Chapter 14: Take your company from idea to scalable business - Technical.ly
Tomorrow Toolkit for Entrepreneurs
14
Take your company from idea to scalable business By Tajha Chappellet-Lanier
It’s no set formula, but there are some important steps we can all agree on.

At one point in the very early stages of VideoBlocks, Joel Holland was shooting stock footage himself and selling it on eBay.

Today, his company has around 100,000 paying subscribers, and a marketplace of more than 800,000 clips that announced in 2015 a major partnership with Discovery Communications. He’s also got two spin-off sites — GraphicStock for photos and illustrations, and AudioBlocks for music and sound.

How VideoBlocks got from point A to point B is a story that provides lessons in growing a company from startup to scalable business.

“The very beginning of a business is an idea, right — it’s a hypothesis,” Holland said. For Holland, as for many entrepreneurs, the hypothesis was a personal one. “I was like, you know what, I’m an independent video editor, I don’t have a lot of money, but I want to pretend like I’m a Hollywood producer. So how do I do that? When I started VideoBlocks, you couldn’t. So my hypothesis was — start a company that helps the little guy affordably create really big productions.”

This was step one.

Step two, for Holland, was validation — and this is where eBay came in. Once you’ve got a hypothesis, Holland said, you’ve got to make sure to test it. This means building a minimum viable product (MVP) and seeing if someone, anyone, will bite. Are there really little guys out there in need of budget-conscious video content?

Once Holland had determined that there were, he was on to step three — defining how big of a market his product could serve. Holland says it’s important not to push this stage too quickly. Sure, you’re still in the early startup phase here, but solid research on a sizeable market will be crucial down the road.

“If I’m making, you know, some crazy widget that there are only four potential buyers for, once I’ve sold all four of them the game’s over,” Holland said. “That’s not a business.”

Holland’s advice here is to take a look at your competitors. How are they doing? Do they have customers? It might seem strange, but competitors can be an excellent proof of market.

Christina York of Detroit augmented reality company Altality says one way to go about it is to “fall out of love with the idea.”

Instead, “you have to fall in love with the problem,” she said. “You have to engage with the people that you are solving the problem for, and at that point you focus on building a company and less about building a product. The product will follow as long as you’re fully engaged with the problem,” said York.

Jay Marwaha, president and CEO of Syntasa, also reiterates the importance of finding and understanding an addressable market space. A lot of startups, he said, go through this lengthy process of trying to figure out how to get customers to pay for their product — a process that often includes multiple pivots. Marwaha advises picking a few clients who are willing to take a risk with you, and working out the kinks in the product in partnership with them. This way your company doesn’t lose focus, and you minimize the need for major pivots.

Step four, then, is figuring out how much a given customer is worth to your company versus how much capital you have to spend to acquire this customer. If, for the sake of argument, it costs $5 for you to acquire a customer worth $15, your returns are looking pretty good. That’s when you can, as Holland did, go raise some money.

And there you have it — four key steps for propelling your startup from idea to business.

 

And there’s no single path. As Toby Krout of Denver’s Boomtown accelerator put it, “Every single startup has its own chess match.”

Once you’ve proven your product, that there’s a market for your product, that you have the ability to scale and have raised money in order to do so, you’ve made it to the business phase, or, as Holland puts it, “the growth startup phase.”

“The very beginning of a business is an idea, right — it’s a hypothesis,” said Joel Holland of Video Blocks. As your business grows, that quickly changes. You need to too.

Your Checklist:

  • Build a (cheap) MVP. This doesn’t have to look identical to your eventual product, of course, but it should test the same hypothesis. This is how you validate your idea and get a feel for whether there is in fact a market out there for your product. In the case of Detroit startup iRule, founder Itai Ben-Gal initially built an app that controlled home devices for his family. Only later did he realize there was a viable market for the tool.
  • Study your market. Once you’ve determined that there are people out there who will pay for your product, you’ve got to know everything about them. How big is the market? How much of that market can you realistically capture? Take your time with this stage.
  • Consider working with a few select clients to develop your product. Identify customers who are willing to take a risk, and ask them for guidance as you develop your product and add features. Keeping this circle of feedback small will ensure that your company doesn’t lose focus. And a paying customer base is one of the ultimate sources of confidence for an entrepreneur, said Margaret Martin of Atlanta augmented reality company CN2. “Once we really started building revenue and not only having early adopters try our technology, but integrate that technology into their everyday applications and really experience the benefits of our technology, that was our true validation that we were on the right path,” Martin said.
  • Figure out how much each customer is worth. Use the data you’ve collected on initial customers and the research you’ve done into your market to figure out the lifetime value of a customer. That way you can identify how much you can spend to acquire customers while still bringing in returns. This equation will be a crucial part of your pitch to investors and deciding how much money to raise.

The point is that you will go through this phase and it should be celebrated. Some companies want to latch on to the startup mindset but the goal should be to get to a clearer product and deliver upon it.

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