Forget focus groups and ad agencies… start-ups crowdsource ideas from friends and make DIY viral campaigns

Rosamund Urwin unpicks the start-up rules of a new generation

A reblog from Evening Standard, Monday 18th April. (You can read the original article here.) You can also sign up to LiveTree using this invitation link. 

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With friends like these: small-scale peer research is on the rise Getty Images.

The rules of start-ups are changing. Gone are the days when you had to plan every detail before launch — now entrepreneurs just need to hit “go”. As LinkedIn founder and tech investor Reid Hoffman puts it: “You jump off a cliff and you assemble an airplane on the way down.” If bank managers and venture-capital firms shrug their shoulders and turn you away, crowdfund or try new lending avenues. Most of all, you need to keep changing, developing, adapting.

London is ultra-competitive for start-ups. Here’s how the strongest survive.

Planting the seed

Research, schmee-search. In such a competitive market, entrepreneurs’ primary objective is to get their product out there fast. Better to send it out into the world with the hem unfinished than to see someone else wearing your outfit while you’re still making it.

As Robert Colvile writes in his new book, The Great Acceleration: “The latest craze is for the ‘lean’ start-up — start small, create a minimum viable product and be prepared to switch tack at a moment’s notice.” Hoffman puts it thus: “If you’re not embarrassed by your first version, you waited too long to ship it.”

Alex Head, the founder of catering company Social Pantry, can relate to that: “A resource you don’t have is time. I learned from the age of 15 — selling sandwiches off the back of my bike in Riyadh [Saudi Arabia] — what to do and not to do. I’m still learning.”

If there is some time, a new approach is small-scale peer research. Been to a dinner party recently, only to discover you’re actually there for a brainstorm about your friend’s business idea? This is (low-cost) market research for 2016. Sometimes these are straightforward ideas meetings with a hand-picked focus group from peers and former colleagues; at others, the wannabe entrepreneur is on the look-out for potential partners. You’ll know when somebody starts taking notes, and you’ll get asked for feedback afterwards.

“I was invited to one recently for a mindfulness business,” a fellow journalist tells me. “The other guests were a social media expert, someone in e-commerce and a management consultant. It was a guided conversation, so my friend could work out the best way of taking forward her idea.”

Sebastian Fernando is the founder of flavourme.co.uk. Launching at the end of the month, it is a sharing economy version of Deliveroo: it allows you to order home-cooked meals from your neighbours, delivered by flavourme’s fleet of drivers. It’s inspired by the cooking of Fernando’s Sri Lankan grandmother. Fernando, 27, reckons the most important piece of research is to look at why others who have done what you’re trying to do failed: “A year later there will be a solution.”

Another idea is to bring a business that someone else is already doing in another country here: home-cooked meal delivery is popular in the Netherlands and parts of the US. Jonathan Randall, who founded photobooth firm Flashmat last October, had the idea because a friend of his wife’s was already doing something similar in France.

Old school: commission market research from a specialist firm.

The new way: find out what works as you go along; the brainstorming dinner.

New money

Head, 30, and Randall, 32, both self-funded their businesses, and Fernando applied for seed capital. But there are new ways to get funded.

“Funding has changed enormously,” says Toby Darbyshire, who co-founded solar firm Engensa in 2009. “When we set up Engensa, it was all about institutional investors and venture-capital firms. Now, it has democratised, with the rise of peer-to-peer lenders and crowdfunding.”

Growth Street is one alternative to a bank overdraft. “Over the past three-and-a-half years, bank supply of overdrafts for small businesses has reduced dramatically,” says James Sherwin-Smith, its chief executive. “If you don’t have a bank overdraft, you either have to get more expensive finance or you have to build up cash to survive a dip or if a client pays late. That’s money you’re not reinvesting in your business — hiring another person, say.”

Growth Street is a business-to-business marketplace to solve that: “We connect companies that want to lend because they have excess cash to businesses who want to borrow.”

Haggerston-based LiveTree, which launched two months ago, is another new funding model. Ashley Turing, its 37-year-old founder, explains: “We’re a crowdfunding platform and a marketplace once the product is built.” The model is to refer friends “because we believe personal recommendation is the most powerful way to get your product out there”. But while Google and Facebook collect users’ data, LiveTree returns the profit from advertising (skimming off a small share) to them. Users can do whatever they want with the profit they earn, including donating it directly to one of LiveTree’s partnered charities.

