After putting together some thoughts on questions entrepreneurs should have for angels, I got a number of questions and comments from angels about some counter questions they should ask entrepreneurs in an effort to better analyze the model and company. Here's the four part series continued with the go-to-market approach, be sure to check out parts I & II.
a business model is an integrated array of distinctive choices specifying a startup’s unique customer value proposition and how it will configure activities—including those of its partners—to deliver that value and earn sustainable profits.
These choices startups make can be grouped into FOUR BROAD categories pertaining to a startup’s customer value proposition, technology and operations plan, go-to-market approach, and profit formula.
A go-to-market plan specifies how a new venture will generate and fulfill demand, addressing the following choices:
What mix of direct channels (e.g., in-house sales force; company website; wholly-owned retail stores) and indirect channels (e.g., wholesalers; independent reps; value-added resellers; franchisees; third-party retailers) will the venture employ to educate prospects, configure and deliver its products, provide after-sale service, give feedback for future product development efforts, etc.? What margin will channel partners require? Should any partners be granted exclusive distribution rights?
Does the venture have strong incentives to race for scale due to network effects, high switching costs, or other first mover advantages (e.g., economies of scale in production; opportunities to pre-emptively acquire scarce assets, patents, or capacity)? How do these incentives compare to factors that may discourage aggressive investments in customer acquisition, in particular, scalability constraints and late mover advantages (e.g., opportunities to reverse engineer pioneers’ products; to leapfrog them with superior new production technology; to free ride on their missionary marketing efforts; and to avoid their positioning errors)? (See Part 4 of this series for an overview of factors that encourage and discourage racing for scale.)
Given the expected lifetime value (LTV) of a customer, what average customer acquisition cost (CAC) will the venture target?
What mix of free and paid demand generation methods (e.g., mass and targeted advertising; product sampling; trade promotions; “freemium” pricing; public relations; customer word of mouth) will the venture employ at each stage of the conversion funnel (i.e., awareness > interest > trial > repurchase)? What will be the resulting shape of the funnel? What will be the average CAC for each paid demand generation method?
If the venture relies heavily on free customer acquisition methods, how will its product’s design encourage virality, and what will be its viral coefficient?
If the venture sells a fundamentally new product, is it likely to confront what Geoffrey Moore describes as a chasm between early adopter and mainstream customer segments? If so, what is the plan for crossing the chasm?