The Virtues of Launching a Start-Up with Less Money: Personal Story
Nick Henley reflects on the benefits of not having investor support when establishing an online house share start-up.
Like many people, my co-founder Eva and I had the initial idea for our business sitting in an airport. Our particular idea was to encourage older people to house share, but our circumstances and what we’ve learned is relevant to many people with an idea, or to be more precise, people with an idea but without already having secured funding from a venture capital firm or a private backer.
Not having much money might seem like a handicap, and in many ways it is, but after a couple of years I also think there are a lot of positives and I’d like to share them. So here goes; the benefits from having less money than you’d like when starting a new business.
1. Your original idea needs time to morph into something commercial
When we sat in the airport and had our initial idea, it was born out of personal experience and our emotional response. That was good in one way, because it meant we cared enough to work hard at making the idea real. We both felt our parents were lonely and that it would be good if they did not live alone and additionally we’d each lived on our own recently and felt it was a bit lonesome too.
Over the first few months, still doing our day jobs, we talked and talked about the idea and formulated a proposition. We came up with a name and we defined what we thought the service might look and feel like. Then we wrote a brief for a designer and got ourselves a website built.
We launched around 9 months after the initial conversations, each having agreed to provide a share of the first-round funding, and pretty much immediately found that people did not understand the idea. Where was the property we were suggesting they shared? Do I rent it from you? Why would I want to do that if I live with my husband in the same house I’ve lived for 40 years?
In other words, we didn’t know our market. We’d spent a lot of time working on our idea but hadn’t thought to speak to a wide range of people. In fact, being fair to ourselves here, we did realise the need for this but we couldn’t think of a way to test out the idea other than to start and get feedback.
Getting feedback from your initial service proposition and online user experience is essential and I believe not having too much money to do market research or test launches drove us into a full-test mode faster and more cheaply than we would otherwise have decided. Having more money probably means you continue to support unviable ideas for longer I suggest.
There are so many levels at which you need to gain feedback and in fact, I would suggest, particularly where a new concept or idea is concerned, that you adopt a test and learn approach from day-one; competitive restrictions allowing of course – you don’t want to show competitors everything.
As we moved through initial concept into marketing and then into pricing and customer support we have had to take the same approach. We’ve not had the time or money to test things fully. We have learned to be adaptive and responsive both at a service level (what services we offer) and also at the implementation and provision level. The time afforded by not being able to rush headlong into full-scale launch with full marketing support means we’re not burning money as fast and I believe that our long-term chances of success will be much higher as a result. The industry innovation success rate of just 10% (although reassuringly higher than this rate for “olderpreneurs”) should not be forgotten. Big businesses have a lower rate than smaller businesses, but they can bear the losses; smaller businesses generally cannot.
2. You need to build an infrastructure but also accept some compromise at the start
Getting from idea stage, into concept and then operation is time-consuming. This is especially so if you are learning what works as you go, but again you are forced to take this approach if you cannot afford a huge team of web developers and have big marketing budgets.
This is where partner selection is so important. There are any number of specialists and service providers who want to help you – in other words, to buy their service – but which one is right for you? Whilst you might have some technical, creative or commercial experience yourself, it’s unlikely you’ll have all of the skills in your start-up team.
So what you need to do is take things one step at a time and most importantly find a business partner who can offer a degree of flexibility at the right price. Fortunately, I had experience of web development, having run a small consultancy many years before, so I knew that many services are available as a white-label product which you can then configure and customise according to your own needs. That customisation can include the look and feel, as the website design is controlled by the CSS (Cascading Style Sheets) with the back-end databases and logic being standard and configurable. Using a white-label product is not only cheaper it’s much much faster to deploy and comes with configuration options that allow you to test things.
Besides making the public facing part of the business work, you also need to think about the behind-the-scenes operations and how you will take orders and process these. In our case that meant having a matching engine to match up landlords and potential tenants, it meant having a service management and payments system, with plug-in of popular payment options such as PayPal and WorldPay, and it meant being able to edit and create content on the site for SEO and PR purposes, without having technical support. Fortunately, all of that came from our technical partner PG (Pilot Group) whom we identified after a less than exhaustive, but wide search of the online world. Their platform provides the technical platform and we can do most things on content ourselves. They have also developed new views and adapted functions for a small fee from time to time.
