The news is out! We´re investing in Ekkono togheter with Almi Invest!
Ekkono sells tools to make IoT products learn from and adapt to their own circumstances. The result is IoT products that are more intuitive to use and more effective.
Walerud Ventures is excited to have the chance to join Ekkono's successful serial tech entrepreneurs and build a company together. We've long been fascinated by Machine Learning, AI, och IoT and see great potential in the company.
Read more in the article in Di Digital (in Swedish) and at ekkono.ai
Start-ups often wrestle with critical decisions on their pricing and business model; since I’ve consulted on these subjects for hundreds of companies of all sizes, entrepreneurs often ask me for recommendations.
It is hard to give general advice since each company faces different challenges depending on at least the product offering, the competitive landscape and the types of customer.
There are a few factors that are always relevant:
1. Value Based Pricing
Cost is obviously a consideration when setting prices, since no company can afford to sell below their cost for very long.
As long as you are selling above your cost, put thoughts of them aside and ask yourself how much your product is worth to your customers. Try to capture a fraction of the customer value in your pricing model.
Finding out the customer value is often difficult, depending on the situation.
In many B2B settings, you can calculate the customer’s return on investment from adopting your offer.
You’ll need to compare the benefits of your offer to your competitors’ offers and their pricing. If your offer improves something customers care about, you should be able to get a significant price premium.
Here is a Harvard Business Review article with a little more detail on value based pricing.
2. Customer Segmentation
Customer segmentation is widely talked about, but often misunderstood.
Correctly applied, it is about identifying groups of customers with different needs, seeking different combinations of benefits and having different willingness-to-pay. Identifying these customer groups and their needs is, of course, essential when packaging your offer into different bundles for those different customer groups.
Customer differences in needs seldom follow simple characteristics such as sex, age, type of industry or geographic location. To find your segments, you must do market research. Market research is quantitative stuff; you engineers ought to be comfortable with it. Since many companies don’t do market research, they go for a simple scheme, like selling different product bundles to different age groups. Those simple schemes do not capture real need differences between groups, and this approach therefore often fails.
3. The Business Model
Prices come in many shapes and forms. Most people think in terms of price level - “How much”. The way you price, the business model, is at least as important as the price level for commercial success.
There are many ways to sell and price products or services, including:
- Give it away and make money on advertising or some other indirect source of revenue. Prominent examples are Facebook and Twitter.
- Free (or almost free) Product bundled with paid services.
Companies can charge for installation, maintenance, training, customization, and consulting services. This model is often used by companies distributing Open Source Software, like Red Hat Linux.
- A Freemium Model. Software companies like LinkedIn and Dropbox offer a free, limited-functionality version of their product, hoping that enough users will pay for a premium version with more advanced features.
- Razor and blade Model. Sell a necessary base component cheaply and make money on consumables and maintenance or some other life-cycle dependent factor.
- Subscription Model. Instead of selling a product, offer it as a subscription including maintenance, service etc. This model may be used in a wide range of situations. Rolls Royce famously decided to supply jet engines at a cost per running hour, including service and maintenance, rather than sell engines outright as they and all their competitors had done before.
There is no recipe for which business model is best for your company but selecting the most appropriate one will definitely have a major impact on your commercial success and the future value of your company.
We join your team, build the company with you and don't take over. We spend about a day a week with you and are around when you need us. We're useful people to have around: we're experienced entrepreneurs and up to date, since we're currently facing the same problems you are in other companies. When your company is no longer a startup or in early expansion, we will stop spending so much time with you. You won't need us then!
We work on building trust, so our investment terms are as easy and simple as we can make them. We want common shares, just like the entrepreneurs have. The entrepreneurs should own the lion's share of the company. We use standard, fair contracts from Startupdocs.se, take a seat on the board and invest up to 10Million SEK.
We don't have to sell; we are a family.
We don't have a fund with an end date, where all investments must be sold by the end date and the money returned to the investors. Those end dates can force exits when the timing isn't right for the companies.
We sell our shares when it is best for the company. Some examples:
We let several early key employees take some of our subscription rights in a new financing round, so they became Klarna owners as well.
When a crucial new investor demanded a certain proportion of the company, we sold some of our shares.
When there was a secondary market in Klarna shares and Klarna had too big a weight in our portfolio, we sold some of our shares.
When the company didn't look like it would grow quickly, we sold all our shares to the entrepreneur for 10SEK.
We sold our shares when the company was sold, at the same terms as all the other shareholders.
Niklas: “We knew nothing about technology and we were starting a FinTech company,” says Adalberth, “We quickly realized that if we were going to do this we needed to take in money quickly.”
The twenty-three-year-olds’ own pockets were empty, so there wasn’t much leeway before the capital rolled in. Deliverance came in the form of angel investor Jane Walerud who didn’t just invest in their idea, but also put the Klarna-founders in contact with programmers who could help them develop the necessary software.
“She’s amazing,” says Adalberth, “she really saved us.”
Sebastian: We were extremely fortunate to meet Jane Walerud. The school we were studying at has a good reputation. When the business lab invited some business angels to listen to pitches from all the companies in the lab, Jane was one of them who attended that Christmas party. Jane has founded and funded a string of successful companies. We were a bit surprised that she gave us more money than we had asked for, and for less of the company. I think part of it was that she liked the idea but even more so that she saw three 23-year-olds who were extremely motivated and prepared to work 90 hours a week to become successful.
Did any of you have an entrepreneurial background?
