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Start Up Lessons
I am back at my desk after a two-day trip in the Rockies. If you click the photo above then it blows up to have a look in more detail. This was my second hut trip and, as you can see, it was a sunny day. Sun plus warm temperatures meant that I had snow balling under my climbing skins. If you have ever had mud stick to your hiking boots then imagine what it would be like if your boots were 181 cm long and you were hiking above 10,000 feet. I arrived at the hut at 2pm and was asleep (very) shortly thereafter! This week we are talking business and the lessons I have learned so far with Endurance Corner. If you ask a finance guy to create a business then, generally, he will draw up a list of functions then head out and hire a person to fill each position. A classic mistake of cost base leading revenue -- that approach probably killed more than a few tech start-ups over the years. Well, it didn't kill us but it did cost "Gordo Incorporated" some bucks. Endurance Corner was founded on April 1st, 2007 but it wasn't until the last few months that it became my primary business focus. Over the last couple of years, I have made some good calls and some clear mistakes. I'm going to run through the ones that stand out. Make Mistakes Visible Currently, the coaching industry is characterized by two groups:
Not everybody fits into the above category but you can cover 90% of the coaches that I know in one of those classes. Both classes are a perfectly appropriate place to be. I've been in both categories at different times in my coaching career. There are only a few, full time, professional coaches. Of the professional coaches, only a small minority work within a successful "business" -- a business being defined as a company that can survive without direct input from its founder. Most of the businesses in triathlon are non-government organizations (federations, athlete associations or olympics related). By the time you get to for-profit companies you are at a subset, of a subset, of a subset. This could be indicating something about the viability of the business prospects... or simply the result of a young, highly fragmented market. The greatest hazards of operating a "business of coaches" are:
High value added consulting practices get around these issues by giving their stars equity in the firm (partnerships). However, revenue per coach is $10,000 to $35,000 per annum so a partnership structure doesn't really work. Somebody might crack this code, we have a number of smart people working on their own version of the solution. I couldn't figure out the model for a "business of coaches" and have a concern about the disruptive effects of technology. Further, I am cautious with businesses that require large numbers of employees. The next lesson I learned was the importance of a large funnel for a niche business -- specifically, if you want to run a "lab business" then you need a funnel to feed athletes into the system. If I had done my homework then I could have read about this in the medical equipment field -- in fact I had learned this point in the mid-90s when looking at medical equipment clinics in China. The lab is extremely useful to our knowledge base and really helps the clients that apply the lessons. However, useful doesn't mean its a good investment (think about the airline industry). To be viable for the long term, we restructured the cost base and refocused our energy on the opportunities where we have higher potential returns. The lab remains open. Get To Market Quickly I am familiar with similar web launches that have happened over the last decade -- most of these took two years from concept to launch. This is an important concept to remember -- as technology develops, you will see a reduction in your competition's time to market. More and more, competitors will be able to pop up quickly -- and, most importantly, cheaply. A 12-week launch is FAR less expensive than a two year development project. Just imagine how quick businesses will launch in 2019. Thankfully, it will still take a decade to generate ten years of coaching experience. However, with your clients networked ever closer, the flavor-of-the-month will be able to reach your target market quicker and quicker. That said, it takes time for a message of high quality customer support to spread. Perhaps that is why we still have a fragmented industry -- there have only been a limited number of coaches that combined a high level of coaching skill with the drive to create a business. This market still has plenty of room for a group to figure-it-out. Focus Investment On Customer Needs One of the challenges that I face is that new athletes often want to buy a product that is different from what I believe is most effective. It takes time for my clients to market my methods -- our clients are our most effective marketing tools. The advice that I read was to have faith that good brands will market themselves but make sure that you can sustain yourself while you build your market position. Initially, I constrained myself by setting a fixed development budget and time scale. I made sure that I could double the project duration I was quoted and fit within my goals. By doubling what I was promised, we just made it within my personal goal. I suppose that is a lesson about timelines. Nothing happens unless you set reasonable deadlines then proactively follow-up until project completion occurs. Holding a large percentage of the budget back until after completion helps give everyone an incentive to complete -- I tried inserting a late delivery penalty into the design contract but that was, rightly, seen as not workable due to my ability to delay the project. I had to accept that giving myself an incentive to delay didn't really make sense. Two further constraints that I have placed on myself -- I must remain cash flow positive and, at this stage, no further capital into the business. Being capital constrained does wonders to focus the mind. I know every dollar that flows through the company -- I didn't in 2007/2008, another mistake. It's tempting to fret about missed opportunity from not investing heavily in the front end. However, when I look at my role model companies, they have built their positions over the last decade. To become an overnight success (years after you launched), you need patience and staying power -- those are enhanced by fiscal discipline. Understand Your Competitive Advantage Something I read (linked below)... if you don't enjoy the "business" part of your company then immediately find a partner that is strong in that area. I think we can extend that concept to... if your customers are interested in an area where you are weak, or disinterested, then you need back up! As you'll see from the list of coaches on the site, I have been fortunate to find partners that complement the areas where I am less experienced -- even more importantly, they have a deep passion for the areas of athletic performance that I find less interesting. Looking Forward As the market concentrates the large players could defend their positions by taking share with lower pricing. The catch, however, is dilution of the value proposition from the coaches. Using an extreme example, if a business scales to 10,000 clients then it would take close to five years for the "CEO" to have a quality interaction with each client - with strong branding you might "fool" enough clients for a season but, eventually, your retention rate will suffer. You can clone a training system but you can't clone charisma, judgement and experience. While on-line business models appear highly scaleable... when you adjust for reality, scaling is limited. I like the customer service advantage of being able to offer plenty of access. Here is a potential conflict between quality and quantity. We are a long way from this point but it must be something that other service organizations face. There is a lot of potential to harness the social network effects of having a team of athletes. Some companies have elite teams and it makes sense to recognize athletes that achieve results through hard work -- Timex does a great job with its Elite Team. However, only a minority of my coaching "successes" are related to working with speedy folks. My past athletes that best represent "success" weren't always speedy and aren't necessarily even triathletes any more. Some of my best results are with people that left the sport after working with me. Personal wellness, life skills, improved self-respect... those are the items that change lives. Ultimately, I hope to figure out a business model that enables a team of experts to sell wellness. Ultimately, that is a healthy destination for the highly motivated athlete. Wrapping Up Nobody in the world can replicate us -- the teacher, the coach, the consultant, the parent. Finding out the areas where you get a response with people, then focusing on scaling your reach in those areas, it is a great way to serve. Now, whether that's a business... we will find that out over the next couple of years. I'm listening, watching and working! We are still a long way from achieving Ramen Profitability (see below) but we are heading the right direction and I'm having fun. We have a great team on board -- from Norway to Australia with Florida and Texas in between. Thanks to the early adopters as well as those of you that bought the second edition. For those of you in the Northern Hemisphere -- I hope you have been enjoying the extra daylight. Even if you don't get into the mountains be sure to soak up some daylight during your lunch hour. The sun doesn't care where the Dow closed! Back next week, Ten Tips for a Profitable Business Ramen Profitability and Other Advice Feld's Blog -- it led me to those interesting articles
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