We’ve been working on an integrated approach to startup formation and growth that’s designed as a have your cake and eat it too answer for founders looking to launch and succeed with limited resources. We call it the Frictionless Startup and it builds on ideas of the lean startup movement, the ultralight philosophy, and the muse business construct.
We all know fail fast, start often, get incremental proof, nail it and scale it… START. But, what’s the best way to do it and how can founders minimize risk and upfront costs?
We take the approach that when you can prove rabid customer demand in a compelling niche market vertical before you launch; launch using pay-as-you-go subscription services that scale in cost as you scale in revenue (and thereby embed the infrastructure you need to grow seamlessly); and create good margins using realistic customer acquisition costs… you have a Frictionless Startup.
We talk about how in this blog.
This is great example of a ridiculously frictionless startup, and it’s also super low tech.
I think tech entrepreneurs can take a couple of lessons from the simplicity of cup ads. (1) It essentially costs nothing to start this business. (2) The distribution channel can be secured —to start— by going out and talking to the beneficiaries — in this case, coffee shops and food vendors who want to save what they spend per year on cups by letting you give them cups that carry your advertising on them for free. (3) Sales can be made as soon as you show a viable distribution channel — which they did by getting 80% of the vendors they spoke with to sign an exclusive distribution agreement with them. (4) They incur no real costs until they prove the business…
»> Have idea, check — ads on cups that are in peoples hands for a significant time;
»> Get distribution, check — 80% of vendors say yes and they get critical mass to move a lot of cups;
»> Get a customer, check — Overstock.com buys all the ad inventory on the first batch of cups.
Then, and only then, do they need to pony up the money to make this business a reality. And, if they get the terms with their first customer and their manufacturer right, they get up-fronted the money by the advertiser to actually produce the cups and pay the manufacture on the back end so they can do this from cash flows.
So, for an idea, feet on the street sales, and the ability to negotiate terms, you’re up and running with a business that can do $10M plus a year in one market. Say you were to do this in Philadelphia, and then move to D.C. and New York, and up and down the Northeast Corridor. How soon till you could prove hugh viable scale? Pretty damn soon. How soon till you could either (A) attract smart money on good terms as equity or (B) be in the position to debt finance this (I mean it cash flows right?!?).
Pretty compelling and almost totally frictionless.
Whether you think you can, or you think you can’t—you’re right.
Musemaka Goes Free to Enter
We launched the Musemaka Idea Challenge at the end of 2011 and ran it as a pay to enter startup contest for three months. It didn’t do what we wanted to do, so we changed it to free to enter — Why? Principally because we were getting expressions of interest from all around the world, but entries from only a slice of the world… Seemed to us that cost was likely a barrier and we decided to remove that barrier because we’re invested in the idea of running a World is Flat startup contest.
That said, there’s also the matter of promoting a worldwide contest and the costs associated with that. There was never going to be any profit in charging for the contest, but we wanted to run it efficiently and at least break even and that was tough to do while running campaigns on four continents.
Our bet is that free will promote itself a little better and our costs will actually be less by making it free and ponying up the prize money versus paying per click for a global marketing effort…
Now put that in you pipe…
