How to crystallise start-up success

Dipping my toe into the world of entrepreneurship, I’ve realised that it’s actually quite hard.  In fact start-ups fail all the time (90% if we are being precise).

You know what else fails all the time? Crystallisation.  Having spent my fair share of time in university chemistry labs, I’m well acquainted with this mysterious process. It involves making a liquid solution which should *theoretically* then start growing pretty little crystals like in this video.

 

Unfortunately this is what actually happens most of the time…

Crystallisation saga

A low success rate to say the least.

Yesterday, it became clear in my Advanced Physical Chemistry lecture that crystallisation is not in fact chemistry sorcery, but a precise balancing act.  A lot like start-ups.  Some grow into big successes (big crystals), while others never make it (no crystallisation).

One start-up that seems to have crystallised success is Education Perfect.

They are a New Zealand company who offer educational software to schools globally. They originated from co-founder Craig Smith’s need to learn Japanese and German vocabulary for school exams in 2004. Now, they are aligned with national curriculum and have expanded into 22 subjects with 300,000 students using their software.

But, they were no overnight success story. It took them years to find success in the supersaturated education market, full of big players like Khan Academy, Mathletics and Duolingo.

So how did Education Perfect grow their crystal?

1. The right reactants

Without the right ingredients in the perfect quantities, you’re never going to get crystals growing (close enough is not good enough here). Education Perfect has spent many hours developing and optimising.  They now have an easy-to-use product, that gamifies learning, secretly sneaks in repetition so you actually learn something, and cuts back on teacher’s workloads by making homework setting and marking almost automatic.

Education Perfect use a subscription-based business model, charging schools $40 per subject or $100 for all subjects per student per year.  This model is handy for predicting revenue and managing cash flow, but means repeat business is vital.  Education Perfect have top-notch customer service, treating customers as honoured guests at an exclusive restaurant. They keep schools coming back by offering customisation, training and close relationships.

Unfortunately, the right ingredients alone aren’t enough. Early on, the crystals didn’t grow and Education Perfect had no customers.

 

2. Scratching

Theoretically scratching involves scratching a glass rod against the bottom of the beaker, creating a surface for crystals to grow on, and throwing off the equilibrium of the liquid.  What it often actually means for the over-zealous among us is:

over zealous scratching

Education Perfect didn’t physically scratch anyone (obviously), but they persevered with a few clever ideas, to throw off the equilibrium of the sector.  In the early days, their sales pitches were rejected again and again, even being called a ‘load of rubbish’, yet they persevered.  They found business channels which worked for them, directly contacting schools, and working hard to build relationships and deals.  In a true mark of perseverance, they redefined the meaning of “no”, realising it often wasn’t a straight out no, but rather a “not at the moment”, or “we don’t have the budget.”

Their innovative Language Perfect World Championship has also disrupted the sector, letting competitive spirit drive learning globally (it certainly worked on me #2011BronzeAwardWinner).  Free annual publicity and a chance to get people hooked on their product has been a stroke of genius.

 

3. Seed Crystals

These are the magic.  If you chuck one tiny crystal into the liquid, all of a sudden you will have heaps more crystals just like it. Obviously getting that first seed crystal, just like a first customer, can be a little tricky, as they’re not easy to come by.  However, once Education Perfect started to get paying customers, they started to gain the credibility and momentum.  They now had a revenue stream (or rather a trickle initially) and could further expand their reach.  But had they made it yet?

 

4. Reaching the critical radius

When crystals are trying to form, there are two conflicting forces at play.  When the clusters are small, they are dominated by the dissolving force. Yet when they reach the critical radius, all of a sudden the attractive force starts to dominate, and all the little crystals start clumping together. Next thing you know, your crystal is growing exponentially.

Forces pulling crystal apart (1)

It’s the same in the start-up world.  In the early days, everything is against you, but then you reach a certain point, and boom, you start to grow!  With no sales in the first year, $20,000 of profit in their second year, and doubling in size every year since, Education Perfect is the epitome of this critical size phenomenon. This was the exponential crystal growth they had been after all along.  Luckily for Education Perfect, being software based made them highly scalable, and absolutely ready for this size explosion.

