How to start a business: Part 4: Repeating Value

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This multi-part series is my thoughts on starting a business. This is Part 4, where I’m going to write about the third stage I believe all businesses go through. It’s important to note that a business really doesn’t exist until this stage is complete. As a quick recap – these are the 7 stages - Discovering value, delivering value, repeating value delivery, optimizing, scaling, operating, and capitalizing.

We already discovered value and delivered it, now we need to make it repeatable.

The decisions you make in this phase are super important as this is the phase that your business will start setting in concrete. Think hard about what you do in house, and what you outsource. You should pick an aspect of the value creation process that you can be #1 at; ideally this is the most value-add aspect; and an aspect that has the largest moat. You also need to be a realist and recognize what aspects you can’t compete on.

When you make the value-delivery repeatable; you choose what your key competencies are. You choose what third-parties you may have long-term relationships with. What positions you need to hire and develop; and what tasks are done by contractors or outside vendors. Recognize each decision and think in 5 years who will have power in negotiations. It’s okay to cede power and rely on others. You can’t do everything. But, recognize what your key is; and what the key is for others in the process; and how they all interrelate.

What exactly do you need to make repeatable? Three things. The marketing/growth engine; the creation of value; and the delivery of value. Each of these pieces or components of them may be in-sourced or out-sourced. 

Generally companies have four basic strategies. Go vertical, go horizontal, focus, conglomerate. The vertical business does everything from beginning to end for a very specific piece of value (Think Apple owning the the value chain for Itunes – the software, the licensing, the hardware, the storefronts etc etc). The horizontal business does everything for a very specific piece of value creation process (Google Search is used by almost every business to do search ads – This is also a lot of customer relationship businesses where they have the channel to the customer and they go wider by offering more products like an Amazon) The focus is company that does one thing really well. Maybe a manufacturer of a specific part. The conglomerate is a company that does a lot of things such that if the market turns in one area they have diversification to offset things. As a start-up, you will either be horizontal focus, or vertical focus. 

Step one: Make the marketing growth engine repeatable. You need to have a repeatable way to get NEW customers. There also needs to be stickiness of existing customer; this is how you get customers to stay engaged; how you get customers to upgrade; or upsell; or become repeat customers. The gold medal to the marketing/growth engine goes to the business that figures out how to get repeat customers to bring in new customers.

How do you repeatably get new customers? One is being viral. Something inside the product, or use of the product/service automatically spreads to new people. The second is making customers so happy that they spread the word for you. The third is the traditional way of paying for it via ads and marketing. The fourth is developing relationship networks.

How do you get sticky customers? I think a lot of this has to do with the chosen business model. The monthly subscription usually wins over the one-time fee. It brings the up-front cost for a customer down / while simultaneously increasing the lifetime revenue of the customer. Part of this also has to do with how seamless and usable your product is. I think the perfect product, is one where customers don’t even realize they are using it; and they use it all the time without even thinking about it. But this goes against the idea of viral marketing. So, there is a balance.

Step Two: Make creation of value a repeatable engine. Can you create the product/service or do you outsource this and slap your own brand on it before it goes out the door. Either way, you need to be able to get the value at higher levels of quality and lower cost over time.

Step Three: Make delivery of value a repeatable engine. This may be a web-site, a store-front or just a relationship with a shipping company, or a relationship with a big-box store, or a relationship network. Relationship networks are extremely valuable and tough to build. They naturally have a large moat once developed. A relationship network is a group of people that are connected around something. A lot of times these are professional networks. A great group has natural trust that has developed between the professionals over time and across repeated interactions. This trust lends tremendous weight to any product/service that is capable of leveraging the networks. This is tricky as if the network stops serving the interests of the professionals (And only serves the interest of the product/service) it will naturally die.

How does this apply to TuitionCoin? We are outsourcing marketing. I feel there are a lot of marketing firms who are experts in this area. I won’t be able to compete with existing businesses if we do it ourselves.

We are going vertical to own the entire value chain and make it 100% repeatable. This is our core competency. We believe technology can radically improve finance. It’s basically keeping track of and moving around 1’s and 0’s with as little friction as possible. We also believe owning the entire value chain will help make customers sticky, and develop great relationships that can be used to slowly grow horizontal over time. Going vertical also requires a lot of regulatory knowledge and upfront investment. We believe this is a large moat that will make this business tough to replicate.

