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47 lines
2.7 KiB
Plaintext
47 lines
2.7 KiB
Plaintext
AGENDA: Most important things to look for in a start up
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TAM: Make sure the market is sufficiently large than once they win they can get rewarded
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- Medium sized markets that should be winner take all can work
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- TAM needs to be realistic of direct market size
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Product market fit: Being in a good market with a product than can satisfy that market
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- Solves a problem
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- Builds a solution a customer wants to buy
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- Either saves the customer something (time/money/pain) or gives them something (revenue/enjoyment)
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Unit economics: Profit for delivering all-in cost must be attractive (% or $ amount)
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- Revenue minus direct costs
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- Raw input costs (materials, variable labour), direct cost of delivering and servicing the sale
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- Attractive as a % of sales so it can contribute to fixed overhead
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- Look for high incremental contribution margin
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LTV CAC: Life-time value (revenue contribution) vs cost to acquire customer must be healthy
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- LTV = Purchase value x number of purchases x customer lifespan
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- CAC = All-in costs of sales + marketing over number of new customer additions
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- Strong reputation leads to referrals leads to lower CAC. Want customers evangelizing product/service
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- Rule of thumb higher than 3
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Churn: Fits into LTV, low churn leads to higher LTV and helps keep future CAC down
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- Selling to replenish revenue every year is hard
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- Can run through entire customer base over time
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- Low churn builds strong net dollar retention
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Business: Must have sufficient barriers to entry to ward off copy-cats once established
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- High switching costs (lock-in)
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- Addictive
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- Steep learning curve once adopted (form of switching cost)
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- Two sided liquidity
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- Patents, IP, Branding
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- No hyper-scaler who can roll over you quickly
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- Scale could be a barrier to entry but works against most start-ups, not for them
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- Once developed, answer question: Could a well funded competitor starting up today easily duplicate this business or is it cheaper to buy the start up?
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Founders: Must be religious about their product. Believe they will change the world against all odds.
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- Just money in the bank is not enough to build a successful company. Just good tech not enough
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to build a successful company
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- Founders must be motivated to build something, not (all) about money. They would be doing
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this for free because they believe in it. Not looking for quick score
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- Founders must be persuasive. They will be asking others to sacrifice to make their dream come
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to life. They will need to convince investors this company can work and deserves funding.
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- Must understand who the customer is and what problem they are helping to solve.
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- Founders aren’t expected to know all the preceding points in this document but have an understanding of most of this, and be able to offer a vision. |