Entrepreneurs and investors talk about how they know when they’ve hit upon an idea worth pursuing.
Sally Kim, the founder of Crushed Tonic, knew she was on to something when her friends kept asking her for more and more of her collagen powder mix.
Kim got a bad burn on her arm from a deep fryer incident and, when the usual conventional topical solutions and ointments failed to do much for the burn blisters and scars, she looked into changing her diet. She tried ingesting collagen and noticed a dramatic transformation in her skin after a few weeks.
“It changed my life. I just needed everyone around me to drink it,” she said. She shared scoops of collagen, mixed with probiotics and superfoods such as matcha, with friends. When the demand wouldn’t stop, she started to approach manufacturers and Crushed Tonic was born. It’s now sold online as well as at Sephora, Equinox and Kith.
Entrepreneurs launch millions of new businesses every year. Some succeed, but many do not. Why do some businesses take off while others flounder? While there’s no magic formula, there are some common traits that winning businesses share.
Dan Conner, a general partner at Ascend Venture Capital, says he’s probably reviewed 5,000 deals in the last 18 months, or an average of 300 deals a month.
“You have to be very selective and establish an encyclopedic knowledge to move quickly through companies,” he said. Conner starts to narrow the field by looking at three main criteria: the competitive environment, market demand and the industry at large.
If a startup is entering a particularly competitive market, it needs to stand out in some way.
Aware that she was entering into a crowded space, Kim said what sets Crushed Tonic apart is how it infuses supplements, superfoods, and probiotics with collagen. The packaging is also gender-neutral and luxurious compared to most collagen powders, which come in large plastic tubs.
“We are more of an elevated aspirational product. Most people would not be okay with getting a tub of protein powder for their birthday, but many of our customers will gift [Crushed Tonic],” Kim said.
It’s also essential to solve an existing problem.
“You never want to be “that” startup with a solution looking for a problem. Why build a Ferrari when the world only needs a Toyota?” said Derek Kwik, managing partner at Brave Soldier Venture Capital.
When Kwik looks at pitches, he’s looking to answer questions like, “what pain points is this trying to solve?” “is this solution powerful enough to convert a user, or is this a nice to have?” “why now?” and “would I pay for this?”
Many startups offer incremental solutions to an existing problem, but if the solution only appeals to a sliver of a subsection of that market, then there are too many constraints that narrow demand, Conner said. The state of the industry is another consideration. Rapid transformation can open up new opportunities while closing off other ones.
Conventional advice says that startup founders should know and talk to a lot of prospective customers. Customers are valuable in providing feedback that can help shape and refine an idea, making it better. In some industries, those first customers can help establish a startup.
But talking to prospective customers can also be a double-edged sword, as Sukhi Jutla, founder of Market Orders, knows firsthand. When she started her business, an online marketplace like Amazon or Alibaba for the gold and diamond industry, she was told that she should approach people in the industry. So she did. She spoke with very successful people in the gold and diamond industry, but their reception was not at all what she hoped.
“They couldn’t see what I wanted to do. My business was disrupting their business, and they didn’t want to know anything about it,” she said.
If she had followed their opinion, she wouldn’t have continued, but Jutla had confidence in her vision and persisted. The gold and diamond industry has been relatively untouched by digitization. Small independent jewelers, which make up 90% of the market, still need to go in person to trade shows to buy gold and diamonds and often pay in cash. Jutla wanted to connect suppliers with independent jewelers through an online marketplace and use blockchain to provide transparency.
In her case, Jutla said being “an outsider” was an advantage because she was able to look at the industry with a fresh perspective. “I was working in banking in the tech area so I was able to see something different,” she said. Those who are entrenched in the industry get used to existing problems and think it’s normal.
Market Orders is Jutla’s third iteration of her vision for an online marketplace. She’s now noticed a mind shift with younger jewelers who have taken over the family business and want to be able to buy supplies online. Because she didn’t give up or listen to naysayers, she’s now in a position to catch the wave of digitization she believes is hitting the market now. “It was trial and tribulations and pushing back barriers until I hit the sweet spot,” she said.
Listening to negative feedback can be valuable, but founders need to be able to sort through the feedback, keeping in mind who is giving feedback and why.
“There can be folks who trash your idea, giving advice that is kind of dashing to your hopes. It’s almost inevitable you will find these people. Some think they are helpful or prospecting their own ego, others are dismissive to you and need to brush off and fall back on your own knowledge,” said Conner.
Everyone has a plan until they get punched in the face.
The early years of a company are notoriously difficult. Entrepreneurs who succeed need more than a good idea. They also need to be able to execute that idea and show flexibility when faced with inevitable obstacles.
“Mike Tyson once said ‘everyone has a plan until they get punched in the face,’ “It’s that survival trait that’s instinctual in all of us that gives me some insight into their personal character,” said Kwik, who also looks for a well thought out Plan B.
Just as important as the idea is a plan to execute, confidence and endurance to see it through and weather the setbacks.
“It comes down to instinct. I’ve always been really kind of forceful in what I believe,” said Kim, who said she’s used to pushing against boundaries about what she, as a young woman, could or could not accomplish. “It was always my job to prove them wrong, push against boundaries,” said Kim. She had difficulties dealing with manufacturers who wouldn’t take her seriously and questioned her decisions. That might be enough to stall some entrepreneurs, but given what she’s used to coming up against, Kim said she thought, “this is easy peasy.”
Header visual courtesy of Market Orders.