Building Startup

Unit –V
Contents:
• Kelly Johnsons KISS Principle
• Road map for building a startup, identify, analyze and
evaluate funding
• advantages of crowd funding
• Pricing strategies
• Determining factors for Monetizing Innovation,
• Process of Monetization
• Fixing the price of an Innovative Project
• Detailed study on market potential
• pitfalls and Negative effects of Monetizing innovation
• Reasons for failure of Monetization of Innovation.
 Kelly Johnsons KISS Principle

KISS (Keep it Simple, Stupid) - A Design Principle

 KISS principle
• KISS, an acronym for "keep it simple, stupid" has been
associated with aircraft engineer Kelly Johnson. The
term "KISS principle" was in popular use by 1970.
• Variations on the phrase include: "Keep it simple, silly",
"keep it short and simple", "keep it simple and straight
forward“, “keep it small and simple", "keep it stupid
simple" or the less offensive "keep it simply stupid"
• The KISS principle states that most systems work best if
they are kept simple rather than made complicated;
therefore, simplicity should be a key goal in design, and
unnecessary complexity should be avoided.
• https://www.youtube.com/watch?v=TpJJtB6p
RlA

• https://www.youtube.com/watch?v=D4hDIBD
IpY0&t=22s

• https://www.youtube.com/watch?v=QWMwv
47cZkI
Small Business Vs Startup
Big Companies Vs Startups
BUSINESS MODEL CANVAS
Sample BUSINESS MODEL CANVAS
 Road map for building a startup
• Planning to launch a startup around a new product? The
Product Roadmap will help you ask the right questions, talk to
the right people, and make the right moves every step of the
way.

• You’re probably in a rush to get your product built, but first

you need to do two things:
Refine your idea
Raise some money

• Both of those are complex—involving many smaller steps that

need to happen in the right order. How do you know what to
do first?
• That’s where the Product Roadmap comes in. It’s a scientific
approach to developing and maturing your product. For each
step of the roadmap, you’ll create a hypothesis, then build an
experiment to test it.

• If you get the results you want, move to the next step. If you
don’t, pivot and repeat the step with another hypothesis (or kill
the idea altogether).

• The roadmap will help you start simply and invest the
appropriate amount of time and effort on each step. As you
progress through the phases, the cost of running an experiment
increases, but so does the product’s viability.

• For each step of the journey, I’ll outline some suggestions

about what you should be doing, an approximate budget, and
the types of people and/or organizations you should seek out.
 Baseline Assumptions
• This roadmap assumes that:
• You have a great idea.
• You have some money and time to get things bootstrapped, but
you’ll also be raising money at some point.
• You don’t have the required skills to create everything
yourself.
• You’re willing to take a scientific approach to mature your
product.
• You’re willing to listen to the market, kill bad ideas quickly,
and double down on good ideas.
 Advantages of crowd funding
Crowd funding is the use of small amounts of capital from
a large number of individuals to finance a new business
venture.
Crowd funding makes use of the easy accessibility of vast
networks of people through social media and crowd funding
websites to bring investors and entrepreneurs together, and
has the potential to increase entrepreneurship by expanding the
pool of investors from whom funds can be raised beyond the
traditional circle of owners, relatives and venture capitalists.

Eight advantages of crowd funding:

1) It can be a fast way to raise finance with no upfront fees
2) Pitching a project or business through the online platform can
be a valuable form of marketing and result in media attention
3) Sharing your idea, you can often get feedback and expert
guidance on how to improve it
4) It is a good way to test the public’s reaction to your
product/idea - if people are keen to invest it is a good sign
that the your idea could work well in the market
5) Investors can track your progress - this may help you to
promote your brand through their networks
6) Ideas that may not appeal to conventional investors can
often get financed more easily
7)Your investors can often become your most loyal
customers through the financing process
8) It’s an alternative finance option if you have struggled to
get bank loans or traditional funding
• https://www.youtube.com/watch?v=KqJs_NHj
V14
 Pricing strategies
Good pricing strategy helps you determine the price point at
which you can maximize profits on sales of your products or services.
When setting prices, a business owner needs to consider a wide
range of factors including production and distribution costs,
competitor offerings, positioning strategies and the business’ target
customer base.