We also own the delivery of value through our website financial platform. We can automate reports for customers, investors, regulators, auditors to lower on-going costs for all these steps.

Congrats: Congratulations. If you reach this stage you are a real business. You discovered value, you delivered it to customers that want it, and you found a way to repeatably find customers and deliver the value to them.

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

How to start a business - Part 2 - Discovering Value

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This multi-part series is my thoughts on starting a business. This is Part 2, where I’m going to share the first 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 my 7 stages - Discovering value, delivering value, repeating delivery, optimizing, scaling, operating, and capitalizing.

The first stage is discovering value. Every time you say, “wouldn’t it be awesome if. . . ” or “Why don’t they . . . “ or “I wish . . . “ or even “This sucks”; All these sayings are a part of discovering value. Most of the time; they are just thoughts; or maybe a brainstorming session. But on occasion, they are the seeds to a business.

When trying to discover value you should be thinking about what YOU can deliver. And by YOU, I don't mean you alone. I mean, what you are capable of putting together by forming a team or partnering. Remember we live in a glorious age of APIs - a lot of hard things are just an API call away. I know some start-up guides would start with looking at capabilities and then going to value. It's been my experience that whatever is worth doing, is going to involve learning. This means when you discover value - if it really is new, unique, or worth doing, it's not going to be something you are capable of doing right away. There will be a lot of stuff to figure out and learn while you build the business. Start with value - then figure it out. Don't figure it out - then try to find value.

Filter every value you discover with this lens. What is my moat? If you find value; people will compete for that value; if there is no moat, the best you can hope for is to be acquired, the worst is to be driven out of business. You may think you can win, but you probably can't for this one reason. Your idea is your competitive advantage - the people that copy you probably have already established a competitive advantage in copying people just like you. Or, they already have the channels into the marketplace. Or they have deep pockets for marketing. Or they have an execution engine. Or they have diversification. Point is - at this early stage when you can toss out an idea because it is undefense-able - toss it out and find something that has a moat. This is why I like things that are hard and require learning. A simple idea that is easy - has no moat. Something hard generally does.

I also think you should keep your costs in this phase as low as possible. I'm a fan of the lone-entrepreneur at this stage. Work on the side so your runway is infinite. Hiring a bunch of people, or forming a "really smart team" when you don't know what they are going to do, is wasteful and can lead to a situation where you don't move to the next thing because you sunk too much into this thing. 

Part of clear thinking, is clear definitions. So, what is value? Value has many dimensions. The primary one is anything someone needs or wants to get done. Although it may be intuitive that needs are more important than wants – needs make less profitable businesses because needs are often competitive, low margin, and require scale. Wants can be more niche high margin businesses. They can also be added onto needs. For example – we may need to travel to our job. But, typically automobile dealers compete on our wants because we are willing to pay more for our wants; than our bare needs.

The second aspect of value is relieving a pain, or providing a gain. Facebook is about the desire to connect with people. But, what they got right is the gain of being able to connect with people that aren’t really that close; without the pain of an awkward interaction or the pain of putting forth much effort into the relationship. Hey, we went to high-school, friend me - this is sooo easy to do. One thing to note about pains and gains is they are typically an aspect of a want or need. Every decision in life ultimately comes down to trade-offs. It’s the entrepreneurs job to make the trade-offs more acceptable, even desirable.

The third aspect of value is what people traditionally think of. Time and quality. Competition often boils down to meeting a want or need in less time or at higher quality.

I say this stage is about discovering value. Because value, like beauty, is in the eye of the beholder. And just like beauty – there are some people that are universally attractive – and others that are attractive in certain cultures, or fashionable times – and still others that are a persons “type”. Value is the same way. One of the entrepreneurs jobs early on is to discover everything about the value they are looking at. Who else is providing this value? What is the history of that value? I believe start-ups often put too much emphasis on being “new.” Even if you are new, you stand on the shoulders of giants. So, learn about the giants and every company in history that tried to meet that value or a related value. If you find your value fits a specific niche, learn about what other values matter to that niche. This will teach you how to market your product because the same messages that other values use that resonate with your market will most likely resonate for your product.

