Start ups, Scale-ups, and marketing lessons

Across the Pond- Marketing Transformed

25. Start-ups, Scale Ups and Marketing Lessons

 

SAMUEL MONNIE: 

So, in this week’s show, we’re going to talk about start ups and which ones stand out for us. What makes a serial entrepreneur, some stories of success, entrepreneurial successes, and what forms the approach to marketing transformation. We’ll also give some tips on bootstrapping, what we’ve learnt, things we would do again and perhaps things that we’d do differently.

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The word start-up cumbers up and abundance of companies and brands that continue to transform our lives across industries, across sectors, in the delivery space, cannabis, real estate, in director to consumer brands, you can think of it as the Air BnBs or Grub Hub or think in the UK a brand better known is JustEat, and Impossible foods. There’s a company called Away which is a billion dollars in the luggage space. But many of these start-ups are facing some headwinds and the most famous of them, the unicorns, companies that are valued above a billion dollars or more, by private investors, have fallen flat on Wall Street to some degree. 

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Uber, Slack and recently Casper are a few of the obvious ones that come to mind. We’ll talk later about what’s going on here, but a starting point is to wade into the debate of what actually turns a start-up into a scaleup. Simply put, start-ups and scaleups are at different levels of growth and likely, different levels of funding. So, typically start-ups will have seed funding or series A or no funding at all, tweaking their proposition and product, and acquisition approaches and their boot-strappy, if that’s a word.

 

CHRIS LAWSON: 

Nice word. 

 

SAMUEL MONNIE: 

Thank you, I probably haven’t invented that…but they can pivot and evolve their business models as they look to establish themselves. So, that’s what a start-up is. And, from the scaleup perspective, there’s been significant improvement beyond the MVP (minimum viable product) and they’ve got more credibility in the market, they’ve got more confidence in the leadership, or at least the market has a bit more confidence and credibility, and they’re getting more funding and are seen as saleable. There’s a brand right now, as we’re recording this, called Liquid Death heading towards the scaleup phase. They’ve secured nine million dollars in the series A funding, and to be honest there’s already a bit of negativity and a positive buzz at the same time- that a canned water brand can get the support that many other businesses, perhaps with a worthy mission or a more innovative proposition cannot get that kind of funding. But it's still being reported that they’ve got distribution in Whole Foods and so, they’re on a bit of a roll right now. But I’m speaking on broad terms there, Chris. So, can you poke holes in that? I’m not sure if there’s a single definition out there, right?

 

CHRIS LAWSON: 

Yeah, I think that’s a great starting point. In broad terms, a start-up is a company that is in its early stages of development, tends to be small, initially financed by a handful of founders or individuals. And then, the scaleup phase is the next phase it goes, after successfully seeing an annual growth of at least twenty percent over the first two or three years, and that tends to be when they are looking for future funding.  So, basically, a high growth company. 

 

Don’t Go Full Kanye

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CHRIS LAWSON:

What I think is more interesting than definition, is a lot of these changes are based on personality. How do you move from being in that position when you’re the owner, the person that might look at the budgets, do the marketing and take the bins out, and you’re the beating heart of the brand, who’s been there since day one and then, you move into scaleup phase, you’ve got the cash, you’ve got the investment and your first job is how do you share that? How do you let other people take the brand forward? How do you answer to someone else that you’re accountable to because you’re looking for investment and do marketing your own way? 

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Then, to your point about canned water, Sam, how do you do this without being sucked into the hype? How do you make sure that you don’t get carried away with the big check? The job is actually, to spend the money wisely and not drink your own celebrity status or popularity- or canned water, for that matter. 

 

Sam’s Business Venture

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SAMUEL MONNIE: 

Well, as we bring this back, one of the things I think we do on this show well is to make it more personal, and as we think about start-ups from a personal experience, my wife and I actually took the step, well, to be honest she was the driving force, my wife Lydia, to open a women’s plus size apparel business in 2009 called, Boutique La Roux, which was a physical and online retailer based in Milwaukee Wisconsin, where the physical store was located. The catalyst for the business was to meet the needs of women who wore sizes 12-24. And, did you know, Chris that sixty eight percent of women in America are a size 14 or above, but at the time, you’d rarely see a plus size mannequin in a store as you walk by or even the clothes were not as easy to find, as they should be.