While customers won’t purchase goods that are priced too high,
your company won’t succeed if it prices goods too low to cover all of
the business’ costs.
Along with product, place and promotion, price can have a
profound effect on the success of your small business.
10 Types Of Pricing strategies
Premium pricing
Premium pricing, also called image pricing or prestige pricing,
is a pricing strategy of marking the price of the product higher than
the industry standards/competitors’ products.
The idea is to encourage a perception among the buyers that the
product has a more utility or a higher value when compared to
competitors’ products just because it is sold at a premium price.

Advantages :of producing higher revenues and building a premium

brand image.
For success: a business has to work really hard on the quality of the
product and the brand to create a value perception.

Example: Branded unleaded petrol is sold at a higher price than

regular unleaded petrol. The consumer never gets to test if the
branded is better, yet he buys the branded offering thinking if it’s
expensive, it must be better.
Penetration Pricing
The price of the product is initially kept lower than the
competitors’ products to gain most of the market share and to
trigger word of mouth marketing.
Even though this strategy leads to losses initially, it results
in many customers shifting to the brand because of the low
prices.
Once these customers become loyal and the brand
achieves a strong market penetration, marketers increase the
prices to a point where they get optimum profits without much
loss of customers.
Example
• Oneplus launched its flagship product Oneplus 1, which
had all the features of an iPhone, at a highly affordable
price of $299. Once the company acquired a good market
share, it started launching its products at a premium. The
recent phones from Oneplus are priced in the range of
$500-$700.
 Economy Pricing
This Pricing strategy followed by generic food suppliers
and discount retailers where they keep the prices of the
product minimal by reducing the expenditure on marketing
and promotion.

This strategy is used essentially to attract most price-

conscious consumers.

success : using economy pricing strategy is to sell a large

volume of product and services at low prices.

Example:
The strategy is most suited to big businesses like D-Mart and
Big Bazaar.
Price Skimming
Setting a relatively high introductory price of the product
when the product is new and unique and the market has fewer
competitors.
The idea is to maximize the profits on early adopters before
competitors enter the market and make the product more price
sensitive.

The strategy got its name from successive skimming of

layers of cream or the customer segments as the prices are
lowered over time.
Success:The initial high price not only helps the business to
recover its development costs but also gives the product a
perception of being an exclusive and premium product.

Examples: Smartphones (both iPhones and Android) are

introduced in the market at a higher price, but the price is
reduced as the time passes.
Psychological Pricing
Marketers use to make customers buy the products, triggered by
emotions rather than logic. Such strategies come in the form of:
Charm Pricing: This involves reducing the price by a minimal
amount which makes the customer perceive the price to be less.
Prestige Pricing: This involves rounding off and setting a
higher price for premium and exclusive products as rounded figures
are easily processed and are preferred in such cases.

BOGOF: Buy one, get one free offers trigger the greed among the
customers as they get two products for the price of one. This strategy
is often used to clear up the stock or increase the volume of sales.

Price Anchoring: Anchor is the first (higher or lower) price

communicated to the customer to make their mind revolve around
that price and buy the product the retailer wants.
 Bundle Pricing
Involves selling packages or set of goods or services at
lower prices than they would have actually cost if sold
separately.
This is an effective strategy to bundle unsold products or
products with less demand with the high selling products to
clear up the shelf space and to increase the profits.
Bundling works wonders when two complementary
products are bundled together.

Example
• Mcdonald’s happy meal is a perfect example of bundle
pricing.
Fermium
Fermium is an Internet-based pricing strategy
where basic services are provided free of charge
but charges are levied on additional premium
features.
The fermium strategy is different from
premium with free samples strategy as you don’t
pay anything to utilize the free services provided
under the fermium business model.
• Freemium Example
• Candy Crush Saga is a great example of freemium
pricing strategy where the game is provided for
free but a price is levied if you want more lives to
play.
 Pay What You Want
The power of deciding the price of a product is given to the
buyers, who pay their desired amounts for a product, which could
even be zero.