The compromise is that it’s not exactly what you had in mind, but if you are using this to test initially and will change it, then it’s definitely preferable to having waited 6 months and invested tens of thousands in your own website only to find you need to change it all.
3. Understanding which marketing channels work best takes time
Pretty much from launch, you need to have marketing channels in place. Much more than the launch event (although not to be under-estimated as an opportunity), you need to make sure enough people find the site or service and then trial it each week. Only then can you get feedback.
But which channels are best? Making mistakes, also known as trial and error or testing, is all a part of starting a business and we certainly had some of those. As we conceived of our idea as being for ‘older people’ and we needed to meet some in large numbers, we booked ourselves into a Women’s Institute Spring Fair in London. With over 10,000 ladies attending we would talk to them all and sign them up with a promotional offer. We paid a lot for the space, for the stand, the literature and for getting us to and from the event. It provided some very useful feedback, but the main one was that this was not our audience – too traditional, too old, and not active or confident online.
Although less obvious we experienced the same thing with Google Adwords and Facebook advertising. We set up Ad Groups around co-living and educating people about house sharing, but soon found, through analysis of our online registrations and click-through rates that people were less emotionally involved in house sharing than we imagined; over 80% already shared a flat or house and all they wanted was an easy-to-use Find a room service.
So not only did we need time to engage with customers and get their feedback, we also needed the data provided by tracking results from our online (and offline) marketing in order to make informed decisions about what services to offer and which channels were best to invest in.
4. Machine learning and marketing automation tools take time as well
Google search and Facebook newsfeeds are great places to find people with certain interests and what we call ‘intent’. Every day thousands of signals are provided by people’s behaviour allowing us to identify those interests, which in turn provides the data we need to decide which media channels, which creative messages and which keywords and imagery to invest most in.
But what we’ve learned is that this too needs time. Not only have our Ad Groups changed but we now realise you need to give Google and Facebook time to apply their optimisation algorithms (now being referred to as machine learning tools) in order to optimise your budgets.
If you try and speed things up, without enough data, the short-term disruption you cause in pursuit of longer-term efficiency destroys the performance short-term. It’s hard not to tinker each day as it’s your money and you have a limited amount, but it really is best not to change things too much.
The speed at which you can test and learn with Google and Facebook experiments and optimisations depends on the amount of data you can collect from potential customers. Smaller budgets and specialised audiences mean you need to go slower, but also mean you don’t burn money too fast and that you’re much more attentive to getting value out of PPC (pay-per-click) and FB advertising.
5. Right place right time – first mover advantage versus best in category
The other thing we’ve learned is that sometimes you’re not the only person that recognises a need for a new service or product. Probably because we’re all influenced so much by our environment and all live in more or less the same economy and cities, co-living and house sharing is now being talked about in the news more and more; this means it works for us.
With double the number of young people renting (under 40), unable to afford a deposit to buy a house or flat, compared to 20 years ago, sharing is required more than ever. Plus for older people, the trends we had recognised soon after having our initial idea are becoming more pronounced. Marriage break-ups, not getting married, being widowed, wanting to live in cities in middle age and lack of finance to do so, mean that more and more people between the ages of 45 and 64 years old need to share or want to share.
Being in the market 2 years ago had some advantages as it gave us time to learn, but whether people were ready to adopt a shared house life-style at that time I’m not sure. Increasingly though, co-living and house sharing is being talked about in the mainstream media, so helping it to become more acceptable. With our experience, learned over time, I believe we’re in a good place to lead the category – a better-defined category, where we can meet people’s house sharing needs when they are too young for residential care, can’t afford a house of their own and too young to live with young professional and Millennials in a modern co-living complex. Now we’re in the right place at the right time.
6. But having more money does bring one thing…
The only thing to accept however is that without money you cannot afford to work on your own business all of the time. Instead, you need to keep a day-job or as in my case a part-time day-job, whilst you prepare the business for financing. I look forward to this next stage but value the learning that has resulted from going a little slower and being careful with money. And, importantly we’ll know what to do with that money when it arrives, so we’ll be a good investment.
Nick Henley, together with Eva Orasch, is a Co-Founder of Cohabitas.com, a website matching people aged 40+ with a room to let, with those who want to find a room. He is also a freelance digital marketing specialist helping other small companies establish and manage their online marketing performance and can be found on LinkedIn.