 

CHRIS LAWSON: 

Wow, I didn’t know that, Sam. Is that a growing trend? 

 

SAMUEL MONNIE: 

Well, yeah. In terms of the market size, absolutely. There’s just an overall reality that women are different sizes and they’ve actually varied between sizes but the market, if you look at the average person, starts from 14 and above for the majority of American women. We had a good run at the business, we had it for about five years, but after that period we decided to close because the growth was going to take a longer-term play than we wanted to take, so we decided to make the call to step out of that. 

 

CHRIS LAWSON: 

Yeah, I mean it’s always a difficult point isn’t it, at that stage, again that scale up stage; twenty-nine percent of scaleup businesses fail because they run out of cash, in the UK, only one in five businesses make it in the first year, and out of the one that manages to make it into the second year, only one in five of those makes it onto the third year, so, getting established, getting to five years is a great achievement in itself, I think, Sam. 

 

SAMUEL MONNIE: 

Yeah. So now, for me there’s a great opportunity for me to bring that experience back into organisations and companies from an entrepreneurship perspective which was an actual pivot. But, if we go back to those days it was such a formative experience, and I can sympathise with all of the founders and entrepreneurs out there with some of the most fundamental barriers that we faced as a small business was funding related, basically. Getting start-up cash is really, really tough. We both at the time had solid incomes, had a great fifty-page business plan that impressed all the banks that we approached, but the banks were only willing to offer credit cards or loans secured by hefty amounts of cash. So, it wasn’t really helpful and was actually rather frustrating. I’ve heard too many stories of the challenges people have faced in this space, and it was all very real and somewhat disheartening. Lydia was and remains a dynamo and was determined to leverage and find solutions. 

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So, we took advantage of a couple of platforms called Lending Club and Prosper, and those were the two-key peer to peer lending organisations at the time. In fact, Prosper launched in 2005 as a first of its kind, and we launched in 2009 so it wasn’t long after they’d been established. We’d posted a business story and our credit scores, and we got lenders to fund about forty percent of the loan the day we posted the request, and less than two weeks later, we’d funded the amount that we needed for twenty-five thousand. The shocking but inspiring truth is that three banks said no, but six hundred perfect strangers said yes, from 25 to five hundred dollars each. So, I guess I’ve really had a vested interest in the Fintech start-up space, because they’ve worked for me when the status quo and the incumbents didn’t. 

 

CHRIS LAWSON: 

Yeah, that’s a great story, it’s powerful and even more so in terms of the fact that it’s your story as well. It’s crazy to think about six hundred strangers versus your personal relationship with banks that you’ve been loyal to for years isn’t it? Again, it shows how an industry is being disrupted by providing investment by a crowdfunded perspective, and we talked about some of those success stories last week, as well. It’s good to have that personal experience, I think it helps you to empathise properly, it’s something that certainly comes up for entrepreneurs as an important part, in terms of what’s there. 

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So, definitely some takeaways you could share right now, I can imagine, Sam. What would be your highlights? 

 

SAMUEL MONNIE:

Yeah, I can think of three things that are immediate takeaways if I’m thinking about start-ups.

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1.  I have a power of belief that the power of the crowd is usually greater than that of the individual or individual institution. Try your ideas out on an audience of taste makers, and not just an audience of one gatekeeper. 

2. It can actually be easy, faster and more transparent to raise money, from what are in essence, complete strangers than the traditional financial institutions. So, really shift your mindset to see that potential. Prosper has facilitated loans of sixteen billion dollars to over a million people, and I’m so inspired by the path finders out there, looking out for people of colour and LGBTQ and other minority groups. For example, the work of a woman called Arlan Hamilton, at Backstage Capital. When I go to that website, I see an abundance of people who they’ve invested in, who kind of look like me, which is inspiring.

3. Set your exit plan from the outset. As you’re perhaps googling Boutique La Roux right now, it’s not around, as five years in we thought we’re going to have to close because scaling up was going to be a challenge that we weren’t ready and able to face. And so, for me, it’s important to have that exit plan, determined upfront so that you’re not making an emotional decision at the time, you’ve actually planned and accounted for it. 

