Revenue

Each thing we make will be purchased by as many customers as possible.

The right side of the Business Model Canvas concerns customers: those who want, use, liaise with, or pay for Humaginarium. The cornerstone of the right side is Revenue Streams. Accordingly, everything we believe about customers must boil down to income.

That isn’t how we think about customers when designing for them. We think instead about their practical needs, the experience they’ll have with our products, what they’ll learn, and how that may nudge them to wellness and a better way of life.

It’s tempting just to think that way about design and not mind the cornerstone. “If you build it, they will come.” Maybe that works in a field of dreams, not so much in a marketplace.

So, separate from what we’re doing for customers, we’re deciding what customers must to do for us. We’re sorting out a web of branching revenue streams so that we design more carefully to sustain them.

The branches so far look something like this:

  1. Customers who pay to play. These are consumers of entertainment who pay nothing to start, but then buy subscriptions or features or feeds that enhance their satisfaction.
  2. Customers who pay to learn. These are patients or students who pay nothing to start, but then buy subscriptions or features or feeds that reinforce their therapy or study.
  3. Customers who pay to connect. These are medical product or service providers. They buy ads, product placements, or patient referrals in order to build their businesses.
  4. Customers who pay to collect. These are researchers. They pay for data analytics generated by users of our games, to track consumer choice and behavior.
  5. Customers who pay for content. These are manufacturers and institutions like medical centers. They pay for branded content that introduces products and services to patients.
  6. Customers who pay to advocate. These are organizations that make program-related investments. They pay to sponsor themes, stories, or competitions in order to further their societal agendas.

We’re subdividing these six different revenue streams to reflect skinny customer segments; so that each individual and small group of customers can be optimally served with tailored benefits. At the same time we’re aggregating all six streams in one production path, so that each thing we make is purchased by as many different customers as possible.

Free

People say they’ll pay nothing, but in reality they pay, almost always with cash.

As Humaginarium develops a pitch to investors, a pre-money valuation, a robust business model, a commercialization plan, even our first working prototype, we’re struggling to answer the thorniest question: What should we charge?

It’s about more than dollars & cents price. It’s also about intrinsic worth, comparable value, fit with lifestyle, emotional appeal, unique affordances, and practical utility. These facets turn price into kaleidoscopic chimeras: none is fixed, each part depends on the others for reckoning, and all lead to the frightening concept of “free.”

Free of charge is frightening because we can’t make Humaginarium for free. If we give it away, we’ll need other ways to pay for it. The obvious way in the digital “freeconomy” is advertising. That’s of little use to a startup because advertisers require a mass audience that takes years to grow; and because advertising tends to undermine the credibility of mission.

Let’s not forget that our products develop insight and skills related to health. Can they do that honestly if we’re hawking snake oil in the margins? That’s what I asked when I learned the business model of Outcome Health, Chicago’s first unicorn. Don’t get me started.

Ask anybody what they would pay for Humaginarium and the answer will likely be “nothing.” Even if they like it, appreciate its benefits, recommend it to others, want to play it endlessly, they’ll still say they want it for free. Accordingly we should charge customers nothing and make money in other ways, like selling user data or product placements.

Yet there’s another view of economic reality. Consider:

  • Humaginarium makes entertainment. Consumers pay for entertainment. Try streaming from Netflix for free and see what happens.
  • Humaginarium makes education. Consumers pay for learning. Try enrolling in the School of the Art Institute of Chicago for free and see what happens.
  • Humaginarium makes therapy. Consumers pay for counseling. Try joining LA Fitness or Weight Watchers for free and see what happens.

Here lies the conundrum. People say they’ll pay nothing for things they need and enjoy, but in reality they pay, almost always with cash. When they don’t pay they wind up with sketchy customer experience. Facebook shows how that business model works.

Humaginarium is not sure how our thorny question will be answered. We’re working on it. The final answer may lie less in what we charge, and more in how we deliver.

Downloads

To prove that we’re actually going somewhere, for those who want to go with us.

