Startup teams should think hard about which assumptions in the business model are the most critical and the most risky. What most needs to be true for this to work? Test those assumptions first. I can't tell you exactly how to experiment on and test each and every aspect and not all business models contain each part of the business model. So you have to use some creative thinking on your own. Below are some guidelines and suggestions to get you started thinking. In general, you should try to be as quantitative and objective as you can in deciding what worked and what didn't.
You should actually build a prototype or a beta version of your site and see if you can get paying customers to use it if at all possible.
Marketing
http://youtu.be/3TltbMyJ2xY
http://youtu.be/x6-MJe-jnlA
As I mentioned on the videos, marketing starts with a thorough understanding of your customers and market segment as well as the type of market (new, growing, mature). First brainstorm several potential ways to reach your target customers. Ideally you can involve potential customers in your brainstorming. Then prioritize these marketing strategies into the cheapest and easiest ones to test out first.
You want to carefully track these marketing campaigns so that you can later calculate your cost of user acquisition. How much did you have to spend on each marketing campaign to get a single customer to buy? Or if they can't buy yet, how much did you have to spend to get them to leave an email address? Then you can start to track which type of marketing strategies are the most cost effective? You might try a campaign on facebook, hold a raffle, buy some google adwords, etc.
The rubric for grading will fundamentally be about how carefully you thought through your marketing experiments and quantified them. How many different types of marketing campaigns did your team try? Were these generated based on insights into what might work from your customers? Did your team calculate your cost of user acquisition? If so, did you try some new tactics to lower it?
Sales
http://youtu.be/c6q7cKwiwa8
If you have a consumer web product or if you have a physical product or are selling to other businesses your sales process may look very different. Nonetheless, there will be some type of sales funnel or process. If you're selling to a business, who are the key decision makers? What does their process look like for approving a sale? How long does it take? Can you brainstorm several possible sales strategies and order them from cheapest and easiest to the most expensive. Start with the cheap or free ones (contacting your network). Can you try to make a few initial sales? Which strategies or tactics seem to work best? Where to potential customers get stuck and why?
Here you will be graded based on how well you experimented with the sales process (if applicable to your startup). Did you outline a few sales strategies and track how well each of them worked, starting with the lowest cost ones? Did you actually make any sales? How clear was it what your team learned from these experiments? Did it cause you to rethink any part of the business model? If you couldn't make a sale, what did you learn that you need to change? How long is the sales process for your startup from start to finish?
Partnerships
http://youtu.be/TaDWkHoKc7A
Does your business model require partners? If you need a supplier or a distributor, can you reach out and talk to a few of them? What information do they need? Are they potentially interested in partnering with you? If so, under what terms and conditions? What types of firms seem to be most interested in partnering with you? Do you have bi-directional relevance that Alex Rampell speaks about?
You will be graded here on how well you reached out to potential partners and how much you learned about whether they'd be willing to work with your startup. How many partners did you meet with? DId you learn anything about which types of partners are interested in working with you? Did you learn something about which partners you need to target first to be able to get to others?
Distribution
http://youtu.be/TaDWkHoKc7A
http://youtu.be/Sa1JeaAjNTA
How will you distribute your product? Are there distribution partners you need to contact? Is your distribution through the web? How much will setting up distribution channels cost you? Should you sell the product directly or through a third party or retailer? What is the best way to reach your customers? Who can you talk with to learn the best way to set up distribution for your company?
Here you will be graded on how well you reached out to potential distribution partners or experimented with a couple of different distribution channels for your product. For a web product the distribution channel is the website along with how you deliver the service, experience or how you get the product to the end consumer. How well did the team track what worked and what didn't in their experiments and meetings here?
Costs
http://youtu.be/7JQZMPcF-lg
What are your costs and how can you get them to be as low as possible? See if you can estimate the cost of goods if you're producing a physical product. If you have a service or a website, then how much will personnel cost you in the first year or two? How much will server space and hosting cost you? Do you need customer support? I don't want you to spend a ton of time on financial models that will never come true. However, to check whether your business model is viable, you need to get sense for whether the dollars coming in through revenue will be greater than the dollars flowing out in costs.
You will be graded here on how thoughtful you were about your costs. Did your team make clear whether the per unit costs are lower than the per unit revenues? Is your business model currently viable? If not, what needs to change to make the revenues higher than the costs? I don't necessarily want to see a huge formal financial model out to the 6th year. That would be overkill and these are never correct. But you should be tracking and calculating your costs in terms of materials, hosting, people's salaries, etc. to know whether your business model is viable.
Revenue Model
http://youtu.be/gXlz-YPVpYQ
http://youtu.be/VGqusTa0wCw
How will customers pay you and how much are they willing to pay? Is a subscription model better than a one time payment? Is it better to rent to them or sell? Does a freemium model make sense and if so, what features will people pay to upgrade for? Run some tests with customers to see what the best revenue model would be. Are you planning to make money through advertising? If so, contact a few potential advertisers and see if they are interested and how much they would pay you. How many users do you need for them to be interested in advertising on your site. Try to think outside of the box and not just rely on advertising-based business models. It's great if you can have a few different potential revenue streams to test out. Are there other ways you might charge for the product or service? Which might yield the most revenue? How do you know?
You will be graded here on how well your team tested alternative possible revenue models. How will the team make money? Did you walk through the entire process of how exactly a dollar moves from the customer's hands to the startup? Did the team brainstorm alternative possibilities? If the team thought advertising was the right model did they actually talk to potential advertisers? If it was a monthly subscription, could they get a few paying subscribers? Are the users and the paying customers different (like for Google)? If so, were both sides tested? If the revenue model is lead generation, did the company actually try to get paid for generating a few leads?