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Fail to Prepare, Prepare to Fail

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CHRIS LAWSON: 

Yeah, that’s a really good point about the exit plan, I think. Knowing, for you, what the objective point is just takes some of the emotion out of it, doesn’t it? But we come back to that point about that tough stage as you move from start-up to scaleup. And it would be interesting to see, from your example, how many of these you think you’ve nailed, Sam. This is coming from research from entrepreneurs and what they think is important. And to be more likely for success, you’ve got to make sure that your business is built on a solid foundation. I think you got that one sorted. You need to be clear on what your goals are, values are and aims for those. We’ve talked many episodes around that, haven’t we? You need to choose an industry you have an interest in and are passionate about. I’m going to say that one’s a definite yes. And you have to make sure that there’s room; need for your products or services on the market. I think that mannequin example is a good one, Sam, from that perspective. But interestingly, according to some research done by an organisation called CBinsights, but it’s similar to what I’ve seen before, out of one hundred and one small businesses that closed down, they found that forty two percent shut down because there was no market need for their products or services. And that feels to me, a staggering amount really. 

 

SAMUEL MONNIE: 

Yeah, that’s a huge amount. Almost half.

 

CHRIS LAWSON: 

Basically. And that’s not just about digital businesses. One of the things we pride ourselves in is talking about product-market fit, understanding your customers, looking at the trends and if you take the stat at read, it doesn’t matter how much we talk about it, there’s a lot of people out there not doing it. 

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Where I live, Sam, you came in the last couple of weeks but there’s a pub, a deli, a coffee house, Thai restaurant, Indian restaurant/takeaway, an empty premise and a pizza place. Now, every year a new owner comes in and takes the empty shop premises place, now, a simple piece of customer research would give you a really clear idea that the pizza place is always, an absolutely full, the pub is an absolutely full, come weekends, the coffee shop and the deli are full, and actually the Thai restaurant and the Indian restaurant are doing a sort of passing trade, but look like they’re surviving by the amount of moped drivers outside, so, pretty much the takeaway business. So, why do I then find that the last three people that have been in that premises, two have tried to set up a Thai restaurant or a curry restaurant right next door to something that’s failing. And you do look at it as unless you’ve got very deep pockets, or a superior product that if the market environment is harsh then you’re not going to be there. 

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The second thing that strikes me, without picking on these poor restaurants that have tried to open up on my street, is that after no customers for six months, I would want to try and adapt, yet fourteen percent of small businesses fail because they ignore their customer needs. And I think the same applies whether you’re working on a SAAS product, a service or whether you’re a retailer, you need to make sure that you focus on the customers, and the ones that don’t are the ones that so often, fail. So, to be successful in a market, you have to deliver to consumers, what they want and need. So, you have to adapt. And to be fair I’m sounding a bit like a broken record, because it’s something we’ve talked about many times before but, if you’re doing something as important as starting a new venture - you’ve got to do your homework. 

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A Wheely Good Brand

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SAMUEL MONNIE: 

Chris, when I think of some start-ups in the business place that build on the examples that you’ve said, of actually being able to scale up and being able to succeed, I can see from a marketing and consumer standpoint, a brand called Peloton. They were founded in 2012, and they actually launched through Kickstarter, so they actually used that crowdsourcing model, and they’ve IPOed as an eight-billion-dollar company in terms of market capitalisation. Now, I know their IPO has been somewhat well received, but it’s a brand in the health and wellness space, which is a clear market that they’ve understood. They’ve differentiated their proposition; they’ve got the subscription-based model and they’ve continued to scale that.

 

They’re currently, I believe, only in the US, UK, Canada and Germany so, they’re not a global brand as of yet. But it actually got the backing of my wife, Lydia, and I bought her a Peloton bike almost three years ago, and before you judge me, she was really pleased with it, she’s a cyclist, has all the gear so, I wasn’t sending subliminal signals or anything it was something she actually wanted, and she really appreciates the trading aspect and the instruction that comes with Peloton, and there are a few reasons I actually picked them. 

