I’m starting a company, day 4

There are two essential tasks in front of me. First, creating a compelling story. Second, drafting financial projections that are reasonable and align with the story. I’ve shared the business idea with a couple people. There is a lot of excitement. But, that’s not great validation. I have concerns about fundraising for this idea. So, I drafted some big questions for us to consider.

Things to consider before pitching VC funds

Below are some key questions we should try answering before pitching to investors. I’ll provide my thoughts along with each. I encourage you to bounce your ideas against a wall. And, with others. See what sticks. See where there are questions or constructive feedback. It’s early. There’s no need to have complete certainty at this stage.

Will investors invest on thorough research and pitch but no validation?

We’ve all heard the rumors or watched the movies. A founder pitches a napkin idea. They haven’t built anything. Yet, investor fill their bank account because of the big visions storytelling. It’s hard to find real life examples though. We are underrepresented start-up founders. Not because we don’t have pedigree, experience, and work ethic. But, because we’re Black and brown. We should consider ourselves the rule; not the exception.

Can we raise a Seed round without building something?

Hard truth: F*ck tech. I actually love technology, but that’s not our purpose. How long have you known about AI? Guess what. There are approximately 67,200 AI companies worldwide. About 25% of AI companies are in the US. Even if a company isn’t building AI software, they’re definitely exploring implementation. Technology is a crowded space. We will use tech to enhance the consumer experience and operational efficiency. We will be tech-enabled, but not a tech platform.

It’s harder than ever to raise money. Will investors have an appetite for a startup disrupting a retail vertical? We definitely have something going for us. We’re attacking a space that’s established but stale. We have an opportunity to sell the disruption story.

How can we build PMF or early validation?

Validation often comes before PMF. It’s the process of determining if your target market has interest in your products. We’re entering an established market. I’m not sure if validation is what we need. We need to prove the concept we’re introducing to the market and not the product itself. We’ll have to see what early investor feedback says. But, we’ll still need to cover our bases and get ahead.

PMF is short for product market fit. Your product is resonating with customers in a way that allows the business to grow. This feels more aligned with a challenge we need to solve right away. I split PMF into two camps: signals and facts. Buy-in is more powerful than signal. Here’s an example:

Types of Product Market Fit Signals

  • # of people on a waitlist
  • # of newsletter subscribers
  • # of social media followers (across all channels)
  • # of surveys validating an idea or product

Types of Product Market Fit Facts

  • # of pre-sales or deposits
  • #sales (i.e. for us, setup an online business before building physical retail)
  • # of high quality commitments (i.e. potential customer takes reputation risk)

The difference is vast. It’s worth watching the video below. Also, read 12 Things About Product-Market Fit by Andressen Horowitz. A lot of the resources you’ll find online about startups are about tech startups. It’s the world we’re living in. There are useful nuggets, but keep that in mind.

How much capital do we need?

We have general estimates. For instance, we earmarked about $250k for each door we open. This would encapsulate build out, inventory, and staff. We also would need money to pay ourselves a livable NYC salary. Our first projection is a raise between $3M-$5M. This would put us in a Seed stage conversation. Yet, pre-revenue businesses tend to raise pre-seed money first. Pre-seed rounds are much smaller. In the past, pre-seed funding is likely under $1M.

First, we need financial projections to see if our back of envelope math is accurate. Then, we need to research funds and investors. Each will have their own method. It’s our job to find target investors that understand our market. We can’t seek out tech investors for an idea that doesn’t need tech to work. They will have unreasonable expectations. And, they likely aren’t interested at all. Raising this amount of money will require many things. If we can land a key lead investor, it will likely lower the friction to reaching our target number.

How will investors react to opportunity size? i.e. TAM, SAM, SOM

Illustration of market size terms TAM, SAM, and SOM.
Source: Carta

The acronyms TAM, SAM, and SOM speak to market size. TAM stands for total addressable market. I’ve linked a page that unpacks this with in-depth details. The best way to derive these numbers is through industry and market research. I’ve included a list of resources you can tap in my day 2 article. These numbers are important to understand if you want VC funding. You may not need VC cash to build your business. But, I’d still recommend understanding your market size and opportunity.

