"Anytime you save people time and money, there is money to be made."
These wise words come from serial entrepreneur and the Founder & CEO of Service, Michael Schneider. His company handles customer service complaints for its users for free, saving them time and money. As the Founder and CEO of Applico, the Platform Innovation Company, I often speak to platform business operators. This week, Michael and I discussed how he built Service with no customer software or heavy technology.
The business idea came to Michael during a flight in April from Los Angeles to Miami. He witnessed a fellow passenger purchase a Wi-FI pass only to discover the pass was useless - his laptop's battery was low and the plane's power outlets weren't working. The passenger struggled to find the appropriate airline or Wi-FI provider website to file a complaint. With the widespread proliferation of on-demand services like Uber and Instacart, Michael believed there was an opportunity to start a new company.
"The single most important thing is to determine right away if what you're going to put out into the world is valuable," Michael explains in a blog post for Arena Ventures' (Service's VC firm). "Everything is secondary to that. You should know within the first week whether or not what you want to build will have some value."
Here are five lessons for starting a technology-enabled company with no custom software technology based on my discussion with Michael:
1. Start by solving a problem you have.
"People overthink things. Solving a problem for yourself is the key," Michael says. "If you can find a problem that you experience a lot, a high frequency problem, then I think you've got a market. Solving a problem that you don't have is a lot harder. You don't really have the context for the company that you're working on. I recommend that entrepreneurs find a problem they have and solve for that first."
Empathy is of paramount importance when building a platform or multi-sided business because there are usually two users groups to satisfy, producers and consumers. When we provide strategic services like Platform Design to entrepreneurs looking to launch a technology platform, we stress empathy. Both Applico and our clients must first understand what problems the platform will solve for users and what is the most efficient and simple way to deliver that value. Along with a strong focus on user desirability, we also ensure the technical feasibility and business viability of the platform before we invest in custom code.
2. Test your idea's network value first.
Michael understood very early on that in order to convince himself, investors, future employees and the press about Service, he would first have to demonstrate that consumers were in fact interested. He validated his idea by offering a helping hand in the mecca of customer service complaints, Twitter. Using hashtag searches like #CustomerService, he tweeted directly at users and offered to resolve their customer complaints for free. "What we found was that when someone is in trouble and you offer help, they're very responsive. I knew there was a large opportunity on the second day," adds Michael.
We often find that entrepreneurs have a great idea but are nervous to invest the time and resources into building a mobile app, which can require significant investment. It's for this reason we launched our Platform Modeling offering, which helps entrepreneur better understand the network value of their idea at a significantly lower cost point.
3. Don't build out tech until you understand what your software should do.
"I set up the initial website for Service in an hour using Squarespace. I was handling all the customer service complaints myself in the beginning. I did it completely manually because I wanted to learn what the future Service software would have to do. A manual approach helped me better understand what works and what doesn't work. I started off in my living room with an intern from Penn, now our team is a total of eight people working on product, engineering and handling customer service complaints. I raised the initial pre-seed round in my second week of operation without any custom software," adds Michael.
4. Don't prioritize monetization. Focus on delivering value.
Delivering a free service to users early on in your company's history is one the seven strategies for solving a classic platform dilemma, the chicken and egg problem. For now, Service is completely free. "It's too early to tell what will work best for monetization," Michael says. "We'll eventually figure out who to charge and what to charge. We want to continue increasing the number of cases we solve and the efficiency at which we solve them. So far we've saved $50K for consumers. A lot of times, entrepreneurs try to be clever and come up with branding that makes sense in Silicon Valley and they don't pay attention to the world outside of tech. I envision Service being a broad offering, not just for techies. We want people to think that handling customer service complaints themselves is antiquated," says Michael when asked about monetization strategies.
5. Leverage your personal network.
Michael raised his first round of capital in the second week of the company existing. Arena Ventures (Honk, Meerkat, Laurel & Wolf backers) had a previous relationship with Michael. "The investor at Arena Ventures knew me and I knew him. He was willing to invest because at that point it was not about judging the character of the person but the value of the idea," adds Michael. Your personal network knows your merits and capabilities the best. Leverage that network to speed track your startup early on.