This pricing strategy often leads to more profits and

increased market share as most of the customers pay amounts
which are more than the cost price of the product.

Although many businesses set a minimum price and use a

partial version of this pricing strategy, many refrain themselves
from setting a floor price.
Example:
Panera Bread Co. restaurant in the St. Louis is a famous example of
a business operating successfully using the pay-what-you-want
pricing strategy.
 Predatory Pricing
Predatory pricing, or below the cost pricing, is an
aggressive pricing strategy of setting the prices low to a point
where the offering is not even profitable, just in an attempt to
eliminate the competition and get the most market share.

An ongoing price war among the competitors may lead to

one adopting a predatory pricing strategy to make the competitor
exit the arena.
Predatory pricing is illegal in many countries under
the antitrust laws and competition acts as it acts as a barrier to
healthy competition and leads to businesses enjoying a
monopoly.
Example
• Amazon which, in 2013, offered books at a price less than
the cost price and even shipped it for free just to win over
the traditional brick-and-mortar competitors.
 Dynamic Pricing
Dynamic pricing, also called demand pricing, is a comparatively
new pricing strategy which charges different prices of the same item
from different users depending upon their perceived ability to pay.

It is dependent on the internet and is usually used by

the ecommerce websites.
It uses cookies and internet browsing history of the users to
understand their requirements and the urgency to buy and price the
products accordingly to increase the sales.
• Example
• Ecommerce websites like Amazon, Flipkart, etc. use this strategy to
remarket their products to the window shopper
 Process of Monetization

"monetize" something is to convert non-revenue

generating assets into cash. In economic terms,
monetize means to convert any event, object or
transaction into a form of currency or something
with transferable value.

For example, over time, a company may

develop any number of systems or assets that are
part of the company's overhead and infrastructure,
supporting the company in selling its products or
services.
 Determining factors for Monetizing
Innovation
Nine Rules from Monetizing Innovation:

1. Have the “willingness to pay” talk with customers early in the

product development process to ensure you’re building something
customers will pay for. By doing it early you can prioritize features
appropriately. The key is to determine what the customer values and
is willing to pay for. Pricing is key to product market fit

2. Don’t force a one-size-fits-all solution. Build segments based on

differences in your customers’ willingness to pay for a new product.
This is also true for messaging: demos, presentations, and
proposals.
3. Product configuration and bundling is more science than
art. Here a jobs-to-be-done approach is much more useful than
demographics for B2B offerings.

4. Choose the right pricing and revenue model. How you

charge is often more important than how much you charge.
Linking this to how the customer realizes value from the
offering is essential. Especially if you absorb much of the
adoption for new prospects so that they only pay for the value
they experience.

5. Develop your pricing strategy. Look a few steps ahead to

maximize gains in the short and long term. The realities for a
startup is that early customers may require a discount or
pricing model that reflects the considerable risks of your
offering not delivering value. Managing the transition once
you have strong
6. Draft your business case using customer willingness-to-
pay data, and establish links between price, value, volume,
and cost. The basis for your product price has to be the value it
creates in your customer’s business.

7. Communicate the value of your offering clearly and

compellingly; otherwise you will not get customers to pay full
measure. Less is more, if the top two or three features or
outcomes from using your product are not convincing the next
six probably won’t help. You can tailor your message to the
job that your customer needs your product to do for them: it’s
a good idea to do some discovery or targeting before launching
into your demo or presentation.
8. Understand your customers’ irrational sides, because
whether you sell to other business or to consumers, your
customers are people. In the book this is a pretext for
introducing a lot of pricing theory that’s more applicable to
consumer markets. I would substitute the need for
understanding the culture and language of an industry so that
you can pass the “shibboleth test.” Your conversations with
prospects about issues and alternatives are in the language of
the prospect.

9. Maintain your pricing integrity. Control discounting

tightly. If demand for your new product is below expectations,
only use price cuts as a last resort, after all other measures
have been exhausted.
 Fixing the price of an Innovative Project
In pricing products of perishable distinctiveness, a company must
study the cycle of competitive degeneration in order to determine its
major causes, its probable speed, and the chances of slowing it down.
Pricing in the pioneering stage of the cycle involves difficult problems
of projecting potential demand and of guessing the relation of price to
sales.