So, how does this relate to TuitionCoin? The thing TuitionCoin did was start with a mission. "TuitionCoin is solving the student debt problem though financial innovation." So, with that in mind - where is the value that will relieve the student debt pain that so many people are feeling. Interest rates are too high. Okay, so how do we lower them, how do we drive down financial costs and increase customer service. I think this is a good way to find value. What is a hot topic or something you are deeply familiar with that either a lot of people want; or a lot of people feel pain from. Now, figure out a way to provide value to those people. The downside to this method is you will pick a competitive space because it is a big market. Duh, business is competition. Figure out how to win.

Now that we recognize value we have to deliver it. This is when one of three things happen. You find out your value costs too much to deliver at a price the market is willing to pay. You find out your value isn't really a value because no one wants it. Or, thankfully, you find out people want your value and you can deliver it.

Go to Part 3 - Delivering Value

How to start a business - Part 1 - What is a business?

I’m starting a multi-part series on how to start a business. In it I will explain my philosophy; and follow up with how it applies to TuitionCoin.

If we are starting a business, let’s start with a good definition of a business. A business is repeatable value. That’s it. If it is repeatable but not valuable – it either goes bankrupt or never starts. If it is valuable but not repeatable – it may burn bright, but will eventually fade or crash. Another definition; BIG businesses are scalable. If it is not scalable it may be a business, but it will never be big.

It is my theory that all business go through the following stages. Discovering value, delivering value, repeating delivery, optimizing, scaling, operating, and capitalizing. We will talk through the stages in future posts.

The founders job is to start a business from scratch. You succeed, when you have a business.  This means, you need to get through the first three stages. Discover value, deliver value, and find a way to repeat delivery. At the end of the three stages, based on my definition, you are a business!

How does this apply to TuitionCoin. I’m in phase two, but investors want me in phase 5 (scaling). I’m not there because of a strategic decision. I could have outsourced both origination and servicing to move faster. This is a big question for any founder. The question is; how much do you do, and how much do you have others do? The tradeoff is between learning and speed. In doing you will learn. In not doing you will be quick. I believe the most important thing for a start-up is learning your core business. If something is not your core, have someone else do it. In my situation. I believe the lender that owns the entire value chain and optimizes every step will win. It's a lot of work figuring out the entire value chain; but, here is the thing. I’m playing to win.

Go to Part 2 - Discovering Value

The Ultimate Question Every Entrepreneur Faces

The ultimate question every entrepreneur faces is this; When they try to change the world, who is going to break first, them or the world?

By definition an entrepreneur believes they can change the world. It's what they set out to do. Yet, to be successful an entrepreneur needs to face reality. This is a huge paradox. The world is almost impossible to change. Yet, the entrepreneur believes they can. And this paradox causes emotional turmoil. For me, I wonder if I am really capable of pulling this off. It's ridiculously complex, challenging, and full of problems. It's easy to wonder if I am deluded.

In fact, I think this is the question every human being faces. When we face the world, who breaks first? Do we stand up for what we believe; or do we break in the silent acceptance of those around us? If we have a passion, do we relish our hobby? Or let life get in the way. When tragedy strikes; can we find our joy again.

This is the hard truth. We all break. We all doubt our ability, our vision, our sanity. And for some it's not a violent snap; but a slow acceptance of a thing.

The beauty of life is this; Each day, even after we break, we have a new opportunity to stand up and to push, and when we do, a magical thing happens, it's what keeps the entrepreneur going. . . when we push, the world really does change.

Is a School Good or Bad?

TuitionCoin only refinances people from “good” schools. If anyone assumes we mean “ivy league,” we absolutely do not. The VAST majority of schools are “good”. Some of the best schools are public schools.

This is what the data says. Most schools, regardless of degree, lead to jobs making significantly more than high school graduates. By significantly, I mean the cost (including opportunity cost) of college pays for itself multiple times during a person’s career. The tremendous value of higher education is one of the contributors to tuition growth.

TuitionCoin rated over 4,000 schools and assigned grades from A+ to F. Ratings are primarily based on default and graduation rates. We use default rates because they are the best indicator of a schools success.

2015 State of Education

The "2015 Condition Of Education" was released by the National Center for Education Statistics. Think of it as the state of the union for higher education in America.

