Three Weeks to Build a Business: Week Three

EIA Week Three – Selling what you think people want.

If you haven’t read Part One or Two then I strongly suggest you start by reading them.

Week three was crunch time. We were expected to market and get users in four days since we’d be pitching our product to Silicon Valley VCs on Thursday.

Developing a Business Model

Finding a business model is hard. We had a hard time figuring out what services we would provide and what our pricing silos would be and we ended up having a lot of debates over this.

I was pushing a “one price to rule them all” model where we would charge a monthly fee per head for an all inclusive service whilst Vi and Josh saw a more tiered monthly pricing model that also had one off services.

We realised after a long debate and lots of advice from mentors that my model wasn’t feasible initially so we went with the other model.

Marketing CaterSquad

There were lots of good talks about marketing at EIA (you can find a lot of the slide here: http://www.slideshare.net/InnovationAcademy) but two really stood out and those were by the Leimgruber brothers – who run the influencer network neoreach.com.

I was familiar with Jesse Leimgruber’s work from his posts on Reddit and so I made sure I listened up when they were talking because both of them know their stuff.

They made one point very clear initially.

What’s customer development?

Customer Development is a LEAN methodology in which whilst you’re building your product you ask potential customers on what they want and then build it to match their needs.

Later on you can actually approach the people who provided feedback and sell them your product and hopefully you should have a high conversion rate since the product matches their need.

This is the email template that Jesse gave us for reaching out to potential customers:

As you can see, it’s a very soft sell. So our priming email was:

“Hi _______,

My name is ____, co-founder of CaterSquad and a recent graduate student from UC Berkeley.

Given that you’ve been catering for companies for many years now, I’d love to get your feedback and advice on the direction of CaterSquad.

CaterSquad solves the logistics of group ordering and delivery for large companies. We provide a platform of aggregated restaurants that provide food delivery. We’re looking to help restaurants get repeating business from large companies on a regular basis.

Are you available for a chat sometime this week? 15 minutes should be more than enough.

Best, ____”

One of the key take away points is to make sure that the founder or CEO is the person sending the emails – your conversation rate will greatly improve.

Using this template we managed to get Vita Coco to sponsor us and provide coconut water with all of our meals for free and we also signed paid trials from teams at PWC, Accenture and a few others.

Pitch Day

Wednesday night we all sat down and tried to get the pitch in order. We were all exhausted. The team decided Vi would be the one to pitch the product so that we had a coherent pitch that didn’t break up in to parts.

The actual pitch day was setup like this:

  • There will be 8 rooms
  • Each room would have 8 teams
  • There would be 3/4 judges
  • The pitch would be three minutes
  • There would be a 2 minutes Q&A section
  • One winner from each room

There was also a side VC competition for us where we would actually get to judge other teams in our room and choose to invest in them as if we were VCs and there was a prize for the best VCs.

So, Vi went up on stage and gave an amazing pitch. You can find our pitch deck here.

catersquad

I made notes on every other pitch and I did a quick competitor analysis and market analysis to find the best companies to invest in in high growth markets.

For me a high growth market was a deciding factor. I remember one start up – an uber of tech support, which looked great and the idea sounded like it had legs but after research I found that the market was stagnant hence it would have taken years to recoup any investment.

On the other hand, there was an app that gamified chores and whilst I wasn’t too convinced on the idea I saw that market was growing hard and fast and we could see a 10x return in 5 years if their app caught on.

So, that’s the company I pushed to invest in and it was decided I would lead all negotiations. We scrutinised their financials heavily and when we went in to boardroom we used their own projections against them. We invested in them for $100k for 40% compared to their asking price of $250k for 20%. They even commented that we knew their financials better than they did.

Negotiating

Then it came to our turn to be invested in. We went in with $300k for 17% as our bottom and negotiations got very heated. I pushed for our valuation to be based on multiple on year one revenue that was in line with the multiple given to one of our competitors – the multiple on revenue given to our competitor was 14x. Eventually, through discussion we gave them a “heavy discount” on the multiple of 6x against a projected revenue of $500k for year one.

They didn’t debate our projections but instead accepted them and they eventually agreed to our 6x multiple on our $500k year one revenue which gave us a valuation of $3 million. They wanted 20% for $600k to which we agreed.

