Launching a $1M+ startup for under $10K

Case Study: 10 Storks

The fastest and most effective way to build a business is to start selling. Customer development must precede product development. It doesn’t matter if all of your business processes are manual. And lack of experience is no barrier.

In June 2013, my partner Shoua had just graduated from college and was looking for a ‘real job’. My entrepreneurial sales pitch to her was simple – start a company instead. Worst-case scenario, she earns a ‘real-world MBA’ and increases her job prospects. Best-case, she builds a real business and gets hooked on startup life.

Together, we came up with the idea for 10 Storks, a subscription service that provides a mix of essentials and luxury items for pregnant women. Shoua’s years of nursing and women’s studies education fit perfectly, and after a little startup coaching, she was off talking to potential customers and designing products.

Key objectives:

  1. Go from idea to launch in under two months: You’re not a real startup until you ship product(s). One of the reasons why startup incubators are so successful at launching strong startups is that they have the built-in time pressure of Demo Day focusing founders on building and shipping.
  2. Positive unit economics on launch date: This is basically Business 101, but so many startups, especially those with VC money, completely ignore it. Our initial responsibility was to maximize the customer experience while (barely) breaking even on the product.
  3. Go from launch to a profitable business with $1MM+/year revenues: In all honesty, 10 Storks has the chance to be more small business, not startup. And that’s perfectly fine. Our goal here is to build a real company, one that pays real salaries and makes real profits.

Key limitations:

  1. No real development or design experience: For startups like 10 Storks, distribution is king. And subscription commerce distribution is 90%+ web-based. At a minimum, we needed a professional website with payment processing and the ability to launch and track SEM ads. We had to hack together a low-skill solution.
  2. A CEO with no real entrepreneurial history: Shoua is the kind of person who worked 30+ hours on nights and weekends while managing a full college work-load and making thousands of dollars selling stuff on eBay and Amazon on the side. Her mission is to prove that actions are more important than experience.
  3. Only one FTE: I work 80+ hours/week at my own awesome startup. My time commitment for 10 Storks was limited to ad-hoc ideation, nightly strategy sessions, and a few Sundays worth of amateur ‘web development’. 10 Storks was and will always be Shoua’s baby (no pun intended).

Getting started:

Here’s a very counter-intuitive, but extremely valuable, startup exercise. Sit down with a notebook and start writing down every reason why your new company will fail. Don’t be shy here. No investor or reporter will ever see this piece of paper, so if you sugarcoat anything here, you’re only lying to yourself. Try to hit at least 30 potential risks.

Now, rank-order these challenges, with #1 being the most likely to kill your business. Things like “Bank Account = $0” and “New Customers/Week = 0” should be at the top and “Someone steals my idea” and “Someone sues me” should be near the bottom.

Your job as a startup founder is now to orient your company and product decisions in a way that attacks these biggest risks first. This maximizes your velocity towards building a real business. It will also help you eliminate early monetary sink-holes. Ignore the big investments in scale, like inventory and infrastructure. Variable costs are your friend – money now is worth so much more than money later. And avoid anything that requires lawyers or accountants.

Five lean startup lessons from 10 Storks:

  1. Start saving early. When I launched my first startup in 2010, losing $10,000 would have put me seriously into the red. Now, we’ve built up enough of a personal runway to make a big bet on ourselves. It’s still a relatively large risk on my part, but we’re privileged enough to not have to live on the street if this all goes to zero.
  2. Earn supplemental income. In these calculations, the $10,000 is all for the business. You’ve also got to keep paying for rent and groceries. To help pay our bills during the early days of 10 Storks, we implemented an unusual income source – dog sitting. We have two dogs of our own, so it seemed like a small incremental effort to add a couple more for $30-40/dog/night. One weekend, we took care of a total of six dogs, all male, ranging from 20-80lbs, in our 700 sq. ft. apartment. Our apartment was half startup hub, half dog kennel.
  3. Choose one decision maker. At this early stage, many of the decisions you make will end up being wrong, whether you take 5 minutes, 5 days, or 5 months to make your move.  It’s fine to debate key strategic moves, but an efficient single trigger is essential. In 10 Storks, I deferred all final authority to Shoua.
  4. Favor instant gratification. Put off as many long-term investments as possible. Skip bulk purchasing – the lessons from your first five customers will inevitably change your product offering. A professional ‘Terms Of Service’ and ‘Privacy Policy’? Definitely not part of your minimal viable product.
  5. Do things that don’t scale.  Use your diminutive size to your advantage. Perfectly personalize the customer experience. One day, you’ll tell your salespeople to treat every customer like the most important person in the world. It’s time to live up to that ideal right now, especially since your first customers will truly feel that special.

Results:

10 Storks launched, on schedule, on August 1st, 2013. In June and July, we spent $260 on web development tools and templates1, $400 on operating expenses, $620 on prototype boxes for mom bloggers, and $3,450 for the contents of the initial run of 10 Storks boxes2. We still have over of the money left over to fulfill upcoming orders and start testing our initial marketing strategies.

Between pre-release beta testers and launch-day customers, we sold out our initial boxes by 4:30PM Pacific on August 1st, and tripled our order for box contents that evening. We barely managed to keep up with demand through the traffic, and are back accepting orders now. 10 Storks is on pace to have over 50 paying customers in month one, and we’re targeting 500 new customers over the next 3-6 months.

Past performance is no indicator of future success, but 10 Storks has exceeded every goal and milestone we’ve set for it so far. As for that $1M+ valuation, I have no doubt that Shoua could have investors lining up to blow that number out of the water. For now, she’s continuing to build the company the old-fashioned way, through customer orders.

This post was initially published at Medium.com. Also, buy a 10 Storks box.

Notes:

[1] Some of these costs can obviously be minimized or eliminated based on the capabilities of your team. Our team’s limitations, especially as they relate to my skills and available time commitment, drove a few of these purchases.

[2] There are whole categories purposely missing from our expenses list. For starters, total marketing costs equaled $0. All initial distribution was performed through social media, content, and reviews by mom bloggers. We also spent $0 on rent, salaries, lawyers, etc.

  • http://www.bradrach.com/ Brad Rach

    Great read Neil! I love well written case studies, and its nice to see something that explores in such detail!

  • http://neilthanedar.com Neil Thanedar

    Thanks, Brad! I find that sometimes learn as much or more advising other entrepreneurs than I do with my own projects.