Company founders are the lifeblood of our economy. Thomas Friedman of the New York Times recently wrote a piece talking about the relationship between net new jobs and startups.
"Here’s my fun fact for the day, provided courtesy of Robert Litan, who directs research at the Kauffman Foundation, which specializes in promoting innovation in America: 'Between 1980 and 2005, virtually all net new jobs created in the U.S. were created by firms that were 5 years old or less,' said Litan. 'That is about 40 million jobs. That means the established firms created no new net jobs during that period.'”
Everyone has noticed that the startup community here in Chicago is growing. The online success of GroupOn has brought about some positive attention.
This year we saw the launch of three new incubator type groups - Lightbank, Scalewell, and Excelerate Labs.
Sam Yagan, founder of OK Cupid, launched Excelerate Labs using what he describes as a "mentorship model". In this model, Excelerate offers seed capital and rigorous mentoring to 10 different companies in exchange for a 5% equity stake in each business. Sam has rallied together the Chicago tech community and assembled an impressive list of mentors, many of whom have founded successful startups, run large companies, or played an influential role in the investment community. A few big names that round out the list include Brad Keywell, co-founder of Groupon, Chuck Templeton, founder of OpenTable, and Kevin Efrusy of Accel Partners.
Grouped together in this office space, the 10 teams benefit from seeing one another fight similar battles and overcome similar hurdles. They also benefit from frequent mentor visits. As you walk around the office, you can feel the buzz.
Last week, I sat down with a handful of these teams to discuss my experiences with starting Lever Works and Inventables. I wanted to help them avoid some of the mistakes that I made along the way.
Here are the companies I met with:
Tap Me - Tap Me Games is an independent video game development studio. Their focus is to deliver a simple message with their products - every experience is a game, and an experience is always better if it's shared. Their games will be available on multiple platforms like the iPhone, PSP, Android and XBox 360. The cool part about their model is that they are democratizing sponsorships so YOU can be sponsored by Gatorade, right alongside Michael Jordan.
Mathzee - MathZee started with the goal of making math education fun for kindergarten kids. The team is made up of educators, musicians, artists, gamers, and engineers with one thing in common -- they love math! And they are working very hard to create a fun world where your child will love math as well.
TransFS - TransFS is a comparison shopping website for credit card processing. Their unique auction process and comparison engine help them save businesses an average of 40% on their credit card processing costs. TransFS is quick and simple to use, and all of the processors that bid on the site are vetted and certified by TransFS to ensure quality and ethical behavior.
Edulender - Edulender hasn't launched yet, but they will be providing transparency in the student loan industry. Stay tuned!
Noblivity - Crossing the Chasm by Geoffrey Moore.
In my experience, it has been easy to understand the perspectives of different customers in the context of the chart above. The first ~14% of the market tend to buy your product because they believe what the founders believe. They aren't buying the product based on features or customer references. They are buying it because they think it might help them gain a strategic advantage over the competition. This is especially true with Inventables. We have a disruptive model for buying sales leads. Traditionally, material suppliers get sales leads from tradeshows or trade journals. Both of these methods require you to pay up front, and neither method is guaranteed to produce leads. The Inventables model is a pay for performance advertising system, and most of the market is not yet comfortable with this approach because it challenges the norm. Vendors have systems and processes in place to get leads the traditional way, and it's not until they see the benefits of paying for performance that they will consider changing.
In my experience, you need to figure out what your product is and develop a repeatable process for selling it before hiring a sales person. This means the product is somewhat stable, and, as the founder, you should be able to use the same sales pitch every time, rather than having to rely on improvisation. I like to think of it the same way Michael Gerber talks about process in the eMyth.
To get those initial customers, the ones who believe in you and your product for what it could be rather than what it is, I am a fan of starting with the "why". Simon Sinek gave a great TEDx talk on this topic, and he's not the only one who thinks it's important. Guy Kawasaki often talks about customer evangelism, as does Jackie Huba in her book Creating Customer Evangelists.
I believe that the value of Excelerate Labs goes beyond the monetary value created in these 10 companies. The residual value of bringing the Chicago tech community together is already paying dividends.
At Inventables, we believe that when it comes to trying to sell your product, educating customers is more effective than interrupting them. Traditional advertisers and marketers use the model of interruption to get people to buy their products. Interrupting with cold calls, interrupting with TV ads, interrupting with magazine ads, the approach is to insert the advertisement for their product in something else that their potential customer is interested in.
We believe the internet has made it possible to end these interruptions. Interruptions are not pleasant, and they lower our productivity. Google Adwords has made the most significant dent in ending these interruptions. Thanks to Adwords, rather than interrupting a TV show to tell the masses about a new camera, Canon can instead target a customer who is actually in the process of researching and buying a camera online. The customer clicks on the ad and has an opportunity to learn about the product. From my own experience, I tend to read online customer reviews and check technical specifications on the manufacturer's website. Adwords makes it possible for Canon and other companies to turn this type of online research into a potential sale without using the model of interruption.
We think this is a better model. We've designed Inventables so vendors that manufacture materials can advertise those materials for free. Rather than following the traditional advertising model, we've created, and continue to refine, a template to help vendors educate potential customers by writing about what their product is, how it works, and how it has been used in the past.
We've noticed that vendors who provide more detail about their materials get more traffic and, thus, more sales leads worth their time. This is because adding more content to a profile increases the chances that the profile will come up when a buyer does a keyword search on our site. If vendors aren't maximizing their potential keywords, buyers simply may never see their profiles or their products.
We believe that this is the future of advertising industrial products. The days of interrupting engineers to tell them about your new material or technology are numbered. Some vendors, like Eastman Chemical, caught on to this trend early and built websites like the Innovation Lab. Inventables is building a platform that allows everyone else to educate their customers, without having to make the massive investment that Eastman made with their site. Try it out by describing your materials, and let the customers come to you.
At Inventables, we are all about eating our own dog food! If you know what I am talking about, great. If you think this is gross, read on for clarification...
Dogfooding means a company uses the product that it makes. At Inventables, we create team exercises where we use the Inventables materials site like a customer would in order to learn what is missing or broken so that we can improve the quality and usability.
For our first Dogfooding experience, we teamed up with popcorn company - Popcorn Palace, located in Chicago. We wanted to test what it was like to use the Inventables website as a popcorn container designer. Would our site be a good resource for them to find new materials that would enhance the look and function of their popcorn containers?
Initially, we decided to visit Popcorn Palace facility to get into the mind-set of the Popcorn designer. After touring the plant, speaking with their team and eating a lot of popcorn Inventables felt we could help them find some exciting new materials on our website.
We returned to the Inventables office and each began to search our site for materials that could be used to enhance the popcorn container. We submitted our inquiries to the vendors and waited. Then waited some more.
While some of the vendors responded, others did not. Our initial reaction was "What the heck?" We had spent time and effort submitting inquiries to these vendors and never heard an answer. So we took a step back and started investigating why this was happening. After receiving some more feedback from our vendors, we realized that there was no way for a vendor to reply within the website to further evaluate if the lead is worth paying for or to let the potential buyer know why their intended use is not a good fit. This was eye opening and prompted the launch of a new Reply for Free feature to improve vendor response.
Additionally, we were able to make a couple exciting successful connections to active vendors on the site. We have two successful prototypes (pictured below) that we are showing the designers at Popcorn Palace next week for them to evaluate.
This material came from nylon fiber graphics company Fiberlok, which specializes in dimensional printing and heat transfer stickers.
This prototype was a
On top of having some cool prototypes to share with the Popcorn Palace team, eating our own dog food helped us realize a very important feature we needed on our website!