Two years into starting a travel photography business, Nicole Smith still wasn’t making any money. A mother of two with a house and mortgage, she was past the point in her life where living on a friend’s couch and surviving on Kraft Dinner seemed acceptable. She had been self-financing her company Flytographer (2017 STARTUP 50: No. 16) up until then with her life savings accrued from her former (and lucrative) job as a marketing manager with Microsoft. But funds were running out and Smith had some tough decisions to make.
At that point, most entrepreneurs would have thrown in the towel and, tempted by two weeks’ vacation and a health-insured lifestyle, begged their old boss for their job back. But not Smith. Instead, she sold her car to keep the company, which sends a photographer to capture perfect snaps of your vacation, afloat for a few more months. “I remember my dad asking, ‘Are you sure you want to keep going? You worked so hard to get to where you are in your career and you’re going in reverse financially,’” Smith recalls. “I told him I would sell my house if I had to, that’s how much I believe in this.”
But belief alone won’t build a business. Smith is an outlier in the vast sea of startup companies in that she survived the first three years, and that’s because she learned to bootstrap, market wisely and listen to what her customers wanted. That unwavering optimism and passion for the company’s mission are qualities that unite all successful entrepreneurs. Without it, Flytographer would never have grown 776% in two years and surpassed the $1 million mark in revenue. But in the notoriously risky world of startups, a good idea and strong will—while critical—aren’t all it takes to achieve elusive longevity. Here, we look at steps startups can take to move their business beyond an interesting concept to a commercially viable company. This is how you actually disrupt.
Listen to your customers
Every startup begins with a brilliant idea—but brilliant according to whom? If the answer is the founder, their friends and family, then chances are the business will be among the glut of failed startups, which the 2015 Startup Genome Report co-authored by Berkeley and Stanford faculty members estimates is as high as 90%. Listening to customers—an intimate form of market research—is the first crucial step in developing a product or concept that will sell.
After a conversation with her mother about the realities of the post-pregnancy female body, Joanna Griffiths, founder and CEO of Knixwear (No. 22), experienced the vital “aha!” moment that precedes most startups. Her simple conclusion: women need stylish, well-designed leak-proof underwear. Griffiths committed to developing that idea over the next two years, but it wasn’t until she immersed herself in online chat forums with potential customers that her business idea really came together. Eventually, she gained the trust of enough women (usually on mommy blogs and fitness chat rooms) to conduct a survey on what they’re looking for in a product and why. Not only did the feedback help Griffiths create a better pair of underwear (and eventually bras), it became the blueprint for the Knixwear brand based on fostering community and celebrating body positivity.
“A lot of the time, we go in with our own hypothesis, and sometimes that idea is spot on, but that’s the exception,” says Griffiths. “You need to throw aside everything you think you know about something and actually go and listen and watch and ask questions to the end users,” she add. “Then start to piece together what it is those customers actually want without your own biases.”
Before polling her audience, Griffiths didn’t realize how much of an emotional toll leaks had on women. She learned there was a sense of shame and embarrassment around it, and Griffiths saw that as something her product needed to fix. She decided to use “real” women (as in her customers and not models) in her ads, before the body positivity movement took off. The approach resonated with customers. They could see themselves reflected in a brand that was telling them they aren’t alone or abnormal.
Listening to the client is essential at every stage of growth, Griffiths adds. Since establishing brand loyalty, she routinely asks customers what else they want from Knixwear, helping her expand her product offering in a way her customers will respond to. Whether polling customers through feedback questionnaires, or responding to personal emails, taking stock and iterating according to client needs helps differentiate the successful startups from the flops.
A great idea doesn’t always mean investors are going to open their wallets. “That’s a misconception I see all the time,” says Cynthia Goh, the founding director of University of Toronto’s business incubator Impact Centre. People think there are dollars out there and they’ll raise money this way, she says. “But in reality, very few things get investments.” With no quick financial fix, Goh instills in her mentees the value of bootstrapping. The upside of using your own money, she adds, is that you’re not tethered to investors’ expectations, and can focus instead on what’s best for the end user.
It’s an approach that’s paid off for Michael Back, founder and CEO of HonkMobile (No. 6). His company digitizes the parking process by letting users search for spots near their destination, and reserve and pay for it in advance (and re-up the virtual meter), all on their mobile device. He knew the concept would be a hit among consumers seeking an Uberized solution to everything. But rather than going straight to investors, he built out the idea with his own money. “This approach gave me the freedom to focus on the business, and the ability to make mistakes without scrutiny,” says Back. “It also made it easier when we were ready to seek outside capital,” he adds. In fact, two years into the business, Back managed to raise $3 million in seed funding from a venture capital firm and angel investors. “Investors like to know you have skin in the game.”
Give (some of) it away
As two university students with no formal background in education, Rohan Mahimker and Alex Peters had trouble convincing teachers and parents to use their online math gaming program, let alone pay for it. So they offered it to customers for free. Within the first year, the number of users grew from 3,000 to 130,000. Now in year five, Prodigy Game (No. 9) has a whopping 18 million users worldwide. They still offer the basic version of the game for free, but customers can pay for upgrades. While it’s a small percentage of users who buy the add-ons, says Peters, it pays the bills, given their massive user numbers. It’s also helped them amass valuable user data, and ultimately create a better product, he adds. By analyzing what skills users are having the most trouble with, for example, the company’s education team can refine certain parts of the games to help students succeed.