Luckily, entering an established market allows for rich data. We can show numbers on market, industry, and consumer trends. We’ll be able to illustrate how we plan to disrupt our industry and capture our target customers. Given we aren’t a tech startup, we don’t know how investors will react. The numbers will be big, but will that matter? Early feedback will be useful in our fundraising process.

I’m starting a company, day 3

If you read my personal newsletter, Growers, you’ll know I attend group therapy. I share real life updates with the other participants. We’re like family. I told the group about the new business idea. We even dug into some of my concerns, like the ethical implications of success. It was good, because it pushed me to solidify my position.

4 ethical imperatives for my startup

Upon receiving some group challenges, I firmed up my stance. There are four things I’d like to be considerate early on. I believe focusing on these issues earlier allows for proactive measures or planning. Instead of reacting in the heat of the moment. It allows us to think through potential shareholder conflict as well.

1. Consider ethical questions before we build.

Considering these issues now allows us to decide how to shape a plan forward. It prevents getting caught on our heels without a plan in the future as well. Building with strong ethics helps you navigate negative externalities. Such as, the influence of money and relational pressure down the line.

2. Build with as many ethical parts as possible.

My co-founder and I want to build a company where employees love working. All the normal things are important, like productivity and results. But, we prefer to not create a people grinder. It’s not necessary for big time success. You can build a company that gives people meaningful, fun work and real ownership. And yes, it will have its challenges too.

3. Share and live by our ethics and values.

It’s hard to trust these days. When transparency is absent, you increase skepticism. I’m building a startup in public for a few reasons. I love the idea of documenting the process for others to learn from. It may have powerful marketing impacts. It’s a way to hold myself accountable. I will still mess up and not get things right. We’re more forgiving when we own our mistakes, not hide them.

4. Have an economic success plan before being successful.

When this startup is successful, I don’t want to be scrambling in the dark. I want to already know my magnetic north. Luckily, this won’t take a lot of work. For instance, I know I’d love to invest in underrepresented founders. And, I’d love to provide some of that money as grants without equity attachments. Expanding access to capital is huge to me. Finally, I’d love to figure out ways in which I can help rewrite a broken system. I’m hoping I can support with advocacy, charity, and political capital.

Nobody knows

Nobody knows what they’re doing. There is no such thing as proof. I’m fascinated by science and philosophy. Our world is humbling, and our use of language is skillful. Yet, our daily lives often require much certainty. Often, we forget that this reality because a degree of certainty is a necessity to function.

You would never skip the elevator and jump off the side of a building to get somewhere faster. One, that would be insane. But, two, you’re reasonably certain that gravity exists. The fall would end you. Data driven jobs, most of them, require us to reach higher levels of knowing to make decisions. It can be stifling.

We need grace. All science provides us with the best current model. It’s impermanent. Which, is unsettling, but super useful. In context, I think about life as a marketer and founder. You have a limited amount of runway (money in the bank). The biggest priority is to drive success and growth while making sure you can live to fight another fiscal period. Who doesn’t want certainty?

Hence, we do our best to create the best current model. A model for understanding for what customers will do if we move a checkout button, change a CTA, or update the copy in our abandon cart email. We try to forecast the impact of each advertising dollar. We attempt to know the future. We don’t have a clue.

Test your hypotheses. Trust your informed intuition. Assume a margin of error, or add a discount rate to your certainty. Be bold but be responsible. Take risks, not chances. And, when you encounter failure, give yourself grace.

History always repeats itself

You can’t convince me that TikTok Shop isn’t QVC reincarnated. My inner conspiracy theorist has opinions. Like, what if all the accusations of propaganda and data issues is wrong. Instead, TikTok shop is a genius ploy to create the Gen Z version of QVC. Let’s take a look at what I mean.

What the hell is QVC?

