MIDTERM PAPER

The midterm paper will be a preliminary work for your final project. That is, you will be working on the first layout of your business model and it will evolve throughout the semester as you try to validate your initial hypotheses. See required reading of Week 4 for more details on what that means (http://bit.ly/sb_cust) For the second half of the semester, we will ask you to interact with real customers, partners, providers etc to evaluate your business model.

We don't want you to write a lot. But we want you to think a lot. Please read the questions below, and then think hard about them in very specific terms with regard to a your company/situation. We encourage you to do research while choosing your company/hypothetical situation. Your choices here will be a major determinant of how well you satisfy some of the below criteria, and hence your grade. A great paper will have spent a relatively small amount of time writing, relative to the amount of time spent thinking and researching.

The paper will be graded based on the following criteria:

1. Crisp writing: to the point, corporate executive summary style writing is encouraged; don't caveat too much, and don't try to be polite or complete in covering all bases
2. Quality, Creativity, Originality and Clarity of Thought: choice of company/product in light of questions asked, thinking out of the box, coming up with interesting, original solutions and ideas and non-textbook points of view, clear thinking and exposition
3. Judgment: The choice of company, and especially the richness of the issues it exposes per the questions below. So please think hard about that up front.
4. Realism: The realism of the company's situation and the issues you examine. All companies have challenges and opportunities, and they are usually very specific to the company itself.
5. Domain knowledge in technology and business: demonstrating deep understanding of technical and non-technical issues; researching on the Web to acquire knowledge is strongly encouraged
6. Choice and exposition of Tradeoffs: the section on design and technical tradeoffs will carry more weight, so we encourage you to spend more time on it -- we are looking for specific trade offs that make business sense, and that don't have an obvious answer
7. Language: good writing in general
8. References: citing relevant material, can even be online resources

Apart from the paper, we want you to fill out a business model canvas in order for you and us to keep track of the evolution of your business model. Specifically we will be using Alexander Osterwalder’s business model canvas as our layout. It can be downloaded from here http://bit.ly/sb_canvas For explanation of the canvas, it is strongly recommended to watch Steve Blank’s Udacity lectures. They are available here http://bit.ly/sb_course . You may also want to take a look at the books Business Model Generation by Alexander Osterwalder and The Startup Owner’s Manual by Steve Blank. Most importantly talk to us about the details, show us your prototype, we want you to create a sound business model. Many of the questions below are closely related to how you should be filling your canvas and structured in a way to guide you through the process.

PART I

A. Vision

1. Why are you starting this company?
2. What change do you want to achieve in the world, or what do you want the world to look like as a result of your startup?
3. What is your startup going to do toward realizing the above vision (or beyond)?

B. Customers and Segmentation

1. Who are your customers?
2. How would you segment your customers?
3. How would you define your customer archetypes/personas? No more than five.
4. Who is in the role of the following: influencer, recommender, decision maker, buyer, end user?
5. Within the broad group of customers to which your offering is applicable, what are segments of non-customers, i.e. people who are unlikely to buy or use your offering in the near term? Why are they non-customers?

C. Value Propositions

1. Why would customers buy or use your product/service? What ‘jobs’ are being done by it (see Clayton Christensen’s Job-To-Be-Done Theory http://bit.ly/cc_job)? Is your offering a pain-killer (a must-have) or a vitamin (a nice-to-have) for the customer? What pains are you solving for customers? (see http://bit.ly/pg_idea)
2. Why is the problem difficult to solve? What do people do today to solve their problems?
3. What, if any, are major behaviors that you need customers to change in order for your offering to be successful with them? How will you influence them to change this behavior?
4. What do you think the world look like 3 years after you arrive on the scene?

D. Market and Competition

1. What are the appropriate metrics to estimate market size? e.g. dollar spent, page views
2. What is the size of total available market, served available market and target market?
3. What kind of market are you operating (existing market, re-segmented market, new market, clone market)? Is your product a substitute, a replacement, a variant or new?
4. Who are your competitors? What is the basis of the competition? e.g. price, market size
5. What technical capabilities and market insights do you have? What is your competitive advantage?
6. How fast did your competitors grow? If you are operating in a new market, think about a comparable company or companies.

E. Product Offering and Design

1. What are the main capabilities or characteristics of your first product offering? What do you think is “Minimum Viable Product” and will your first offering be that or something more? What key features/services you should build first?
2. Will your product create network effects? If so, explain. Can you create customer lock-in / high switching costs? If so, would you plan to do that? Why or why not?

F. Customer Acquisition / Distribution

1. How are you going to create initial demand? What are your initial customer/user acquisition strategies? Make sure to explain for every customer archetype, if different.
2. How will you grow demand beyond that, and what additional customer acquisition strategies will you then use?
3. What structured channels would you use to get your product to customers/users?
4. What is your customer acquisition cost for each of the above approaches? For each channel, explain the channel economics; in particular how revenue would be divided among the constituents in the chain.
5. How many people have heard of your product so far (awareness)? What percentage of them are interested in your product (interest)? What percentage of these actually thinking of buying your However product (consideration)? What percentage of them actually have bought the product (purchase)? Talk to at least 20 customers for physical products and talk to at least 100 customers for virtual products. A simple survey is adequate at this point.
6. Is there an opportunity for viral distribution? If so, describe it and why you think it will work.