Niklas: No, not at all. When you enter the Stockholm School of Economics, you basically expect to go working at Goldman Sachs or McKinsey (laughs), which was our plan too. But the opportunity to start a company was very enticing, especially because the school’s incubator also told us that it was very interesting. It felt stupid not to try it. We just had to give it a shot. ”
“The problem we faced was: we were three students, we had no money whatsoever, and no tech knowledge either. I mean, I did some homepages when I was younger, but no hardcore programming. We needed money and tech, which was hard to find. There was no commercial solution out there solving our need. But then at a network event we came across Jane Walerud, a famous angel investor in Sweden, who had had a bunch of successful exits. And she said: I have the perfect tech team to build your platform. Three weeks later, she gave us 60 000 € seed money for 10 % of the company and 5 techies to build our platform in exchange for 37 % of the company.”
That’s quite a stake you had to give up so early.
Niklas Adalberth: “Yes. It was a tough decision, but we realised that we wanted to build something big. And we needed to give a lot of shares to enable it. Actually we were cash flow positive before we even burned half the 60k. We were profitable from 2006 onwards. So we could actually have done it with less money.”
”Vi hade väldigt svårt att resa pengar, det var ingen som var intresserad av oss då,” berättar Sebastian.
De allra första pengarna fick de från affärsängeln Jane Walerud.
”Vi ville ha 400 000, men Jane gav oss 600 000, hon tyckte vi behövde det. Hon värderade vårt bolag, som då bara var en powerpointpresentation, till 6 miljoner.”
Vid nästa finansieringsrunda fick Klarna in den prestigefyllda vc-firman Sequoia som investerare. Och via lite smart agerande från Sebastian fick de in tungviktaren Michael Moritz i styrelsen. Moritz har tidigare bland annat suttit i Googles och Paypals styrelser.
- Sebastian Siematkowski i Startuppodden
Finns det någon specifik milstolpe där ni visste att er affärsidé verkligen skulle fungera?
– En viktig milstolpe var när vi fick in vår första investering, som kom från entreprenören och affärsängeln Jane Walerud. Man får komma ihåg att vi var tre finniga 23-åringar utan någon erfarenhet, inte en krona på fickan och som inte kunde ingenting om tech. Att vi då fick en investering av någon som trodde på oss var otroligt viktigt.
- Niklas Adalberth i Tidningen Entreprenör
Vi såg genast en affärsmöjlighet, men eftersom vi varken hade pengar eller den tekniska kunskapen som krävdes tog vi kontakt med Handels Business Lab, som gillade idén. Vi fick kontakt med affärsänglar och mindre investerare, och vid ett julmingel på Handels kom Jane Walerud fram till oss och erbjöd oss hjälp med kapital och kontakter med tekniker. Teknikerna byggde en plattform och vi började sälja. Det var en tuff period på alla plan, bara det att få kunderna att lita på tre 23-åriga killar var svårt, trots kostymer och fina visitkort. Vi hade det tufft ekonomiskt den första tiden vilket gjorde att det också var svårt att få banklån. Att leva på CSN-pengar och samtidigt driva bolag var på många sätt en bra erfarenhet som gav träning inför framtiden.
- Niklas Adalberth i Founders Alliance
Jane is one of the unsung heroines of the Erlang story. She was the first entrepreneur to recognise that having a better programming technology gave commercial advantages that could be turned into money.
Jane was the first entrepreneur to recognise the commercial value of Erlang and form a new company that would eventually earn over USD 100 million from Erlang.
In 1998, in those heady days before the great IT crash, we formed Bluetail. Bluetail had a strong technical core, composed of the techies who had made Erlang, and Jane. Jane knew all sorts of things like how to start a company, how to raise venture capital, how to write a contract, how to sell software. Things that we knew nothing about.
We knew how to do do techie things like how to write compilers, make databases, make fault-tolerant systems - but not how to turn these ideas into money.
In 2000 we sold Bluetail to Alteon Web Systems for USD 152 million.
- Joe Armstrong in his blog post Making money from Erlang
...with five of the founding Bluetail team: Jane Walerud, Mike Williams, Joe Armstrong, Robert Virding, Garrett Smith at the Erlang User Conference in September 2016.
Erlang has been used in many successful companies including IBM, Cisco, Visa, Klarna, Facebook, BT Mobile, Whatsapp and Ericsson.
Extract from The Erlang Factory:
Jane was a computer science groupie at Stanford. After moving to Sweden (his name is Bengt), she made her living in IT sales and product management, and had a couple of small companies on the side.
In 1997, Jane started work as Sales Manager of Erlang Systems. It was the perfect job - all those computer science people! - for all of two months, when Ericsson forbade the use of Erlang in new projects. Not enough people used Erlang to keep it dynamic, and Ericsson management was afraid of being trapped in a dying language.
It was impossible to sell Erlang when Ericsson itself refused to use it, and Jane persuaded Ericsson management to release Erlang open source in order to spread its use without sales. That strategy does seem to have worked...
A group from the CS-lab then started Bluetail with Jane as CEO, and sold it 18 months later for 150MUSD. She was Klarna's seed investor and talked the Klarna founders into developing in Erlang.
"When I came to Lensway in 2002, they were 4 people with very low salaries in a basement office. Two years later, revenues were 100MSEK, they turned a very healthy profit, and they were 55 employees. What an amazing ride - Thanks Daniel Mühlbach!
We sold Lensway to Coastal Contacts of Canada. The company is now a very good second in the world market for contact lenses over the net."
- Jane Walerud
We would like to invite you to Satcube on IBC to show our new lightweight terminals for high speed data communication over High Throughput Satellites. The founders and our board member Jane Walerud will be there.
Looking forward to see you all!