 

Unfortunately, just because you’ve finally got your crystal, does not mean you will have a crystal forever.  Have you ever taken a snow flake and crushed it between your fingers? Crystals are delicate. With an ever-changing tech industry and fierce competitors ready to crush them, ultimately Education Perfect needs to keep growing. The bigger the crystal, the harder it is to destroy.

Advertisements

Bookme: Reinventing online deals

Following the summer blogging hiatus, this blog is having a bit of a change of direction, namely towards entrepreneurship. I will be kicking this off with a five part series about a number of awesome enterprises, what makes them tick and how they keep the money rolling in.

This week I will be investigating Bookme, a New Zealand Registered Company.  As a student who really cannot turn down a deal, I’m a big fan of Bookme, and love sharing the deals around to anyone who will listen.

Capture5

So who are Bookme?

In their own words, they’re an “innovative booking site for activities, tours and attractions.” They are based in New Zealand, but also operate in Australia and Fiji.  Basically, instead of buying a voucher to use at any time, like GroupOn or Living Social, Bookme customers can book and pay for an activity for a specific time slot, with some time slots heavily discounted.

Capture2

Capture
There are a lot of sites around that offer either online booking, or deals, but Bookme has done something a bit clever. They have combined the two to make a fantastic tool which benefits both tourism operators and customers.  Both of these parties are important, because even though customers are actually paying the money, keeping the vendors happy is important.

This is because Bookme’s business model is commission based.  For every booking made through the site, they take a percentage cut.  This model is not ground breaking in itself, but it is what they do with it, which makes them so for both vendors and customers.

For us, as members of the public, we are not only able to book a time online, but we get deals in the process (sometimes pretty spectacular ones!).  Think $1 Jet boating trips, or 50% off scenic helicopter rides.  What’s more, to help us work out where to spend our hard earned cash, Bookme offers authenticated reviews.  Only legitimate Bookme customers can review attractions, meaning no more dodgy employee reviews inflating ratings, only quality ratings that are actually reliable.  Together, these features keep us coming back, and on the lookout for the next good deal!

For the tour operator, it is even better.  They get to pick when they offer their deals.  They no longer risk scaring off their valuable paying customers at peak times, with hordes of GroupOn voucher fanatics.

cartoon

Instead the tour operators might have larger discounts early in the morning, when the late risers mean the surf school is empty, or put up a last minute deal to fill those last two sky diving spots at 12pm.

By reeling potential customers in with deals, Bookme is also able to secure full price bookings, which is fantastic for tour operators.  In fact co-founder Alder says some clients are making up to 95% of sales through Bookme at full price.  That’s pretty impressive for a deals site!

Also, Bookme is not trying to make their money in a one day frenzy like GroupOn, instead having long-term listings. This allows them to set their commission rate at a more sustainable level than the 20 to 30% usually demanded by daily deal sites, giving them a competitive edge. This keeps vendors happy, and continuing to run quality listings through Bookme.  And the happier and richer the vendors are, the happier and richer Bookme is.

Customers happy

It is this sustainable business model which is allowing them to continue to grow, when competitors like GroupOn have started to struggle.

There are however, a few stumbling blocks with their business model.

The site was set up on a shoestring budget.  Which means there is very little stopping anyone else on a shoestring budget from attempting the same.  Technically speaking, this is called a “low barrier to entry“.  Bookme has no concrete assets, like factories or patents, and are not directly offering any products or services, they are simply a gateway.  It is their reputation and the name they have built amongst tour operators and customers which keeps them afloat.  This means they need to stay on top of trends and ahead in the fast paced environment we see today.

Bookme is also at the mercy of the vendors.  If vendors decide Bookme is not for them or they will earn more money through other channels, there is very little Bookme can do.  For example, I am a regular at Muriwai Horse Treks.  Back in the day they always had deals on Bookme.  But now? I have to scour the calendar to even find a day I could book through Bookme.  It is peak season, with plenty of full paying customers, so why would Muriwai Horse Treks pay Bookme’s commission at all? They do not actually need the extra business.

Despite these disadvantages of Bookme’s business model, it is important to remember that all business models have flaws, and it is about ensuring these are balanced with strengths.  I for one, am glad that Bookme seems to have succeeded at this, as it means great deals!  Their growing business also highlights the value they offer to both customers and tourism operators, with their unique approach to booking and deals clearly a winning formula.