One of the VCs even said “bravo” to our negotiation. When we walked out I felt like I had won the Super Bowl, my whole team was proud of what I had done in both negotiations and the other teams were also impressed. No other team performed as well as us when it came to valuations but we completely missed talking about the board seats and liquidation preference. Which we didn’t discuss because it was in the term sheet and they gave us a fair term sheet and we gave them a fair term sheet with split boards and a 1x liquidation preference.

The End of The Road

At the end of the day the judges went back in for a discussion and apparently there was shouting and angry mentors. We heard that some mentors literally fought for teams to be put in and lobbied to get them through.

Sadly, we came second in our room (uber for tech support won our room) hence we didn’t progress to the finals on Friday but some of our friends did which was great! Overall, it was an amazing experience to learn from and I’ve made friends that I owe a lot to. We had a killer team.

EIA takes place again this July so I really hope you all apply for the program this year!

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Three Weeks to Build a Business: Week Two

EIA Week Two – Finding something people actually want.

If you haven’t read Part One then I strongly suggest you start by reading that by clicking here.

This week shall forever be known as the pivot week because we were expected to start validating our startups and then pitching them to our mentors. Startups died because the teams found out that they were unfeasible within the timeframe, they had no market or they had a market but it was saturated with competition.

Also, this phrase was thrown about quite a bit by the mentors: “Are you building a painkiller or a vitamin?”. This question alone killed a dozen ideas even though it’s ambiguous and the answer doesn’t tell you anything about whether your idea is any good.

So, I’ll start off by giving you an example of an idea that failed in each category.

A team had an idea to build a spaceship launch pad at sea which had a number of key benefits and cost savings but it’s really hard to demonstrate and develop that idea in three weeks hence this idea died because there isn’t much they could do in the time frame.

Another very active team had an idea to build an app to buy firewood. I was really looking forward to their product, however, after they did market validation they found that the market was far too small to pursue.

Finally, there was us. So, I told you in my earlier post that we had competition and to avoid the competition we pivoted away from them by picking a very specific niche. Well, after we did research on the new niche we found a major competitor.

Shoptiques was not only exactly like us but they were actually better than us. They had worked on the whole user experience from photographing the items themselves to delivering the clothes to the user’s front door. A testament to their success was the fact that they got into Y-Combinator’s W12 batch and went on to raise a $2 MM seed round from investors such as Andreessen-Horowitz.

Hence, we decided to raise the white flag and move on to blue ocean – which meant throwing away signed up boutiques, domains, early mockups and a half-baked version of the app.

Also, around this time Francois stopped showing up to EIA so Vi fired him. Now we needed a new idea and the team had lost a developer. We were pretty broken at this point but the only thing that kept us together was the fact that we liked each other. Now I can’t say we were all friends at this point (seeing as we’d only known each other for about a week) but the team culture just meshed really well for some reason.

So, off we went to the drawing board. We had some interesting ideas. Andreas had this cool idea for “Coffee with strangers who share your interests” but we were hesitant on building a social networking app and on the lack of a solid revenue stream.

Whilst we were in these ideation sessions we would say anything that came to mind. Hence, I randomly said I wish I could have breakfast in bed delivered to me. Josh then took up the idea and we ended up creating a breakfast delivery service called Toasty (the codename for the actual product was Delicious Clock because at one point someone said that the app was like a delicious alarm clock). Our plan was to actually cook and deliver breakfast to EIA participants to demo and validate the app.

Andreas went to work on design, Rasmus on building the app and I worked on the landing page and emails whilst Vi and Josh validated the idea and worked on the financials.

Vi and Josh did more market research and we came up accross a whole host of competitiors that were offering the exact same service; not to mention when we asked people how much they were actually willing to pay for breakfast delivered to their door most people said around 5 dollars which was a pretty hard price point to hit for us.

Once, again we had to pivot and this time I was re-reading an old article by a hero of mine, Noah Kagan, about how he started a subscription service for beef jerky and made over a 1000 USD in profit in less than 24 hours. I showed it to Vi and Josh and we got really excited. We decided we would do the same but with bacon. Hence, we went ahead and acquired bacontome.com and started to validate our product by asking the following questions:

Vi went and asked a mentor for advice and the mentor gave us the reality check we needed. It was a bad idea. Firstly, it’s not innovative and EIA’s about innovation. Secondly, the market was too small. And – thirdly, I haven’t ever tasted bacon so how the hell could I sell it?