The Peak Geek in the Head Shed is molding beautiful web pages from lumps of clay. Little lumps, because nobody’s going to spend hours reading about Humaginarium. Someday everybody may spend hours with our video games, but they’ll be playing and learning.

Right now there’s a downside to brevity: not enough space to tell a story. The website is for investors, business partners, and the media: people who want to work with us. A few who appreciate what we’re doing may want to know more. Will they have to call to find out?

Not at first. We’re attaching downloads to select web pages, so more details are available immediately online, without cluttering our virtual space. The downloads are:

  1. Analogs: companies and products that inspire our approach
  2. Evidence: research indicating our approach works
  3. Framework: concepts that organize our technical innovations
  4. Prototype: how things actually work in the first instance
  5. Business Model: how our company is set up to deliver
  6. Commercialization: how we’ll do well while doing good
  7. Pitch: the elevator version, less than 15 slides
  8. Valuation: what our investors are buying into

Does everybody need to see this material? Not by a long shot. It benefits those who can use it. Us walking the nudge talk. It’s also there to show each other that we’re thinking things through, working things out, sure of our steps and direction, ready to climb the ladder when the roof leaks. There’s nothing like text to prove that we’re actually going somewhere, for those who want to go with us.

Mentor

Has Éowyn arrived on the Pelennor Fields?

Our first application for admission to I-Corps Phase 0 was stymied by lack of a suitable mentor. No more! The search was short and sweet, in the end yielding eight fully qualified candidates. As a group they have remarkable breadth and depth, like a faculty of Humaginarium College.

The challenge now is choosing just one mentor as we admire them all. Only one can join our team in the 2018 Summer Cohort of I-Corps. The others will become advisors if we are fortunate, because they clearly have a lot to offer. And they love our mission.

As we repaired the mentor deficiency, the Spring Cohort filled and closed. That was disappointing but, like most problems, there are silver linings. First, we learned more about the program than we knew before. Instead of basing decisions on assumptions, we grew to base them on facts. Second, we met a lot of terrific people in our search that we barely knew before if at all. They are likely to become colleagues and friends. Third, we formed and began enacting plans for the interval between now and the Summer Cohort in July. Plans include putting up our beautiful new website, writing and practicing our pitch, researching commercialization, and calculating a five-year valuation. These are vital to-dos that would have skidded off the highway if we had rushed into the Spring Cohort. Instead we are doing them well.

A fourth silver lining, by no means the least, is the discovery of women for the mentor role. Humaginarium at present lacks diversity, and we hate that. Now it looks like that’ll change for the better. Éowyn has arrived on the Pelennor Fields.

Stymied

We’ve begun looking for a genie in a bottle. Startups are all about overcoming obstacles, so we’re optimistic. We’re also stymied.

Many see things and ask “Why?” Sometimes I see things and ask “WTF?” That happened last week in I-Corps, a program by the National Science Foundation for entrepreneurs who want to commercialize science.

Background. Humaginarium first tried to join I-Corps in 2016 but was stymied by a stipulation: academic teams only. Three of the four in our fellowship have taught in universities, one has performed large-scale, funded, postdoctoral research, and all are probably too smart for our own good (like most academics). However we’re not an academic team. So Humaginarium did not join I-Corps in 2016.

That stipulation changed in 2017 when NSF quietly announced “Phase 0” (zero). This is 2G I-Corps that admits non academic teams. We stepped up!

Phase 0 is an on ramp to Phase 1, a funded NSF SBIR activity that tests the feasibility of innovations. In a manner of speaking, in Phase 0 we determine if the world wants what we’ve imagined. In Phase 1 we figure out how to build it.

In February 2018 Humaginarium completed a Phase 0 prerequisite named Introduction to Customer Discovery at the University of Michigan. It was terrific! With encouragement from organizers we applied for Phase 0. Then we were stymied again.

Phase 0 teams must bring an “industry mentor” to the program. We found a good one, but he was rejected. Why? Because he was able to commit 60 hours to mentoring, rather than the required 105 hours, during our 6-7 week activity. He was able to spend four days, rather than the required seven days, in remote meetings and travel.