QVC is an American television network and a flagship shopping channel. It specializes in televised home shopping. The acronym stands for “Quality Value Convenience.” Founded on June 13, 1986, Sears was one of the first brands to sell its products on the network. The live broadcast would run from 7:30 p.m. until midnight ET each weekday. In fact, it ran 24 hours a day each weekend!

The business has an interesting story. QVC moved towards e-commerce in 2006. QVC U.S. rebranded itself in 2007 with the tagline “iQdoU?” in its advertising campaign. It stood for “I shop QVC, do you?” A bit of a head scratcher to me, but nobody’s perfect. The campaign hit major billboards across the nation and included a “teaser” website.

The network integrated its shopping experience with Facebook in 2008. Then, Instagram in 2012. Fun fact I didn’t know. QVC launched a social shopping platform called toGather in 2013. It was like Pinterest. The platform let members set up a personalized newsfeed. They would view shopping recommendations from people and brands they followed. QVC shut down the site in January 2015.

Check out QVC’s first broadcast

It’s great isn’t it! Millennials and Boomers are well acquainted with broadcast (live) shopping. Just 4 easy payments of $19.95. QVC was home shopping. As in, you need to be sitting in front of the TV with access to a phone to shop and place an order. Livestream shopping or live shopping, is what popped up in China during the early 2010s.

Here’s how it looks in China as told by David Zhang. The video features some of the quickest selling you’ll ever see. You likely won’t see it adopted in the US, but it’s an incredible watch.

That wave lead to U.S. startups trying their hand. A slew of upstarts tried to convert social media users into social shoppers. COVID was great gas on the fire. But it ended up more like a trend than new sector of the economy. For context, in 2022, live shopping was 10% of their e-commerce market, or 5% of the total retail market. In the U.S., the numbers are 2% and 0.3% respectively.

So, yes, FOMO and exciting growth. But, a cottage industry in the scope of the total market. It’s a trend that didn’t have the leg power required to usher in tons of new sustainable businesses.

Tiktok enters the game

I’m a TikTok junkie. I notice subtle changes in trends and experience. I wasn’t the only person to notice. TikTok was becoming the QVC for Gen Z. First, they rolled out new features. Then, they changed the entire experience. TikTok went from a suite of shopping features to a full-blown shopping network.

The TikTop shop launched in 2022. It was for creators to sell their curated goods. Yet, it didn’t start becoming what it is today until September 2023. TikTok rolled out a full blown e-commerce business. The app fused together its creator network with e-commerce businesses. A merge that solidified it as the new QVC.

Content creators became hosts. ellers pay commissions on products so hosts will sell to the audience of their show. Their show is also known as their page. The network they’re selling on is you FYP (for you page).

Tiktok is QVC for Gen Z (and all generations)

Tiktok converted your FYP into QVC. Below is a video for a popular product. It mashes AI with hardware. Certain products have higher commission rates than others. This is the momentum mechanism. It allows the network (or seller) to motivate creators to sell. When commissions are high, you’ll see the same 2-3 products hit your FYP over and over again. Commissions are a form advertising on TikTok.

@mattkahla Never take notes in a meeting again! Introducing #PlaudNote which is an #AIVoiceRecorder #plaudnoteaivoicerecorder #plaudnoterevolution #plaudnotereview #TikTokShopValentinesDay #Kahlatalk #Kahlatech #kahlaDeals ♬ original sound – Matt Kahla, Jr.

We assume that content from creators will add credibility to brand-less products. If you have loyalty to a particular creators, it will. The downside is that everyone wants to make money from their online presence. That means you have tons of random people selling you as you scroll your feed. Buyer beware.

@concrete.stlz Definitely thought the Dc403 Digital Camera was just hype….I was wrong😂😂 #digitalcamera #vintagedigitalcamera #cameradigital #vintagecamera #cameras ♬ K DOT LIKE THAT – Stank Music

Key Takeaways

  • Brands should consider the tradeoff of revenue vs. brand reputation when selling goods on TikTok shop. Not every business that creates a product is looking for the advantages of brand recognition. If you fall into that category, ignore me.
  • Take advantage of user-generated content. UGC can be used for more than simple product promotion. Reviews and testimonials increase credibility and social proof. Consider product placement without in-your-face selling.
  • Pay attention to trends in selling. For instance, customers are buying more on mobile than ever before. Your website experience should be easy, fast, and functional.

