In this WSJ article The Venture Capital Secret: 3 Out of 4 Start-Ups Fail, Deborah reiterated that: 

The National Venture Capital Association estimates that 25% to 30% of venture-backed businesses fail.

While that’s already a pretty daunting number, I wonder what the failure rate is among consumer-oriented startups?

There are many startups that think they can make money from consumers. Just look at the number of apps in Apple App Store. How many apps are $0.99 or free with ads. However, there’s an inherent problem in many consumer-facing business models, which is typically:

Cost of User Acquisition > Lifetime Value of Customer

Let me explain. 

In order to acquire a customer, a company needs to market it’s products and/or services, engage with potential customers, and ultimately get them to pay. However, the cost is frequently exorbitantly high.

Let’s use online advertising as an example. Google AdWords are expensive, but let’s assume a cost of $2 per click. Once a user clicks through the ad, the goal is to ultimately convert the user to a paid customer. While conversion rates can vary drastically, again, for argument sake, let’s assume a 5% conversion rate (which is fairly good). Let’s also assume the product sells for $1.

This would mean that a click would result in 

1 click x $2/click x 5% purchase/click x $1/purchase = $0.10 in revenue

or, in other words, for every $1 in revenue, the company would need to spend $20 (for 10 clicks):

10 clicks x $2/click x 5%purchase/click x $1/purchase = $1 in revenue

As you can see, it costs this company $20 just to earn $1 in revenue, and this doesn’t even take into account cost of goods and overhead costs, such as marketing, management, engineering, operations, etc. In other words:

This is an example of Cost of User Acquisition > Lifetime Value of Customer, where $20 > $1, which isn’t sustainable and the company ultimately fails.

There are a couple ways to help solve this problem, including:

1. Decreasing Cost of User Acquisition
2. Increasing Lifetime Value of Customer

While there are many ways to reduce the cost of acquisition for consumer-oriented companies, I believe one of the most efficient ways  is to partner with other companies that can be channel partners. Depending on how the partnership is structured, the other company can provide leads, in which the company still needs to handle customer conversion, or the other company can help resell, which provides the company with revenue in exchange for portion of it. This reduces many variables in the above equation so that the Cost of User Acquisition decreases.

On the flip side, the company can increase the Lifetime Value of Customer (LTVC) by increasing the price of the product/service or cross-selling the consumer on other products/services. Apple does a good job of it by encouraging consumers to buy other products in the portfolio and thus increasing LVTC.

This is a topic that I’m very interested in and I’ll be discussing this more in upcoming blog articles. If you have examples or comments, I’d be very interested in your thoughts.

When we launched PandaTrail, it was difficult to find relevant keywords and advertise on Google effectively. It was a lot of trial and error. However, given the costs of AdWords, it was a lot of expensive trial and error. 

Recently, we came across a tool that’s changed how we discover keywords (for SEO and SEM) for PopNod - our newest StartupDiving project which enables users to earn cash back while shopping online and easily donate a portion to their favorite cause.

The tool we’ve been using is SEMRush.

It’s quite simple. Here’s how we did it:

1. Find websites of our competitors (if we didn’t have competitors, then our business model probably doesn’t work)

2. Enter them in SEMRush

3. Use the data from the dashboard to make informed decisions on which keywords to A/B test (that’ll be a topic for a future blog article)

We’d love to hear how you discover keywords and how you implement them. 

From Facebook’s SEC filings for IPO:

http://www.sec.gov/Archives/edgar/data/1326801/000119312512046715/d287954dex106.htm

Interesting notes:

• base salary of $500,000 per year
• bonus up to 45% of base salary
• 21 days of Paid Time Off

Here’s the link to 2005 Officer’s Stock Plan:

http://www.sec.gov/Archives/edgar/data/1326801/000119312512046715/d287954dex103.htm

• Approved date Nov 8, 2005
• Exercise Price: $0.72
• Total shares: 1.5M
• Vesting: option exercisable at any time after Nov 8, 2005 at 1/34 of total shares on each monthly anniversary

I recently attended a LeanUX workshop by Josh Seiden (@jseiden). It was very inspirational, educational, and fun. Just ask him about his “Internet Mouse”!

There were definitely many things I learned. However, the most transformational, which is also coincidentally the easiest to remember and the most actionable, was to start thinking and communicating based on “outcomes”, rather than “outputs”. So instead of thinking about how to achieve a task, think about what I want to achieve, and explain it to others using that paradigm. 

