How to start a business - Part 2 - Discovering Value

Jump to part 1

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