
Support requirements
Meeting delays
Changes in agendas
Budgetary cycles

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Step 14: Calculate the TAM size for follow-on

markets

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Step 14: Calculate the TAM size for follow-on

markets

Goal: Make a list of about five or six markets to enter after

your beachhead market. They can involve selling other
products to the same customers, or selling the same product
to an adjacent market.
To raise money or build a big business, the overall TAM of
your beachhead and follow-on markets (less than 10)
should be over $1 billion.
Hint: Calculate their size the same way you did in Step 4,
but without devoting as much time to it (maybe only 1/10 of
the time).

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Step 14: Example Smart Skin Care

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Step 15: Design a business model

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Step 15: Design a business model

Goal: A business model is how you extract value from

customers. Take a look at existing business models in the
industry, like subscriptions, upselling, advertising, transaction
fees, and micropayments, and build on previous steps (steps 8,
11,12, 13) to brainstorm an innovative business model.
Hint: Most entrepreneurs dont spend enough time thinking
about this. Remember that freemium and well figure it out
later arent business models.
Try to pick a business model that differentiates you from
competitors. It may provide a competitive advantage, as
business models tend to be sticky and hard to change (for
your competitors).

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Step 15: Example Mapme

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Step 16: Set your pricing framework

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Step 16: Set your pricing framework

Goal: Estimate a price based not on your costs, but on the

value you provide a good estimate is around 20 percent of
that value. Also take into consideration key prices in the
DMU (like budget caps) and the price of your competitors
products.
Hint: Be flexible with pricing for early testers. Its better to
have a high price and lower it later than vice versa.

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Step 16: Example SECDASH

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Step 17: Calculate the lifetime value (LTV) of

an acquired customer

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Step 17: Calculate the lifetime value (LTV) of

an acquired customer

Goal: Calculate the LTV based on revenue streams, gross

margins, retention rates, the life of the product, rate of repurchasing, and the cost of raising funding.
Hint: The last is crucial and expensive: startups pay a lot
in equity in order to raise money. Youll discover that
factors like your business model, gross margins, retention
rates, and ability to upsell have a large effect on your LTV.

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Step 17: Unit Economics

Key Inputs to Calculate the LTV
One-time revenue stream vs. recurring revenue stream

Additional revenue opportunities, e.g. upselling

Gross margin by each revenue stream (does not include sales and
marketing expenses or overhead costs and R&D expenses)
Retention rate vs. churn rate
Next product purchase rate

Cost of capital, incase of funding/debt

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Step 18: Map the sales process to acquire a

customer

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Step 18: Map the sales process to acquire a

customer
Goal: Figure out how the sales process will work in the short,
medium, and long term. In the short term, you are generating
demand on your own, often using salespeople or inbound
marketing, email, and social media. In the medium term,
orders flow in regularly and you can focus more on retaining
existing customers; you may use distributors at this stage. In
the long term, youre mostly focused on client management.
Hint: Once you have developed the sales process, discuss it
with experienced professionals in the industry.

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Step 19: Calculate the cost of customer

acquisition (COCA)

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Step 19: Calculate the cost of customer

acquisition (COCA)

Goal: Determine how much it costs to acquire a customer over

the short term, medium term, and long term, based on your
sales process.

Hint: COCA is hard to calculate and typically underestimated

but crucially important, as a too-high COCA can kill a business.

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Step 19: Calculate the cost of customer acquisition

(COCA)

=

=
=
= in period t
=

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Step 19: How to reduce COCA

Build an effective web presence and engage in social media; use

direct sales judiciously
Automate as much as possible
Pick a COCA-friendly business model to reduce the sales cycle
Generate Word of Mouth

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Step 19: Example viral videos

https://www.dollarshaveclub.com/
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Steps 20 & 21: Identify & test key assumptions

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Steps 20 & 21: Identify & test key assumptions

Goal: Brainstorm your 5-10 top assumptions that

havent been tested.
Design the cheapest, quickest, easiest tests you can
think of to refute or validate your key assumptions.
Hint: Review each step of the framework (e.g.
Personas priorities, full life cycle, value proposition,
next 10 customers, DMU, etc.)

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Example: A/B testing

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Exercise: Innovation Map

http://startupireland.ie/map-irelands-startup-sector/

https://innovation-map.de

https://mappedinisrael.com/
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Step 22 & 23: Define and test the minimum

viable business product (MVBP)

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Steps 22 & 23: Define and test the minimum

viable business product (MVBP)

Goal: An MVBP is something that the customer gets

value out of, pays for, and can provide feedback on. It
should be testing your most key assumptions.
Take your MVBP to customers and demonstrate
quantitatively that they will buy it, get engaged with it,
and recommend it to their friends. Develop and track
metrics on all of these.
Hint: The MVBP is further along than the lean startup
methodologys MVP.

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Step 18: First impressions

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Step 18: Example Software

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Step 18: Example Signups

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Step 24: Develop a product plan

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Step 24: Develop a product plan

Goal: Take some time to plan what features

youll add to the MVBP for your beachhead
market, and what adjacent markets youll enter
next (and how youll have to adapt the product
for them).
Hint: Dont spend too much time on this the
idea is simply to think about your options
(similar to calculating the broader TAM).

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The 24 steps are not linear

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Beyond the 24 steps

Some selected topics to be covered during the next sessions:

Selecting a founding team

Growing and building the Team and Company Culture
Selling and Sales Execution
Building your Financials and Managing Cash Flow

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Exemplary Questions
As Startup consultant you have been asked to advise the Innovation
Map initiative on how to promote the project (see slide 43;
www.innovation-map.de).
1.

As many assumptions have not been identified and tested yet, you
start with listing the key assumptions. Write down 6 key
assumptions!

2. Now that you have identified the key assumptions you design
empirical tests (in the cheapest, quickest, and easiest ways
possible) to validate or refute them. Design for each of the six key
assumptions at least one empirical test/experiment.
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Recommended Videos

How to Build Products Users Love (Kevin Hale)

http://startupclass.samaltman.com/ (Lecture 7)
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