After all this iteration we actually landed on a really good idea about building a company catering app and web app which allowed employees to choose meals that fit their diet and requirements easily and to have a service that was so easy that the office manager could set it up in less than a minute and then it would work automatically and seamlessly from then on.

Now, I moved on to building the API for the app whilst Rasmus built the frontend and Andreas designed the web app and then built the landing page which can be found at http://www.catersquad.com/.

Finally, we had the right team and the right product – also we could now call each other friends after having gone through the traumatic experience of multiple pivots.

Three Weeks to Build a Business: Week One

EIA Week One: Making something people want

To anyone who isn’t familiar with the European Innovation Academy (EIA), what you need to know is that it’s a three week intensive startup school based in Europe. You have three weeks to come up with an idea, build a team, come up with a business model, show traction and then pitch to Valley VCs.

It’s extreme hard work but it’s a great opportunity to learn and network. Here’s my first week.

Finding an Idea

So some people came to EIA with ideas whilst others (like me) decided we were going to jump on other people’s ideas to help turn them into reality. We used the above website to post our ideas and then join the ones we liked.

I fell in love with an idea called “Merca – Tinder for Shopping”. The idea was posted by someone called Vi Tran and they had gone ahead and built a presentation, filled out a Lean Canvas and overall it looked professional! After, a few days I got a message from Vi:

Finding Developers and UI/UX Designers

Ken Singer – a great mentor from Berkeley, said it best: “Being a developer this week is going to feel like being the prettiest girl at a party”. And he wasn’t joking. My phone was exploding with dozens of emails from teams looking for developers and teams trying to poach developers from other teams. It got very bitter. Good teams ended up collapsing because they lost all their developers to other teams.

Before we finalised teams we had team building workshops. The first one was simple: we were split in to two groups and then given a picture of a lego toy for which we had to create a set of instructions that the other team could use to recreate the toy.

The workshop gave us some key insights into the people we were working with. We felt two of the business team members and one developer didn’t fit the team culture we were going for hence Vi – being the CEO – was forced to fire them.

So, at this point, the team was just three people – Me, Vi, and Francois (a French developer). We were missing some key people which included a designer, another developer and another business person. Vi emailed some designers and organised interviews with them and there we met Andreas. He had a great portfolio and when we talked to him he sounded like he knew his stuff so we hired him. Andreas also had another developer friend who was looking for a project to work with and he was great with an excellent skill set so we hired him too.

The next day we had another team building workshop with the new team (excluding Francois who couldn’t come into EIA that day). The workshop involved taking a note with clues written in the various languages present at EIA, translating them into English, and then going around Nice trying to find the locations. There you would find more clues to other locations and so on until you reached the final location – the winner would get dinner.

There were multiple ways to do this. We used a hybrid technique of using Google Translate’s camera function (most teams didn’t realise that there was a camera function) and then we traded bits of translated texts with other teams to get the full text.

We were the first to translate the whole thing in our room even though we had just four people. Next there were two locations so teams could either split off and head to both the locations or stick together. We chose to stick together and went off to the first location which was a playground on top of beautiful hill.

Here, someone gave us the next clue, which one of the members recognised as another playground with a whale shaped climbing frame so off we headed. There we got another clue, which we worked out to be a restaurant, and finally we arrived as the 11th team out of 100+ teams. Turns out we never even needed to go to the other location – it was just a test to see if we’d stick together.

The Final Team and Idea

We saw from the team building workshop that we all worked really well but some teams didn’t. Vi had another friend called Josh from Berkeley whose team died because people poached all of his developers and now he was with a team whose culture didn’t mesh with him and where he didn’t have a clear role.

So Vi asked if we would be interested in meeting Josh to see if he was good for our team and he was a really good fit – also I liked the fact that he was wearing a Andreessen Horowitz’s a16z t-shirt – so we hired him.

Now we had a good team – three developers (Me, Rasmus, Francois), one designer (Andreas) and two business people (Vi and Josh) who knew their stuff. The next step was market research.

Well… The market research didn’t go so well. The market was saturated. We had to differentiate and our differentiator was that we were going to work with online only boutiques and indie stores. The market potential was huge because boutiques wanted to find customers for cheap and customers wanted to find cool clothes that no one else was wearing.

Our model was simple we’ll connect boutiques with users and take a cut for every successful transaction. A total win-win-win situation.

