How to start a business - Part 3 - Delivering Value

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This multi-part series is my thoughts on starting a business. This is Part 3, where I’m going to write about the second stage I believe all businesses go through. It’s important to note that a business really doesn’t exist until the first 3 stages are complete. As a quick recap – these are the 7 stages - Discovering value, delivering value, repeating delivery, optimizing, scaling, operating, and capitalizing.

We already discovered value, now we need to deliver it. This phase is 100% about the details. The tiniest of details. When you hear about companies that “pivot” from an average idea to greatness; they discover greatness by paying attention to a detail most gloss over. So, pay attention to the details.

Now that I said this is about the details, remember the objective of this phase is to deliver value. This will require a lot of “Figuring things out.” The two main things to figure out is your channel, and your product/service. This phase is easy to err by leaning too far in one direction. Engineers will want to focus on the product/service and ignore the channel. Sales people will want to focus on the channel and ignore the product/service. You need to figure out both.

1) How do you get value to your customer (The channel – which includes how you reach new customers and the vehicle to deliver your value)

 2) How do you get value (The product or service. Who/what needs to be involved in creating and delivering it. How does it get created and delivered)

I’m a fan of the lone entrepreneur partnering with contractors at this stage. The great thing about contractors is they are experts in an area and good ones are willing to share their knowledge with you. If you channel is the web, find a good on-line marketer and work with them to get solid numbers on cost to get a customer to hit “buy” on a fake website.

One you have a “beta” group of potential customers deliver value to them. You may have to fake part of it at this point in time and your quality/speed won’t be optimal. But, if the value is really there and is differentiated that shouldn’t matter to your early adopters. Have them work with you to make it better and get ideas on improvements.

At the end of this you should have all the details around a channel to the customer; and the capability to deliver value to at least one customer. You should have real numbers. How much does it cost to get a customer? What does it cost to deliver to a customer? What does it cost to create the value you are offering the customer? Around what price point is the customer willing to pay?

At this point you are probably operating at a loss. The next stage of a business is repeating delivery. You should create a financial model at this point in time. This can be a basic spreadsheet. What are you fixed costs and variable costs. What steps of the value creation/delivery can you drive costs down? If the numbers don’t work you may need to either start over; or pick one step in the process that you want to excel at and offer those services to other companies in the space.

How does this apply to TuitionCoin? As a FinTech company this required figuring out a lot of regulations and technology. I'm guessing the longer this phase takes the bigger your moat. It's taken about a year (6 months to figure out consumer finance regs, technology for an automated application process, servicing loans, and a backend accounting/reconciliation engine. ) + (6 months to figure out investor/security regs, technology for enabling investment, servicing investors, and connecting the investment products to the loans in the backend accounting/reconciliation engine). I've had to leverage a lot of relationships with some awesome people in the industry. A big thank you to everyone that has shared their thoughts with me. One mistake I made was neglecting the channels. As soon as I was ready  on the lending side, I had more customers wanting loans then I had capital to refinance. I probably should have started advertising to get a bigger backlog and get hard numbers on cost per customer acquisition. I held off because I didn't want to disappoint customers that I didn't have money to refinance. 

At the end of this you are really close to having a business. You have one or a few sales. You’ve clobbered together value and delivered it to clients. You know your basic numbers. You know your industry and competitors. Next, you need to make all those details and things you figured out repeatable.

Go to Part 4 - Repeat Delivery of Value