The first step in this process is to explore consumer preferences and to

establish the feasibility of the product, in order to get a rough idea of
whether demand will warrant further exploration.
The second step is to mark out a range of prices that will make the
product economically attractive to buyers. The third step is to estimate
the probable sales that will result from alternative prices.
 If these initial explorations are encouraging, the next move is
to make decisions on promotional strategy and distribution
channels. The policy of relatively high prices in the pioneering
stage has much to commend it, particularly when sales seem to be
comparatively unresponsive to price but quite responsive to
educational promotion.

On the other hand, the policy of relatively low prices in the

pioneering stage, in anticipation of the cost savings resulting from
an expanding market, has been strikingly successful under the
right conditions. Low prices look to long-run rather than short-run
profits and discourage potential competitors.
Pricing in the mature stages of a product’s life cycle requires
a technique for recognizing when a product is approaching
maturity. Pricing problems in this stage border closely on those of
oligopoly.
For detailed view go through this link

https://hbr.org/1976/11/pricing-policies-for-new-products
 Detailed study on market potential
How to determine Market potential for any
product or service?

Whenever we launch a new product or a service,

we fear whether it has enough market potential. It is
known very well that you need to calculate market
potential before you launch a product or a service.
Market potential, quite simply, is the total demand for
a product in a given business environment.
5 Elements to determine market
potential.
1) Market Size

The first and most important factor to consider

while determining market potential is the market size
of your product. Market size is the total market sales
potential of all companies put together.

So if i planned on launching a new soap or

Shampoo, then all the different companies such
as HUL and P&G are my competitors. And the
combined sales of soaps, including branded and non
branded products is my complete market size.
2) Market growth rate
The ongoing trend in the industry is important as it can
fore case the future of your product. When you study market
growth, you have to forecast based on the differences
between product line extensions and a completely new concept
in the Market.
Market growth rate can be determined by checking the
facts and figures of the last 5 years of the industry that you are
in.

For example, The PC market as compared to the laptop

market or the smart phone market is declining. So if you are a
company which makes PC’s, then you have to be aware that
you are entering an declining market.
 3) Profitability
Determining and forecasting your profitability is
important to understand the market potential. If the business is
going to give low profitability, then the volumes need to be
high or if the business is going to give low volumes, then the
profit needs to be higher

Calculation of profitability to determine Market potential

can use four main elements
• ROI – Return on investment
• ROS – Return on sales
• RONA – Return on net assets
• ROCE – Return on capital employed
4) Competition
You need to know and understand the competition in an
industry to determine the market potential for the product you
are going to launch.
If the industry has high competition, the entry barriers are
going to be high and at the same time, establishing yourself
will require deep pockets.
You might have to lower the price of your products even
though you are giving higher value. This requires that you
have enough money to take hits till the time competition
leaves the market.

When competition is low, market awareness will be low

as well. where the competition is low, but the product
knowledge is low as well. So your competitor is equally likely
to influence the potential buyer as you are.
 Differentiation will be minimal because there is no need
of investing in differentiation. In such a market, the companies
which actually differentiate, literally dominate the market they
are in.

Determining market potential requires you to understand

the market standing of various competitors and it also requires
that you have the necessary plans up your sleeves to
understand how to tackle these competitors when the time
comes.
5) Product and consumer type
How frequently is your product going to be bought again?
Many toothpaste companies actively push the consumer to
brush twice in a day. One of the reasons is that your teeth will
be better. But another reason is that the toothpaste will be
consumed faster and you will buy another toothpaste soon.
Hence the push for brushing twice daily!!

Is your product completely new in the market? How likely

is the customer to accept and adopt the same and what are the
hurdles to be faced in product adoption? Can you forecast
them right now? Because that will help in determining market
potential.
 Pitfalls and Negative effects of
Monetizing innovation and Reasons for
failure of Monetization of Innovation
The four failure of Monetization of Innovation
are:

• Future shocks
• Minivations
• Hidden gems
• Undeads
Future shocks : New Products that are Over-Engineered

Too many new product duds were crammed with too many
features and none that stood out. The problem is that when too many
features are unnecessary – customers don’t want them, or won’t pay
extra for them – they increase the cost and the complexity of the
product, and thus raise its price to an unacceptable level. These
products suffer from feature shocks.