Off we went to work, Andreas designed the whole app and Rasmus and Francois worked on implementing the app in Java for android and I worked on the landing page and marketing side of things. In the mean time, Vi and Josh worked hard and signed up some boutiques to the platform and worked on the financials.

Five Reasons You Should Start Your Own Business This Summer

1. Funding

Queen Mary offers seed funding to student entrepreneurs, supplemented by free training and mentoring, so you might not need to risk losing your own money if you need start-up capital. For more information visit http://www.careers.qmul.ac.uk/students/enterprise/Funding/.

There are also additional sources of funding available to you. The government is a big supporter of start-ups. Successful start-ups provide employment and generate revenue that enriches the wider economy. As such there are various government schemes, grants and financial incentives for you to take advantage of: https://www.gov.uk/business-finance-support-finder

The private sector is equally supportive of start-ups. Investors and businesses are always in the market for innovations and disruptive ideas. Virgin Media’s Pitch to Rich scheme is just one example of this.

If you want to start your own social enterprise there’s also a large money pot for you to draw from. UnLtd, the leading provider of support for social entrepreneurs in the UK, has a range of prize funds for ideas, fledgling start-ups and established businesses that have a positive impact on society.

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2. Develop your CV and enhance your employability

No matter what career path you intend to follow, be it mechanical engineering, business, law, PR or teaching, nothing says innovative self-starter like a candidate who has already founded and run a business before they leave university.

Regardless of whether or not your business is successful, you’ll come away with a host of skills and experiences that employers value.

3. Work to a schedule that suits you

Of course, in order to be successful you’ll need to be self-disciplined and manage your time effectively (being self-employed often means working longer than a 9 to 5, particularly in the early stages). But one of the greatest perks of having your own business is that you can decide when you work, so there’s no getting tied down during festival season!

4. Do what you love

Whatever your passion in life, chances are it would lend itself to some sort of enterprise. Whether you’re motivated by money or helping society, any entrepreneurial idea can be turned into a business or social enterprise.

5. Earn money

Starting your own business is risky, but it may have higher earning potential than a part-time job. If you’ve got skills that are in demand (e.g. coding skills, design skills, writing skills) you might find that setting up a business in these areas or simply working for yourself is a good way of bringing in money to support your studies.

Introducing the IncuBus!

Tuesday 17th March saw the arrival of the GradFactor bus tour at QMUL – you may have seen it parked behind Arts One. The double decker ‘IncuBus’, a modified London bus, toured five London universities throughout the week in order to promote the Grad Factor Bootcamp – a 12 week intensive business start-up boot camp to be held this summer, mentored by YC, Techstars and Seedcamp Alumni.

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During the day the team from IncuBus, GradFactor and Journolink held workshops on funding options and gaining press coverage while also offering one-to-one mentoring and advice. Here’s what some of the team had to say about the day and about the scheme in general….

‘I’m staggered by the creativity and entrepreneurial drive I’ve seen in these student entrepreneurs. All they need is the support and publicity to fly!’

Tet Kofi – Journolink

‘There’s so much talent on campuses today we want to support through our mobile incubator IncuBus London. IncuBus offers a glimpse of what our Camden-based incubator includes with workshops on pitching, funding and press.’

Rishi Chowdhury – IncuBus

The Grad Factor Bootcamp will take place in Camden, London on a double decker bus and will provide students with a 12 week programme to get fit for the world’s greatest accelerators.

  • Access to 150 mentors: Mentorship from leading experts and access to investors and our larger network
  • Over £500,000 worth of free and discounted resources
  • 20+ workshops

The goal of the summer bootcamp is to see more start-ups survive and thrive.

If you’re interested in applying just follow think link: http://www.incubuslondon.com/studentbootcamp.html

GradFactor Enterprises is a Government backed organisation that funds and supports UK university students and recent graduates who wish to launch their own business start-ups.

Further details: www.gradfactor.tv

IncuBus is a Camden based incubator, set on a specifically fitted out London Double Decker bus, offering ‘resident’ businesses a fully supported early stage business environment in which to develop their start-up initiatives.

Further details: www.incubuslondon.com

Journolink offers an on line ‘PR in a box’ service to start-up and early stage businesses, linking the businesses directly to journalists with an interest in small and micro enterprises.

Further details: www.journolink.com

Know your start-up jargon

Today’s start-up scene is awash with jargon and for the unfamiliar this can be pretty daunting. Not only is a knowledge of start-up vocabulary essential if you want to take advantage of all the developmental tools and services available to entrepreneurs, it’s also highly advisable when pitching ideas to potential partners and stakeholders. A basic understanding of business and finance vocabulary is equally crucial, so we’ve put together a glossary of key terms for you!