The highlights: http://nces.ed.gov/pubs2015/2015144_highlights.pdf

At a glance stats: http://nces.ed.gov/pubs2015/2015144_ataglance.pdf

Full report: http://nces.ed.gov/pubs2015/2015144.pdf

Browse-able web page: http://nces.ed.gov/programs/coe/

TuitionCoin Student Loan Application Process

The TuitionCoin loan application process makes me very proud. We are flipping traditional loan applications completely upside down. Typically lenders start with the borrower without caring about the school attended or the degree that was earned. TuitionCoin is different. We start with the school, the degree and finally look at the person. How does our application process work?

What is lending? plus bonus link to a great article

For this week I'm going to be brief. Some philosophical thoughts on lending and a link to an article you should read (Or at least skim).

What is lending? 

Lending takes a frozen, unused pile of ones and zeroes and converts them into a flowing, utilized, stream of ones and zeroes. 

The only moment ones and zeroes actually matter; is when they get converted into something real. Lending is essentially moving ones and zeroes from those that don’t need them and aren't using them; to those that do. 

When done right the ones and zeroes get used by the people who need them; and returned to the original owners by the time they need them. 

What does TuitionCoin do? 

We track the flow of ones and zeroes. We split the flow of ones and zeroes into innovative streams.

The bonus article
Here is an awesome article on the cost and quality of higher education.

http://www.thirdway.org/report/a-new-college-compact-addressing-the-cost-and-quality-crisis-in-higher-ed

Student Loan Bankruptcy Law

This is my suggested change to bankruptcy laws for student loans. If someone declares bankruptcy, the student loans should be converted into an income based payment plan. The borrower would pay 10%-15% of their income until the loan is paid off OR 10-20 years has transpired.

The Problem with Getting Rid of Student Debt

                Although this may sound odd coming from a person committed to solving the student debt problem, I do not think student debt is totally bad.  I believe there are aspects of student debt that are really good.   When I imagine fixing the student debt problem; I don’t imagine school being free. I imagine a world where student debt gets properly invested. Where loans go to institutions that lead to good careers; and the schools that suck go bankrupt.

   

   In order to solve the student debt problem we first have to understand the problem. The problem is not that student debt exists, the problem is that the debt is misallocated.  Misallocation is an economic term that means a bunch of loans are going to total crap.

I need to blog more

I need to blog and share video updates more often. TuitionCoin is a journey. One I want to share. But, it’s hard to share. I’ll start posting more often, starting with this post, which is about my fears around sharing. 

The Grand Plan to Give Everyone a Free Year of Online College

This month, Klinsky and the non-profit he founded, Modern States Education Alliance, announced the launch of a new initiative called Freshman Year for Free, which aims to make a full range of freshman-level college courses available to anyone for free online. Unlike most so-called massively open online courses or MOOCs, which have sprouted up over the last few years, these courses will directly prepare students for accredited exams like the Advanced Placement test and the College Level Examination Program (or CLEP) exam. That way, after completing the courses, the students can get real college credit—potentially, even a full year’s worth.

Reposted By Issie Lapowsky

The problem of investing in a zero-rate world

"This chart, courtesy of Robert Shiller of Yale, shows the change in 10-year U.S. Treasury yields from 15 percent in 1981 to the current 1.89 percent in 2015. To put these numbers in perspective, in 1981, an investor with $1 million could purchase conservative 10-year U.S. Treasury bonds and earn a very productive $150,000 per year. Today, that same $1 million in 10-year U.S. Treasurys earns $18,900."

Sections in quotes Reposted From Michael Elfers

How to ease the burden of student debt

In an environment where U.S. consumer prices overall remain historically low, tuition is one of the fastest growing expenses. By extension, it means the $1.2 trillion collective mountain of education debt is likely to grow bigger.

Experts cite ballooning student debt as detrimental to everything from net worth to credit scores, and even the ability for students to get jobs to pay off their loans.

Annual tuition inflation has slowed since 2004, according to data from the Bureau of Labor Statistics, yet it still averaged 6 percent over the course of the decade. At that rate, six-figure loan debt is rapidly becoming the norm for many graduates, and students may find themselves swallowed up by a black hole of debt, unless they can find a way to achieve escape velocity.

Reposted By Olivia Michael