For any young company, customers are undoubtedly the most valuable asset. But not everyone can afford to give away their service in pursuit of acquiring those elusive early customers. In that case, discounts through partnerships with more visible brands can help generate awareness and customers for your business. This is one strategy that saved Nicole Smith of Flytographer from having to sell her house to keep her company alive. “It’s helped us get exposure to customers who are already in the right stage of the sales cycle—they’re already travelling, or plan on travelling,” says Smith.
She has offered discounted services to customers of Fairmont Hotels, the Virtuoso travel agency, Expedia and Zolo, one of the largest wedding registries in the U.S., to name a few. “When people don’t know to look for it, you have to get in front of them in other ways,” says Smith. On top of that, Flytographer uses a double-ended referral system that gives customers a 25% referral credit as well as 25% off for the referred clients on their first purchase.
As a relatively small and unknown manufacturer in the big world of recycled materials, GreenMantra Technologies (No. 20) knew they needed to give their clients (who run the gamut from packaging to construction materials, paint, rubber and tire manufacturers) some peace of mind before convincing them to partner up. They did just that by forging a relationship with Export Development Canada (EDC) that involves financial backing of foreign sales. “EDC enables our sales into the U.S., and Asia and Europe to a lesser extent,” says Kousay Said, president and CEO of GreenMantra.
Essentially, the EDC covers GreenMantra’s clients for any financial losses they may accrue in the event that GreenMantra goes under or can no longer service them. “It takes the risk off the table for everyone,” says Said. “As a startup with a very weak balance sheet compared to some of the bigger chemical players, most people wouldn’t want to do business with us without the support from someone with a big balance sheet. And it doesn’t get bigger than the federal government.” Several private insurance companies also offer export credit insurance, including HSBC, AIG and Euler Hermes.
While a financial safety net is certainly handy, Said says having support from a network of credible entrepreneurs and business leaders is just as important. For GreenMantra, MaRS Discovery District has been invaluable. After building their proof of concept, the company was able to get early-stage funding from the MaRS incubator. They then managed to build their network through connections at MaRS, securing funding from ArcTern Ventures, Cycle Capital and other early-stage investors. Arguably even more important, having strong ties with the reputable incubator gives GreenMantra credibility by extension: it tells customers they’re a trustworthy company and partner.
Tap the crowd
Setting up a Kickstarter for your laser-beam shaver idea or cutting-edge “anti-gravity device” is no guarantee of success. On Kickstarter, the foremost platform for crowdfunding, just 35% of projects hit their goal; on competing site Indiegogo, it is closer to 10%. That said, if you have a promising idea, a functioning prototype and a solid business plan in place, crowdfunding can be useful to ramp up your customer base and drum up capital in a short period of time. Joanna Griffiths says the effect crowdfunding has had on Knixwear has been transformative. The company has carried out three campaigns to pre-sell undergarments and raise capital for new lines. The first time around, they sold $60,000 worth of pre-sale underwear, beating their goal by $20,000.
They also caught the attention of Hudson’s Bay Company, which became their first retail partner, making Knixwear the first brand to be discovered by, and partner with, a major retailer thanks to crowdfunding. By the end of their third campaign, after setting their target at $30,000, Knixwear had raised close to $2 million in pre-sales for their new bra line, breaking the record for the most funded fashion project in the entire history of Kickstarter. “It just went like gangbusters,” says Griffiths.
Setting their targets low, having a strong brand identity to begin with, and generating plenty of media buzz were keys to their crowdfunding success, says Griffiths. And though the campaigns each felt like a never-ending sprint—something Griffiths vows never to do again—customer acquisition has been a breeze ever since. They now have a core base of hyper-engaged users and revenue to funnel into product development and marketing. “The growth just starts to happen,” says Griffiths. “It feels like magic. That’s the only way I can describe it.”
Brace for Success
An artisanal spinning top sounds like something that might sell in the few dozens at a Christmas craft fair. And while the founders of ForeverSpin (No. 3) had a little more optimism than that, they weren’t remotely prepared for their product to become the instant commercial hit it did. In fact, the co-founders focus grouped dozens of ideas before landing on spin tops, which ultimately met their criteria for a simply designed, handcrafted piece of nostalgia that was high-quality and made in Canada.
After a surprisingly successful crowdfunding campaign on Kickstarter, the company found itself suddenly in business in 80 new countries, with no processes in place for how to scale production and or manage exports. The enterprise simply didn’t have an understanding of how to get to scale in such a niche space, says co-founder Viktor Grabovskyy. “All we could do at that point was get into the deep end and start scaling—figure out the logistics of how to deliver what you’ve promised to your customers.” That meant purchasing materials and services at a premium—taking a financial hit—to have product made and delivered quickly enough to satisfy customers. For example, the company insisted on keeping their ForeverSpin-branded bubble envelopes, a staple their customers expect, even though express shipping the envelopes cost several times more than the envelopes themselves. “Our priority was always to minimize any inconveniences that the customers may experience, as it significantly affects retention,” says Grabovskyy.
That’s easier said than done. For many startups, success and rapid growth can be more stressful than failure or rejection. That’s the breaking point for some. Griffiths, whose crowdfunding campaigns went unexpectedly well, says the only time she ever considered quitting was after their third and biggest campaign. “We had sold more in 40 days than we did in the previous three years and I was like, ‘I’m not ready for this,’” she says. The company coped by focusing, for an entire month, exclusively on customer satisfaction, and she assigned account managers for every tier of Kickstarter backers to manage customer relations. When the product was finally ready for delivery, they air freighted nearly all of it. “It definitely wasn’t the most cost-effective, but it needed to be done,” says Griffiths. “I was determined to keep those backers as customers going forward.”