Here’s an example:

The Output Approach: “I want you to build a bridge with cables, concrete, and lots of colorful flags decorating the sides.”

The Outcome Approach: “I am interested in building a bridge so people on this side of the river can get to the other side without getting wet.”

The interesting results of the latter approach are:

1. The audience is motivated and enabled to be creative and think of alternative solutions.

2. The audience is more receptive to my ideas because I am not dictating how to do something, but rather why we are doing it. Thus leaving the how to the experts.

3. It’s a lot easier to test my hypothesis based on outcome rather than output. So in this example, the test is whether people can get to the other side of the river rather than their opinions on the colors of the flags. Which I’m sure is a very fun topic in itself.

What do you think about LeanUX and about this paradigm shift? Let me know, I’m interested in your thoughts and suggestions.

P.S. You can follow Josh’s blog at http://joshuaseiden.com/blog/ or read a great article about LeanUX on SmashingMagazine: http://uxdesign.smashingmagazine.com/2011/03/07/lean-ux-getting-out-of-the-de…

This is a bit off-topic, but quite a few of my friends asked me to write about how I buy new cars, at significant discounts and while saving time. Here’s a list of things I do that I’ve learned throughout my car buying experiences. I’m interested to hear yours.

A couple notes:

• I purchased my first car in college without doing much research, and realized that I overpaid by a couple thousand dollars. I vowed never to repeat the same mistake again. 
• I figured that I can clip all the coupons I want, but the amount of money I have saved on a car purchase can pay for all the coupons in my lifetime. 
• Car dealers are incentivized to hit quotas on a monthly basis. Once they reach a specific quota, they receive holdbacks on every car they sold that month, which is a big bonus. Because of this, it’s best to make the purchase towards end of the month, but not the last few days (they already know if they are or are not going to reach quota, so less motivated to negotiate)
• My steps here deal with the actual car buying negotiations process. There’s plenty of other web sites that discuss what to buy.
• The trick to this process is research. Arm yourself with enough info, and the dealer can’t take advantage of you.
• As always, your results may vary. I’m not affiliated with any of these websites I mention.
• PS. Special thanks to Professor Diamond at Wharton, who’ve inspired me to embrace negotiations instead of dreading it.

Steps

1. Go online to http://www.edmunds.com to get an idea of which car you like.
2. During the early days of the month, take your time and visit car dealers and test drive cars until you find one that you like. When you go in to a dealership, tell the sales person right away that you are not buying today - you are just test driving. If the person doesn’t want to help you, find someone else or another dealer. DON’T talk about price at all.
3. At about the 22th-27th of the month, once you’ve determined which car and model you want, go back to Edmunds.com and find out what incentives there are for the model. The next steps, which are negotiations steps, takes only 2-3 days.
4. Go to http://www.truecar.com and research your car. You need to know the MSRP, invoice, and best local price. Feel free to get a quote from dealers. (P.S. TrueCar gets paid when you ask for a quote from dealers)
5. It’s very easy to compare cars from one dealer to another. Just look at the MSRP. Typically, you can determine which options are included for a specific model just by comparing the MSRP.
6. Once you get quotes back from each dealer. Check their website to make sure they have the car you want in inventory.
7. Email each dealer for best price. Tell them you won’t come in to dealership until the purchase price has been negotiated. Get a quote back in writing (hence email is preferred and not calling). Use one dealer’s price to beat another, starting from the lowest price via TrueCar.com (which is usually closer to invoice price).
8. Not matter if you buy, finance, or lease, negotiate the price first. How you pay is different from how much you are paying.
   1. For financing, you can calculate the monthly payment in Excel or via an online calculator such as http://www.bankrate.com/calculators/auto/auto-loan-calculator.aspx
   2. Remember, loan amount = purchase price - trade in - downpay.
9. If you have a trade in car, get an idea on your trade in value from http://www.kbb.com. Ask dealer for rough range by giving them your car’s VIN number. Dealer should come somewhat close to that in writing.
10. Narrow down your list to 2-3 dealers, call them to confirm the car is available, confirm the price and financing rate, and confirm the trade in value range.
11. Go to dealer, agree on the price, sign the paperwork, and drive your new car away.

Very interesting…

Via: Bachelors Degree Blog