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March, 2012

When should a startup start worrying about making money?

from this week’s Crain’s Chicago Business

By Lisa Leiter March 12, 2012

Chicago’s startup revolution is in full swing. And that is causing some concern about whether the city will see déjà vu all over again from the dot-com boom and bust at the end of the last century.

Last year, Chicago companies raised $654.1 million in venture capital, according to Dow Jones VentureSource, more than any year since the peak of the dot-com bubble in 2000, when nearly $1.8 billion was raised. The number of investments: 70, the most since 2001.

Whether history will repeat itself in another boom-and-bust cycle is anyone’s guess, but—Groupon Inc.’s famous profitability challenges aside—there are key differences between the dot-com glory days and now.

Chicago investors, already more conservative than their coastal counterparts, are asking about business plans, revenue and profits earlier and in more detail than ever before.

Some Chicago entrepreneurs are responding to those investor demands, as evidenced by a presentation at one of last summer’s key startup events, incubator Excelerate Labs’ Demo Day. Food Genius co-founder Justin Massa started his pitch to the audience with this: “All right, you’re saying to yourself, ‘Food Genius, this is kind of cool. I get it. Dishes. But how in the world is it going to make money?’ “

It’s a question Mr. Massa, 33, started answering during Excelerate’s summer program. Food Genius collects data on restaurant dishes, data he plans to repackage and sell to the grocery and restaurant industry. Mr. Massa, unlike some other early-stage entrepreneurs, says developing a revenue model before pitching investors was important to him. He initially started the process of raising $700,000 to $1 million at the end of the summer but says he pulled back last fall to refine his model.

“When I do go back out to raise money a few months from now, we will have the potential to be a company that generates money, and that gives us the opportunity to raise money from the right partners for us and give us a great valuation,” he says.

Read the full article: http://www.chicagobusiness.com/article/20120310/ISSUE02/303109994/when-should-a-startup-start-worrying-about-making-money#ixzz1ovZwPUm2

Filed under: Company Blog Post,Excelerate in the News — March 12, 2012

BabbaCo and Excelerate in the NYTimes

NYTimes

…Subscription models and recurring revenue also tend to impress investors — a lesson learned by Jessica Kim, founder and chief executive of BabbaCo, which is based in Chicago and sells children’s activity products. When Ms. Kim started her business in 2008, she sold wholesale products like car-seat covers and inflatable play mats. But after she was accepted into Excelerate Labs, a business-incubator program in Chicago, she got some advice from Paul Lee, one of the program’s mentors. “He told me that he noticed we had such a strong connection with our community of customers and suggested a subscription-based model,” Ms. Kim said. “That’s when it hit me that subscription models are a great way to build lifetime relationships with our customers.”

Ms. Kim came up with the idea of sending out a monthly “BabbaBox,” a box of projects, activities and books that are tied to a theme and that parents can complete with their children. The change to a subscription model had an immediate impact; Ms. Kim’s business grew more in the five months after she made the switch than it had in the previous three years combined. Just as important, Ms. Kim landed several prominent investors as a result of the change, including Mr. Lee, who is a partner in Lightbank, which was started by Eric Lefkofsky, a co-founder of Groupon….

Read the whole article

Filed under: Excelerate in the News — March 8, 2012

The anatomy of a pivot – FoodGenius

What was the initial insight behind the food genius idea?

The initial concept for FoodGenius was that people eat dishes not restaurants.

Every review site on the web allows you to sort by restaurants but not dishes. We wanted to help people discover and share their next favorite restaurant dish in a similar way to how they search for individual music tracks.

What changed, when and why? What was it that your customers told you or your team discovered that prompted the pivot?

Well, we entered Excelerate knowing that we had to figure out our business model – to either focus on consumer advertising or leverage the underlying data we collected.  By mid-summer it became clear that the time and energy involved in scaling the consumer side of the business just wasn’t paying off and we decided to refocus on the the data instead. We spent the subsequent months building an API and rewriting the code to reposition the data we’d gathered to date. It then became clear that our target customers were really food services businesses looking to better understand consumer dining habits.

How did you adapt the business plan?

It was an incremental process. We always knew we were going to leverage data about restaurants, the challenge was figuring out the “how”. I like to say that there’s a notable difference between a pivot and a jump – your core strategy remains the same, or rather you keep one foot grounded and pivot around with the other to find how you’re going to make your thesis work.

What did you ultimately learn about pursuing path B over path A?

Simply put, you have to focus on what you’re good at. We had to choose between being a data driven company and a consumer design company, and we were hands down better at the data part of that equation. If we had been a bigger company, we could have probably gone out and hired the requisite design talent. As a start up, you’re forced to choose the path where you know you have the most edge and for us that lay in interpreting the data.

Could you have done anything else initially to foresee the need for this change?

I don’t think so, no. If we had never tried both paths then we would never have known which would work better.

Someone once said that “a start up is a series of discrete experiments” – you want to be continually removing risk and refocusing your efforts where you have the most traction. Had we come in day one saying we were going to focus on data then I think the idea behind FoodGenius would have been a lot less compelling.

What advice would you offer other entrepreneurs facing the need to pivot?

I’m a big believer in the idea of strong opinions weakly held – push forward aggressively but don’t be so invested in one way of doing things that you can’t shift gears when the facts change. This philosophy speaks to the belief that small businesses should be nimble; this is often their greatest advantage. Others should look to capitalize on that ability to be flexible.

What do you think has enabled you to be successful in making the transition?

We were very direct about asking people for advice.  Throughout the process at Excelerate, and even since then, we continuously asked for targeted feedback. We leveraged the mentors, as well as the broader community, and this really helped us make better decisions along the way.

Is there anything you would have done differently? More quickly?

Hindsight is always 20/20. I think having a plan for 3 months and sticking to that before reevaluating and setting the plan for the next 3 months is really a good way to go about things. I equate it a bit to parenting! You have to be flexible and ok with some uncertainty. I’d advise others to have a plan but to be constantly reevaluating as the facts change.

 

Filed under: Company Blog Post,Status Updates — Tags: , — March 3, 2012