Example of Fire Phone, the smart phone Amazon introduced in

2014. Amazon stuffed its entry with too many marginal features: a
screen that provided a 3-dimensional effect without the need to wear
those geeky 3D glasses. It apparently didn’t impress consumers. A
side effect of the feature – draining the battery life – was a
negative. Amazon priced the phone high (at $649, or $199 with a
phone service contract from AT&T).
 To avoid feature shocks, product development must do a
number of things. One is segmenting the customer base
carefully, and not by demographics (the traditional segment
criterion).
Rather, they must segment by what different groups of
customers need from different versions of the product, and what
they’d be willing to pay for a version that met their expectations.
 Minivations: Products That Sell Themselves Short

These products are created by product developers

who didn’t realize just how much value their offerings
provided to customers. They then grossly underestimated
how much customers would be willing to pay for them
and charged prices that were far below what they could
have charged, leaving big profits on the table.

• Example Audi’s Q7 luxury SUV, launched in

2006 for EUROS 55,000. Audi predicted selling 70,000
units, however first-year demand turned out to be 80,000.
A supply-demand curve suggests that given Audi had
fixed production at 70,000 units, it should have priced it
at EUROS 58,000, which would have yielded an
additional EUROS 210 million.
 Beyond the obvious signs of a product shortage,
how can you tell that you have a minivation? One is a
sales force that is easily meeting its targets with a new
product.
Another is watching channel partners reap big
margins from selling your product. Another (especially
in B2B circles) is having too-few customers asking
your salespeople to escalate discussions about their
purchase to higher levels in your company because they
are dissatisfied with your price.
Hidden Gems: Would-Be Winners That Don’t Leave the Starting
Gate
These products are brilliant ideas that are viewed as anything
but brilliant at the top of the companies in which they are born.
Senior management don’t recognize the value of the product for its
intended audience, and thus the company puts the product in limbo
for too long – not killed but not launched.

One of the most famous hidden gems was Eastman Kodak’s

digital camera. In a company that had made a fortune
manufacturing film for cameras, a young Kodak engineer named
Steven Sasson had invented the initial technology behind the digital
camera, and the company even went so far as to patent it.
However, Kodak sat on that technology for 21 years, failing to
introduce its first digital camera until 1995, and it didn’t get serious
about the product until 2001. Since then, the digital camera has
become a staple in smart phones, a time in which Kodak declared
bankruptcy.
 Hidden gems don’t happen in companies nearly as often
as feature shock and minivation product failures do. But when
they do, they often are blocked by midlevel executives who
can’t understand their market potential, or do but are afraid the
products will sabotage their division or cost them political
capital.

There are several signs that hidden gems may lurk

beneath the surface of your organization: a drastic change in
business models, a disruption in your industry, a commodity
business trying to differentiate itself, a shift from an offline to
online business, a move from analog to digital products, or
from hardware to software.
Undeads: Destined to Become Zombies
Undead are people who die but return to life as vampires,
zombies or other creatures. The business world has its own
version of undead: products that came to market dead on
arrival or a product that still exists in the marketplace but for
all practical purposes is non-existent.
These are products a company should have never
launched – either they are an answer to a question no one is
asking or they are the wrong answer to the right question.

Example: Google Glass, a pair of glasses with a small

camera that could take pictures and record videos, was another
notorious undead. It came to market in 2012 for $1,500 and
answered a question no one was asking. In 2015, Google
announced the end of Glass for everyday consumers.
 Undeads happen when their internal proponents wildly
overestimate the customer appeal of their concoction and don’t
segment the customer base effectively.
Had they had a better idea at the outset of their design
process which customers would more likely value their
concept and what they would pay for it, the products could
have been reformulated at an acceptable price.
Or, if the product developers saw the market size was too
small or no price was acceptable to customers, they could
scrap the initiative before spending a lot of money on it.