Finally, overall, how well did the team think through which aspects of the business model to prioritize testing? Building a website or a prototype isn't necessary or possible in all cases, but where possible will give your team a higher score.
You should actually build a prototype or a beta version of your site and see if you can get paying customers to use it if at all possible.
Marketing
http://youtu.be/3TltbMyJ2xY
http://youtu.be/x6-MJe-jnlA
As I mentioned on the videos, marketing starts with a thorough understanding of your customers and market segment as well as the type of market (new, growing, mature). First brainstorm several potential ways to reach your target customers. Ideally you can involve potential customers in your brainstorming. Then prioritize these marketing strategies into the cheapest and easiest ones to test out first.
You want to carefully track these marketing campaigns so that you can later calculate your cost of user acquisition. How much did you have to spend on each marketing campaign to get a single customer to buy? Or if they can't buy yet, how much did you have to spend to get them to leave an email address? Then you can start to track which type of marketing strategies are the most cost effective? You might try a campaign on facebook, hold a raffle, buy some google adwords, etc.
The rubric for grading will fundamentally be about how carefully you thought through your marketing experiments and quantified them. How many different types of marketing campaigns did your team try? Were these generated based on insights into what might work from your customers? Did your team calculate your cost of user acquisition? If so, did you try some new tactics to lower it?
Sales
http://youtu.be/c6q7cKwiwa8
If you have a consumer web product or if you have a physical product or are selling to other businesses your sales process may look very different. Nonetheless, there will be some type of sales funnel or process. If you're selling to a business, who are the key decision makers? What does their process look like for approving a sale? How long does it take? Can you brainstorm several possible sales strategies and order them from cheapest and easiest to the most expensive. Start with the cheap or free ones (contacting your network). Can you try to make a few initial sales? Which strategies or tactics seem to work best? Where to potential customers get stuck and why?
Here you will be graded based on how well you experimented with the sales process (if applicable to your startup). Did you outline a few sales strategies and track how well each of them worked, starting with the lowest cost ones? Did you actually make any sales? How clear was it what your team learned from these experiments? Did it cause you to rethink any part of the business model? If you couldn't make a sale, what did you learn that you need to change? How long is the sales process for your startup from start to finish?
Partnerships
http://youtu.be/TaDWkHoKc7A
Does your business model require partners? If you need a supplier or a distributor, can you reach out and talk to a few of them? What information do they need? Are they potentially interested in partnering with you? If so, under what terms and conditions? What types of firms seem to be most interested in partnering with you? Do you have bi-directional relevance that Alex Rampell speaks about?
You will be graded here on how well you reached out to potential partners and how much you learned about whether they'd be willing to work with your startup. How many partners did you meet with? DId you learn anything about which types of partners are interested in working with you? Did you learn something about which partners you need to target first to be able to get to others?
Distribution
http://youtu.be/TaDWkHoKc7A
http://youtu.be/Sa1JeaAjNTA
How will you distribute your product? Are there distribution partners you need to contact? Is your distribution through the web? How much will setting up distribution channels cost you? Should you sell the product directly or through a third party or retailer? What is the best way to reach your customers? Who can you talk with to learn the best way to set up distribution for your company?
Here you will be graded on how well you reached out to potential distribution partners or experimented with a couple of different distribution channels for your product. For a web product the distribution channel is the website along with how you deliver the service, experience or how you get the product to the end consumer. How well did the team track what worked and what didn't in their experiments and meetings here?
Costs
http://youtu.be/7JQZMPcF-lg
What are your costs and how can you get them to be as low as possible? See if you can estimate the cost of goods if you're producing a physical product. If you have a service or a website, then how much will personnel cost you in the first year or two? How much will server space and hosting cost you? Do you need customer support? I don't want you to spend a ton of time on financial models that will never come true. However, to check whether your business model is viable, you need to get sense for whether the dollars coming in through revenue will be greater than the dollars flowing out in costs.
You will be graded here on how thoughtful you were about your costs. Did your team make clear whether the per unit costs are lower than the per unit revenues? Is your business model currently viable? If not, what needs to change to make the revenues higher than the costs? I don't necessarily want to see a huge formal financial model out to the 6th year. That would be overkill and these are never correct. But you should be tracking and calculating your costs in terms of materials, hosting, people's salaries, etc. to know whether your business model is viable.
Revenue Model
http://youtu.be/gXlz-YPVpYQ
http://youtu.be/VGqusTa0wCw
How will customers pay you and how much are they willing to pay? Is a subscription model better than a one time payment? Is it better to rent to them or sell? Does a freemium model make sense and if so, what features will people pay to upgrade for? Run some tests with customers to see what the best revenue model would be. Are you planning to make money through advertising? If so, contact a few potential advertisers and see if they are interested and how much they would pay you. How many users do you need for them to be interested in advertising on your site. Try to think outside of the box and not just rely on advertising-based business models. It's great if you can have a few different potential revenue streams to test out. Are there other ways you might charge for the product or service? Which might yield the most revenue? How do you know?
You will be graded here on how well your team tested alternative possible revenue models. How will the team make money? Did you walk through the entire process of how exactly a dollar moves from the customer's hands to the startup? Did the team brainstorm alternative possibilities? If the team thought advertising was the right model did they actually talk to potential advertisers? If it was a monthly subscription, could they get a few paying subscribers? Are the users and the paying customers different (like for Google)? If so, were both sides tested? If the revenue model is lead generation, did the company actually try to get paid for generating a few leads?
Finally, overall, how well did the team think through which aspects of the business model to prioritize testing? Building a website or a prototype isn't necessary or possible in all cases, but where possible will give your team a higher score.