Interestingly, Darbyshire, 34, also says that the sums available from early seed and angel investor rounds have shot up recently. “The first round used to raise maybe £200k;, now we’re seeing people raise £2 million from a network of angels.”

Old school: venture-capital firms, institutional investors or a friendly bank manager.

The new way: crowdfunding, peer-to-peer lending or much bigger sums from seed capital or angel investors.

Fail to grow

Every entrepreneur stresses the need to innovate. “You don’t want a plan, you want an inkling,” says Joe Nelson, who founded TheyFit condoms in 2011. “You can’t be embarrassed to get it wrong. It’s not binary: if you mess up, you can keep playing the game. You still have 100 lives left.”

This is particularly true with online businesses, he says. “Everything is so fluid, you can change the website pages in the blink of an eye and be nimble.” Nelson, 34,  would use feedback from every customer to improve both product and service.

If web-based, start-ups can do a/b testing from the beginning. That means visitors to the site will see one of two options. If there’s a big discrepancy in how much they go on to buy, the company knows which to choose. They can keep testing repeatedly to hone the site.

Sherwin-Smith, 35, found out the painful way why you have to keep innovating. He started his first business at school. Called Hitmatic, it was like an early version of Google Analytics. “It paid for my education. But Google bought one of our rivals [in the end] and our tech originally was better than theirs. I wish I hadn’t gone to university and had just worked on that.”

Head, who does the in-house catering at Brentford Football Club (150 people a day for breakfast and lunch seven days a week), argues having one consistent revenue stream is essential, especially in a seasonal industry such as contract catering.

Old school: everything polished on delivery.

The new way: fail fast, learn quickly.

Sell yourself

Fernando is launching flavourme.co.uk in Dulwich first, before expanding to other parts of London. He’s going to advertise primarily on Facebook because it allows hyper-local targeting of ads. He says that ads can even be timed to appear when people are on their way home from work and potentially thinking about what they’d like to eat that evening.

For Randall, too, Facebook is his main place for advertising. “It allows you to target people with particular interests,” he explains. “People often have Photobooths at weddings, so I want anyone who’s engaged — weddings can be one of these interests.”

Edzard van der Wyck, 35, is the co-founder of Heist, which makes hosiery without seams. In his five-strong team, three of his staff do the social side. “We can behave like a retail brand, engage with our customers and react very quickly to what they want. It helps us to hone the product and you get immediate feedback.”

Head notes that social media is also an important recruitment tool. “I always ask in interviews ‘how did you hear about us?’ It’s usually that they follow us on Instagram or found us on Twitter.”

But it isn’t all about the new world of media, either. Nelson went on Dragons’ Den. Even though he failed to get funding, it had a huge impact for TheyFit.

“It doesn’t matter if you win or not. That’s a million people who’ve just seen your product and — unless it’s one of the really bad ones — a sizeable minority will agree with your idea. We had 7,000 hits a second at the peak of that, completely free. Those people didn’t all buy but sales still rocketed. The show gets repeated and you get another spike.”

He says there’s no need for a PR agent “as long as you’re willing to do stuff. Spend nothing, be clever, get on”.

Old school: hire a PR firm.

The new way: DIY and online marketing.

When to let go

Nelson sold TheyFit last year for $1.3 million. But the new advice — including from Kickstarter founder Yancey Strickler — is not to sell out too soon.

Fernando agrees with that. “I don’t want to be a serial entrepreneur, I want to do one thing really well. We’re a long-run business that requires shifting perceptions. It’s a bit like what Airbnb did: people couldn’t imagine renting out their homes before but now it seems normal. We want people to think, ‘Why would you go to Domino’s when you can order food cooked by your neighbours?’”

Randall’s eventual plan is to use the income from his photobooth business to move into other areas. “I’m looking at things that are more scaleable,” he says. “Start-ups are often burning cash to revolutionise something, but if you take an existing idea that works in another country, you can then put in place a manager while you can then go and pursue your passion project.”

He hopes that Flashmat would be the cash cow that keeps giving (and growing) but that he can use the photos that he owns either for “facial recognition, or other marketing uses. All the info I have could be valuable.” He notes that companies have been bought in the recent past not for their main business but for the information they hold on clients. “I’ll sell the business when it’s in a great state,” he adds.

Old school: sell as soon as a suitor comes knocking.

The new way: Please sir, can I have some more (money)?

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