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Firstly, the way they tackled the industry by creating IP (intellectual property) and a proposition that was unique, high quality and with a brand that felt modern and contemporary versus the incumbency out there. And yes, they got me spend over two thousand dollars, which is a lot of money, they also did a really good job of blending the direct to consumer and the showroom experience, so you could actually go, feel and touch the product and get that personal experience and get the delivery when the bike was delivered and the installation. And also, from the get go they really did a fabulous job of integrating music and the DJs and the interactivity, and the performance from the DJs was an essential part of the experience as well as the engagement from the instructors, getting a shout out by one of the instructors is such a moral booster and a motivator, but they’re facing a few headwinds because national music publishers have got involved and they perhaps weren’t paying as much as they should be for the rights there. My wife picked up on that shift there, and I’m curious to know the impact of customer sentiment but, you know what, Chris, one thing that really caught my eye about them is they’ve been consistently shouting about their net promoter score. Consistently scoring between eighty to ninety points, which is truly remarkable. They’re in the same league as the Apples of this world through offering ninety plus life classes, on demand classes and branching out into Yoga and other things. So, that’s a really strong brand doing well.

 

CHRIS LAWSON: 

Yeah, well at a two-thousand-pound price point, anyone that can create that hype around a two-thousand-pound price point gets my vote, Sam, and a nice generous present as well, it sounds great, I’m looking forward to my birthday coming around. 

 

SAMUEL MONNIE: 

Yeah, no, I’m not married to you Chris, so, you’re not going to get the same. 

 

CHRIS LAWSON:

What really interests me is, if you peel it right back, this is not launched with an initial multi-million-pound campaign, uses a lot of the best practice we’ve talked about from previous shows, and bootstraps as well. Let's start with the obvious, it's an exercise bike, it’s not a new idea. Did you know Sam, the first exercise bike dated back to 1796 which is pretty amazing, but they brought a community element to an activity that was normally done on your own, again, disruption, as we talked about before. 

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Certainly, that power of community, very powerful there. Recycling, excuse the pun, old ideas. And they’ve blended personalisation and supreme customer experience in content, probably with a bit of touch of AI around the personalisation as well. So, all of the themes that we’ve talked about, In terms of how to get ahead. But now, a vast majority, what they do comes from direct search, or that organic effect as the name spreads. Eight six percent of the traffic is organic, and NPS, as you say of over eighty or ninety. So, are you also a Peloton user then, Sam? 

 

SAMUEL MONNIE: 

Oh, hell no… but I am an admirer of them from afar, and I respect the brand, Chris. I recall a story from 2014 of how they actually realised the impact of digital conversion and they were targeting only desktop as their strategy, and they ran a Facebook campaign but they accidently included mobile in this, and when they got the data back they thought it was wrong, because most of the impressions were on mobile. I think it was around fifteen percent of purchases were coming through mobile. Yes, they learned that fifteen percent of people would actually pick up their phone and buy a two-thousand-dollar machine. And they found this out completely by accident. And of course, looking back now, it was a no brainer, but the power of mobile and the consumer behaviour was a shock and a surprise to them.

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So, as we look forward it does remain to be seen if they can scale into a sustainable, profitable business over the mid to long term. How long will their consumers continue to pay the thirty-nine dollars a month membership? Since recently, they’ve cut the price of their untether subscriptions to thirteen dollars from twenty dollars, not so long ago. So, basically, you can bring your own device, be part of Peloton but not actually have bought the machine from them. It’s the same thing that cable companies have been doing, offering the best deals to their least loyal or newest companies. So, let’s keep an eye on that net promoter score. 

 

CHRIS LAWSON: 

Yeah, it’s a sad state of affairs when at some point someone’s going, you know what, we’re doing great but we’re going to have to drive more margin, what can we cross-sell and upsell? And ultimately you might sacrifice loyalty for driving a cheaper product to a segment if the audience. And yes, of course someone will come along and burst the bubble and go, you know what, we can provide all of that for a fraction of the cost. But again, sticking with them, I read a great story that they have this amazing studio now in New York, with celebrities, Grammy award winning producers, making sure the shows are really hyped, brilliant expert lighting, yet they started out filming with four bikes in their second meeting room with hired lights and it’s an important fact that again, you have to start somewhere. And that’s the term we call ‘bootstrapping’ and from a marketing perspective we can learn a lot about what works from that.

