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.