In addition to spending all that time, our mentor must be a senior professional with expertise and connections in industries of interest to Humaginarium: entertainment, health, life science, education. But a mentor isn’t employed or paid by Humaginarium or NSF. There is no compensation.

We’ve begun looking for this genie in a bottle. Startups are all about overcoming obstacles, so we remain optimistic though we’re stymied. Again.

La_Baigneuse_small

Scientific entertainment. Variation on La Grande Baigneuse, by Jean-Auguste-Dominique Ingres

Bivouac

We interviewed 35 stakeholders in our ecosystem: potential users and buyers of our video games, and influencers ranging from clinicians and scientists to health educators and organizers.

Humaginarium just completed the first leg of a vital expedition. We finished Introduction to Customer Discovery at the MWIN Midwest I-Corps Node. Right now we’re bivouacked on a narrow ledge under a brilliant star field. And we’re just below a rock face where the route leads upward: Phase Zero of I-Corps National.

For us Customer Discovery involved interviews with 35 stakeholders in our ecosystem: potential users and buyers of our video games, and influencers ranging from clinicians and scientists to health educators and organizers. We learned a lot about problems that haven’t been solved, needs that haven’t been met, constraints that haven’t been overcome, and desires that haven’t been satisfied by the status quo in health care and education.

One of the hardest things to do came first: narrowing our focus. Humaginarium wants to engage adult consumers of all kinds, but we had to define a precise market segment to avoid being swamped with data. So we chose consumers who have, or risk developing, type 2 diabetes.

Why type 2 diabetes? For technical reasons, because our computer model of that disease is ready to deploy. A lot of our foundational engineering exists. More importantly though, type 2 diabetes has social characteristics that made it eminently worthy of our attention:

  • It’s prevented, caused, controlled, even cured by patient agency
  • It’s hard to motivate patients to fight it, because it’s easy to ignore
  • It’s rampant and deadly
  • It will bankrupt individuals and the health care system if it isn’t stopped

Thanks to superb facilitators and coaches at the University of Michigan Center for Entrepreneurship, our bivouac is a good place to rest and reflect before the expedition continues.

Discovery

Customer discovery is about making ourselves worthy of customers.

Humaginarium is flourishing in the Winter 2018 cohort of Introduction to Customer Discovery. Flourishing, as in beating our heads against a wall until the wall breaks.

The Introduction to Customer Discovery Course runs from the MWIN Midwest I-Corps Node at the University of Michigan. Humaginarium founders arrive from Illinois, Pennsylvania, and Georgia for half-day workshops in Ann Arbor. We’re joined there by coaches, facilitators, and fellow climbers on the slopes of ingenuity. We also meet online for tough love with examiners.

Customer Discovery is the first and most soul-crushing step in The Four Steps of the Epiphany, a bible for tech startups by Stanford professor Steve Blank. He designed Innovation Corps for the National Science Foundation as an entrepreneurial boot camp for nerds and geeks. Ahem.

So what is customer discovery? It’s a methodical investigation that answers the question “Who cares?”

  • You have breakthrough ideas. Who cares?
  • You make things better. Who cares?
  • You change lives. Who cares?
  • You monetize like Midas. Who cares?

The starting point of inquiry is always the same: Nobody cares. If you manage to find somebody who does, voila you found a customer. If you find a lot more, you may be on to something. You’re chances are maybe 10%.

The fascination of customer discovery is the way it deconstructs entrepreneurs. The things they value — their stories, beliefs, expectations, assumptions, knowledge, practice, experience, titles, prerogatives, certificates, hubris — all of that is reframed as baggage. Most baggage gets tossed aside as the litter of past lives, not the building blocks of the future.

So is customer discovery about finding customers? No, not really. It’s more about finding and making ourselves worthy of customers. We see a snow-capped summit of innovation gleaming in the distance, getting closer with every anxious step we take. And soldier on.

The_Birth_of_Venus_detail_-_Zephyr_and_Chloris_small
Scientific entertainment. Variation on Zephyr and Chloris, by Sandro Botticelli (in The Birth of Venus)