 

Bootstrapping

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CHRIS LAWSON:

Bootstrapping is where an entrepreneur builds a start-up business from scratch with nothing but savings and hopefully income from sales driving through. If we look at some of the lessons, we come back to our favourite subjects, the fact that marketing is not rocket science, it’s a set of principles. What has transformed is how you apply them and so much of that is about culture, so much of that is about mindset, skills and behaviours, and I think it’s worth taking a look at these and seeing what’s been done consistently, Sam.

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A good place to look at that is serial entrepreneurs, those that continuously come up with new business ideas, put them into action and then move onto the next thing. Unlike the typical entrepreneur who may come up with a business idea and stick and focus on that. And again, research shows that most serial entrepreneurs have the same mindset about what it takes to make them successful, and one of the biggest factors is the people that they choose to build around them, and that you have to choose carefully when hiring selecting the talent and encourage them to master their responsibilities. You have to have a team that supports your weaknesses. We’ve spoken about that before, a strong team. And successful entrepreneurs figure out what they’re good at and what they’re not so good at and recruit around that. There’s a guy called Jeff Ellman, he’s president of Urban Bound and he talks about the fact that the first ten people you hire are very likely to make or break your company. A powerful statement, but I do get his point. He says especially if they’re in a position to hire more employees. Be very slow to hire but be very quick to fire someone who’s not a match. And I think that’s a strong point. Some other tips, again, shouldn’t really come as a surprise, but they obviously are to those start-ups that were going out of business because they didn’t; understand their customer base. Choose an industry or field that you know. Demonstrate empathy, we talked about that before, you need that good inside knowledge and industry connections to make a success. Involve people who believe in your business. That fandom episode, was that last week or week before?  The weeks go so quickly. 

 

SAMUEL MONNIE: 

Exactly. So, keep track, Chris. 

 

CHRIS LAWSON: 

Yeah, but basically, hiring people who believe that you are onto something good. Let them be the Evangelists. So that fandom starts from the inside out, which I think is important. Plan everything down to the last penny. I think a big mistake that people do is, they get a big check, they get their three million pounds and before they know it, they’ve spent their way through it. You’ve got to plan your business around the fact that you have less money to spend than you actually do, so that it can keep you low in terms of your spending decision. And so many of the no money marketing hacks, which again, we’ve all talked about. How do you use influencers? How do you use storytelling? How do you offer free services to people that can refer businesses? and drive it through like that. So, definitely some lessons to be learnt there, Sam. 

 

SAMUEL MONNIE: 

Yeah, absolutely. 

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There’s so many of those there that I think I'll save my commentary for something a bit later in the show, when we wrap up, for the three things.

 

CHRIS LAWSON: 

Yeah, good. But I think the bottom line is that this isn’t for everyone, is it? Forty percent fail when they get past this point, so, at some point, Sam, I think we’re going to need to tell that part of the story, look at failures. But for now, I think we’re coming to the end, it’s come around quickly. 

 

Today’s Three Key Takeaways

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SAMUEL MONNIE: 

Yeah, absolutely, Chris. 

 

1. I’d say the first one is really just respect and seek the power of the crowd. They can help generate the fans and the support but also they can help fund and invest back the business.

2. The second one I’d say is be powered by empathy. Really be close to your consumer and the market and those inside connections will make the difference. 

3. And I’d say thirdly, from this, actually be inspired to take action. You just listened to us and our involvement in this space but if you have that great idea, you have the inside knowledge and you have belief- go for it. Don’t wait for someone else to have the great idea or do the thing that you’ve seen. So, back yourself, back your ideas and think about making it happen yourself. 

 

CHRIS LAWSON: 

Yeah, great advice. And next episode we’re going to talk about the tightrope of scaling. It really is a high wire act in terms of navigating your way across and making sure that you don’t trip up. We’re going to look at the human side and how failures have happened, and what we can learn from those and our experience of working in the sector and what we’ve seen from the inside from that. So, I think it’s going to be a good follow up. 

 

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