I’m starting a company, day 2

I’m starting a company is a series about my pursuit of founding and building a startup in public. It’s an experiment in transparency and process sharing. My audience is full of first-time founders, solopreneurs, small business owners, and marketers. Is there a better way to learn and teach then by doing? At least, I’ll keep my skills fresh.

Considering the ethical implications of success

We’re going after a large established market. Estimates project our segment will hit $84B in 2024. There are three giants in the space. The rest of the market is fragmented. It’s clear that consolidation has played a key role. But, this is the disruptors dream scenario.

Consider Warby Parker. They entered the eyeglass market with a new approach for consumers (as well as competitive pricing). Their industry was dominated by one big play, Luxottica. At the time, Luxottica held 80% market share for glasses. Other examples include Dollar Shave Club vs. Gillette, and Glossier vs. big beauty.

A man considers the ethical decisions in front of him surrounding by many food options.
Ethical dilemmas as imagined by generative AI. At least, there’s plenty of food while we think.

Our aim is erode market share from stale, boring monopolies. The ethical dilemma is what happens on the road to getting big enough to compete with dinosaurs. In other words, who gets hurt if we win? I’m not worried about the balance-sheet rich. I’m worried about our effect on the ecosystem for small players. Will our story play like Amazon vs. bookstores?

It’s worth considering these ethical questions ahead of success. Especially, if you prefer to be proactive instead of responsive. Capitalism isn’t a choice. How we move within capitalism is. I’d like to be considerate.

Research: Know your customer and industry

I made a mistake the last time I built a startup. We were in travel. An area I had both experience and passion. I made lots of assumptions. I held onto the assumptions until I was forced to consider the facts. The fundraising process forced me to provide hard evidence. Trusting your gut is useful. However, being well-informed benefits your intuition.

First, I wanted to get a crash course in my industry and the players, so I turned to ChatGPT. High level information is great when you’re getting started. But, founders need to get into the weeds. You’ll need data and insights from experts too. Here’s a list of places you may find information to help you in your journey. Many of these sources will require some money. Being a founder isn’t cheap.

A founding team researches its industry and customer journey.
Photo by UX Indonesia on Unsplash

List of Research Websites for Founders

  • JSTOR: You may remember this name from college. A place to research for your essay writing. Major key alerteach month you can get 100 free articles! If you’re looking for free resources, start here. (Price Rating: $)
  • IBIS World: Great for detailed industry reports, including market size, trends, and forecasts. (Price Rating: $$$$$)
  • Market Research: Similar to IBIS. It provide a wide range of market research reports across various industries. You may be able to negotiate on pricing with a sales rep. (Price Rating: $$$$$)
  • Statista: It’s a comprehensive platform with statistics, market research, and business intelligence. It’s expensive, but offers transparent subscription access. One year on the starter plan costs about the same price as one report from IBIS or Market Research. (Price Rating: $$$)
  • Academic and Research Institutions: You can gain access to lots of research and data without being a student. Check out this article to help you navigate all the resources. (Price Rating: n/a)
  • Trade Organizations and Publications: Every industry has orgs that produce reports and share data. There is still a price. But, it’s more competitive than the big players that cover multiple industries. I recommend using a search engine or GPT to list the top orgs and publications in your industry or sector. Then, you sniff out which one might be most useful to your research. (Price Rating: $-$$)
  • AI-Powered Tools and Search Engines: Depending on your needs, you might want to turn to other tools. Such as, Google Scholar for academic papers and reports. Or, Semantic Scholar for scientific literature. You can also use Nexis Uni (Price Rating: $$$). In addition, ProQuest can aggregate industry reports from several sources.

