Genesis of a (mediocre) idea
One of the main things I learned from VetPronto was to perform a lot more analysis before jumping into a new start-up. There are a number of challenges revolving around house call medical care (especially for pets) that we should have been able to identify before making a commitment to the business (i.e. taking outside investment).
Now that I am no longer involved with VetPronto, I’ve been exploring new entrepreneurial ideas. I wanted to share a story about a recent idea; mostly to clarify my thoughts and get feedback from people smarter than myself.
I stumbled upon the idea at a 4 year old’s birthday party. Another parent, who happens to be a wine enthusiast, was setting up a wine club for his friends. He was complaining about the hassle of managing the wine club (signing up subscribers, billing, logistics, etc.)
This made me wonder if a service existed to help people set up their own wine clubs (it does and it is called CrateJoy). After a bit more thought, I realized this is a great example of a way to explore start-up ideas by “zooming out” on the initial idea. The lower zoom levels have more specific use cases while the higher levels attempt to target more generalized use cases and potentially appeal to a broader set of customers. Obviously, there are various pros/cons of each level; market size, operational complexity, etc.
Here is a brief summary of how I would ‘zoom out’ from this idea.
- Level 1 — A service that helps individuals manage wine clubs
- Level 2 — A service that helps wine bars/stores manage wine clubs
- Level 3 — A service that helps speciality retailers (wine, cheese, coffee, olive oil, flowers, etc.) manage subscription clubs
- Level 4 — A service that helps any retail establishment (restaurant, grocery store, clothing, pet, toys, etc.) manage a periodic subscription club¹
My gut told me that level 3 (i.e. targeting speciality retailers) was the right combination of opportunity and complexity for initial analysis. Based on that decision, I spoke with a handful of specialty retailers in my neighborhood (Bernal Heights and Noe Valley).
Based on my conversations, I detected some interest from retailers for a club management solution. However, my experience talking with the stores raised concerns about the sales cycle for such a service and the store’s ability to attract subscribers.
I created a high level model that attempts to get an idea of potential revenue. I used Yelp to determine the number of speciality stores in each category in San Francisco (wine shops, wine bars, cheese shops, coffee roasters and florists). I made assumptions about the revenue for a monthly subscription in each category ($25 — $75) and the service’s gross profit (10%). I then created a sensitivity matrix based on the number of stores signed up (store penetration) and the store’s ability to attract subscribers (average club members). You can play with the model by adjusting the green cells here.
As I probably should have expected, the idea isn’t very attractive if you are not able to sign up many stores and/or the stores aren’t able to sign up many subscribers.
I also haven’t even considered the (potentially significant) cost side of the business. A service like this will need engineers to build the tool, sales people to sign-up stores, support people to keep the stores happy and operations people to help with fulfillment.
My conclusion is that this probably isn’t a great idea. Please let me know if you disagree. :)
- The process of zooming out opened my eyes to number of other (probably mediocre) ideas. I would argue that this is one of the main benefits of the exercise. The one that I am currently unable to get out of my head is a way for local restaurants to offer a ‘meal in a box’ service (ala Blue Apron).