G. Customer Retention, Happiness and Up-Selling

1. What are your main strategies to keep your customers once you have acquired them?
2. What do you think you can do if you wanted to focus on making customers truly happy.
3. How can you extract more value from your existing customers? e.g. unbundling, upselling, cross-selling, referrals, upgrades etc

H. Revenue and Pricing

1. How do you make money, and from whom? Describe your (prioritized) revenue streams, if you have more than one. If you are going to make money from advertising, describe how you plan to monetize (through whom, etc.)
2. What value (not price) is the customer paying for?
3. How and how much the customers are currently paying for similar products?
4. How will you price? What are your pricing tactics for each revenue stream and why? Value pricing, volume pricing, negotiated pricing, auctions, freemium, leasing etc.

5. Which approach are you planning to take: a “user growth first” approach or a “revenue first” approach, or a “quick path to profitability” approach? Explain why?
6. Draw the payment flow diagram (see an example here http://bit.ly/payment_flow)

I. Partners

1. Who are the key partners / suppliers needed to make your business model work? (Outside of the customer acquisition channels above.)
2. For each partner, say why you need them. What are the key resources do they provide, e.g. faster marketing, supply chain, access to new markets, expertise etc.? At what stage do you need each partner or type of partner?
3. What is in it for each partner? How do you think they can benefit from the relationship?
4. What is the cost of each of the partnerships to you? What are the partnership risks you are taking in each case? What can go wrong?

J. Key Resources / Activities

1. What are the physical resources you may need for the first two years? How are you planning to acquire them? e.g. office space, warehouse, vehicles etc.
2. What are the financial resources you may need for the first two years? How are you planning to acquire them?
3. What are the human resources you may need? How are you planning to acquire them? e.g. qualified employees, mentors, advisors etc.
4. What are the intellectual resources you may need? How are you planning to acquire them? e.g. patents, copyrights, exclusive contracts etc.

K. Costs

1. What is your key sources of fixed cost? What are your key sources of variable cost?
2. What are the most expensive resources in your business?
3. What are the most expensive activities in your business?

PART II

Answer the next questions assuming the role of CTO

A. Product Design and Development:

1. When designing and developing new products and/or services, what are the most important technical decisions you would take into account early on versus later on? What are the steps that you consider important in taking an idea from design to implementation? Please make sure to communicate the high level principles, while talking about the specific examples from your company.
2. Differentiation, in terms of technology and product capabilities, technical barriers to entry (if any) in the specific market that the company is operating in. If there aren't any real technical barriers, clearly state that.
3. What are the next three top development priorities in the product area, and why. Explain in some depth, and again in the specific context of your business and offering.

B. Technical Decisions/Process:

How will you affect technical decisions in your company? Many of the key technical decisions will be your call anyway, but what "internal process" will you generally follow when deciding between competing choices? Example you can discuss may include, but are not limited to, choice of programming language for development, choice of data store for storing information, architectural choices, choice of tools for data analysis, etc. Feel free to select any example(s) to explain your approach, as long as it a (highly) technical decision, and you feel that it's important for the success of your company. Remember to include all necessary technical details in your example(s). Please don't only pick choices where the choice is obvious (though some of those are fine to show what you've learned), but also choose ones that expose interesting tradeoffs and why you would make one choice and not the other.

C. Product and/or Technical Trade-offs:

A description of three major technical design decisions (technology or product related) that will need to be made by the company in the near future. For each, state the major options and their pros and cons very objectively, and then state your proposed option and explain why you plan to choose it and what the risks with it are. Explain in some depth, and again in the specific context of your business and offering.

You need to be specific enough and give sufficient technical and business related details, and yet keep your target audience (non technical board of directors) in mind.

D. Metrics:

1. What 3-5 technical metrics or Key Performance Indicators would you consider most important for your company? Which of them do you think would be easiest to measure quantitatively and which most difficult? Please be brief in your explanation of metrics.
2. What are the user engagement metrics, if any, that matter most for your business model?
3. What are the most important metrics you would use to drive your business: (a) in the first year, and (b) thereafter?  How would you measure them?

What to Submit

One submission per group, please.

Midterm Paper:

1. single pdf file
2. at most 10 pages (excluding cover page)
3. font size of at least 11
4. one of the following fonts: Arial, Times New Roman or Calibri
5. at least 1 inch margin on every side

Business Canvas

1. single separate pdf file
2. containing only keywords / phrases
3. preferably colored

Where to Submit

Submission Link

When to Submit

Monday, March 25 11:00am

You will not get any credit for late submissions. We will grant extensions only in the case of illness (with a doctor's note) or extraordinary circumstances. Extracurricular activities and heavy workloads in other classes don't count as "extraordinary", no matter how unexpected or important or time-consuming. Please let us know ahead of time if illness or an extraordinary circumstance will cause you to submit a writeup or paper late, then you should discuss the matter with your instructor as soon as possible.