Stay current with networking and newsletter subscriptions

The list above is great for deep research and reports. Research takes time, which means it’s not always of-the-moment. Large databases and reports also need some of your own analysis. If you want your information distilled, I recommend finding industry experts. By now, most people with current data and smart takes, have a newsletter or social platform.

Follow industry leaders and brands. You may not want to pay for a newsletter but it can be invaluable. Spending $5-$20/month on industry intelligence and micro trends may be a lifesaver. And, it’s multiples cheaper than buying into some of the options above.

Day 2, it’s a wrap.

I’m starting a company, day 1

It’s decided. No matter what, I’m going to hold myself accountable. Though the idea started about a year and half ago, the decision was made only last week. It’s scary, and it’s exciting. I figured it’s good to document as I go. I’m not ready to share the concept. But, I’m happy to let you in on the process until I can unmask the idea.

Step 1: Identify talent needed to build the company

Without revealing too much, I can share that we are entering the food and beverage industry. I’d like to disrupt something I’ve watched unchanged over the years. So far, I’ve only been a casual participant. Which means, I need a co-founder that can provide some distinct superpowers.

For instance, marketing is my domain. It’s a big one. Yet, I don’t have experience with physical operations. I also don’t understand all the behind the scenes logistics of our industry. The industry we’re targeting is massive but still relational on the supply side.

Luckily, I found my co-founder. For transparency, here are the superpowers and skills I think will be most helpful to our business:

  • Deep industry expertise
  • Thorough, thoughtful, and tasteful product knowledge
  • Experience with physical operations and logistics
  • Familiarity with legal landscape
  • Key relationships to vendors
  • Experiential marketing chops at highly credible growth companies
  • High taste level

Step 2: Reach founding team alignment

We booked a 2-hour meeting for our first conversation. I can’t share all the details. However, I’ll provide the most useful tidbits. During the talk, we covered several high level items. Here’s a list of topics:

  • Vision
  • Individual contributions and commitment
  • Competitive landscape
  • Product and customer segmentation
  • Business model
  • Unit economics and margin
  • Capital raise and loose financial projections (broadly)
  • Brand story
  • Content ideation
  • Risks and challenges
  • Next steps

They say don’t loan money to your friends, but what about getting into business with them? I think if you set clear boundaries and expectations, there’s nothing wrong with it. We covered a lot of ground with two hours. It was possible because we’ve had a decade-long friendship. We’re aligned in many ways, including our ability to communicate effectively.

Step 3: Document your process

In order to stay present, I recorded the conversation. There may be better apps, but I didn’t plan ahead. I used the Just Press Record app. The app records and transcribes the audio to text. Given the conversation was almost two hours, I took an additional step. Here’s what I did to speed up the process and make the recording useful:

  1. Record the conversation using your preferred app
  2. Export the audio
  3. Upload the audio to Google Cloud and use the speech-to-text service
  4. Export the transcript and upload to ChatGPT (or whatever AI service you like)
    • Use text (.txt) format
    • Provide a prompt (see below)

When prompting AI, I tend to use the RISEN framework. The acronym stands for Role, Input, Steps, Expectation, and Narrowing. I didn’t bother using it for this task. Here’s the prompts I provided:

Prompt 1: Read to this transcript and give me an outline, summary, and key notes from the meeting.

Prompt 2 (follow-up request): Are there any micro details worth listing?

Feel free to tweak this however you’d like. If you’re not meeting in-person, you can also use an app like Fireflies.ai.

Step 4: Always have next steps

My co-founder has a day job. I’m going to be driving the process. Going forward, there will be more firm next steps and expectation setting. This time, I provided some direction. Here’s how I wrapped it so we could keep the momentum:

Checklist for a roadmap to start a business
Checklist for our roadmap
  • Summarize and share our meeting notes
  • Start a Notion base1
  • Propose roadmap and timeline

That’s it. Day 1 in the books.

  1. This post contains affiliate links. I don’t promote products I haven’t used or don’t believe in. If you find my suggestion useful, please use the link. I respect your choice to visit the any product sites directly. ↩︎