Accelerator – Often used interchangeably with Incubator, however is sometimes used to describe programmes in which the provider offers seed investment or other capital in each start-up in exchange for equity. An example of an Accelerator would be the Sirius Programme – http://www.siriusprogramme.com/.

Angel Investors – An Angel Investor is typically a high net worth individual that financially aids a business’ early growth – think Dragons Den. Angels typically invest between £25,000 £100,000. Angels primarily differ from Venture Capitalists in that they invest less capital, invest earlier in a start-ups development and exercise less due diligence because they are not usually beholden to investment partners.

Boot Strapping – When an early stage entrepreneur seeks to get their business off the ground with very limited means and no external investment. On the plus side this means the entrepreneur maintains 100% control over their business, however they may also be putting themselves under significant financial risk.

Capital – Used to describe assets. This can be anything tradable or of value, e.g. real estate, commodities, collectable items, insurance or securities.

CrowdFunding – The process of funding a business or venture by asking a large number of people for a relatively small amount of money, via crowdfunding sites such as Seedr. One example is the development of Oculus Rift – a virtual reality software which Facebook purchased for $2bn after raising $2.4m on Kickstarter.

Disruptive Technology – A ‘game-changer’ – a technology which disrupts existing processes. One example might be online movie streaming versus traditional renting services.

Enterprise – A venture or project.

Freemium – A business model where the product or service is made available free of charge, however additional and more advanced features must be paid for. An example of this would be Spotify, a free music streaming service where the customer must pay a subscription in order to access Spotify Premium which includes no advertising and extra features.

Hackathon – An intensive computer programming session involving a number of people. Hacking is also used commonly across Tech Start-up to describe different areas of coding and software development.

Incubator – A programme or series of classes in which entrepreneurs receive guidance and mentorship in order to develop their ideas and business models. An example would be QMUL’s InQUBEate programme.

IP: Intellectual Property –Non-physical property protected by law (e.g. by patents, copyrights and trademarks). This could include business ideas, titles, inventions and branding such as logos and slogans.

Private Equity – Securities within a company that is not publicly traded, i.e. does not offer its securities to the general public, most commonly through a stock exchange.

ROI: Return on Investment – This is what an investor gets back from what they put in and is used as a way of gauging profitability.

Scalability/ Scalable Growth –An example of a scalable business model would be a software-based business, because once the software is developed their will be minimal costs attached to increased production/ distribution and exponential growth. If however a start-up’s growth was contingent on renting premises (i.e. a high street boutique) this would not be scalable and therefore less of an attractive investment prospect as a significant amount of revenue would need to be routed towards rent and property development. The business would also be far more limited in terms of its market or customer base.

Securities – Any form of financial asset, encompassing debt (e.g. bond), equity (e.g. stock) or derivatives (a product or contract where the value derives from an underlying asset).

Seed Accelerator – An Accelerator in which a seed investment is made in a start-up by the provider in exchange for equity.

Seed Investment – An initial or early investment designed to help launch a business in its early stages.

Social Enterprise – A company that follows a commercial business model, but primarily exists to support a social objective as opposed to making money for its shareholders. An example could be Divine Chocolate, a fair trade chocolate business which is part owned by cocoa farmers, ensuring they’re paid a fair wage. A social enterprise can be set up as a traditional limited company, or as a CIC (community interest company), which has special legislation to ensure that the company works for the benefit of its community.

 Start-Up – A newly created company with significant growth potential, i.e. is able to increase profit significantly year on year. The main difference between a start-up and a small business (a clothing store for example) would be a start-up is not physically fixed in one place so has exponential scalable growth potential (see scalability). For this reason the term Start-Up is often used to describe tech businesses, however the term is not limited to the tech industry.

Sweat Equity – Contribution to an enterprise in the form of effort and toil. Sweat equity is the increase in value created as a direct result of hard work by the owner(s).

VC: Venture Capital – A platform to match investors to businesses looking for growth. Venture Capitalists are investors who typically offer a large investment (£1m+) for a high proportion of equity in order to offset the risks associated with start-ups. The typical objective of a venture capitalist is to bring the start-up to a point where it can be traded publicly so they can sell off their shares at a profit.