How To Spin Out a Bigger and Better Startup
Startups are founded on the premise of disruption, and the tech we use to facilitate that disruption likely has multiple efficiencies coded into it that can be reapplied to other use cases. This is where the crazy money is made, because it can elevate our company from niche product player to new market dominator.
And sometimes, we don’t even have to build that market ourselves, we just have to sell enough software to let others build it for us.
In this post, I’ll hit on four different ways I’ve repurposed technology to create a bigger and better startup play.
Books and CDs and Backbones
First, some context. Before Amazon ate the entire retail world, it did one thing very well. It sold books and CDs. Everything that makes Amazon the behemoth it is today grew from that niche operation.
Amazon Web Services (AWS) started out as the proactive outgrowth of the computing infrastructure needed to take eCommerce out of the hands of the brick-and-mortar giants. AWS is now the digital backbone of over 100,000 private and public companies.
The ridiculously complex logistical operations of Amazon delivery, consisting of over 100 fulfillment and sortation centers, a fleet of trucks and vans, and even airplanes, was all sprung from the promise of 2-day shipping. Amazon now sells more third-party marketplace goods through that logistical backbone than they do their own products.
Furthermore, those two backbones combined happen to be the backbone for Amazon Prime, which you probably have.
It all started with selling books and CDs.
Amazon didn’t become the one stop shop for everything by luck. For better or for worse, it became the plan, and it should become your plan too.
Case 1: From Scratch
At my current startup, Spiffy, we’re a mobile vehicle care and maintenance startup. In other words, we come to you and wash your car. But we like to say that washing cars is our selling books and CDs. I went there to make sure we collect the data and build the software and create the partnerships that allow us revolutionize car ownership like Amazon revolutionized retail.
The technology we use to make all of these moving parts work in sync to keep our customers happy, our spend low, and our margins high, is built from the ground up to be completely flexible.
We design in terms of process, not in terms of objects. In other words, the vans we use to come wash your vehicle aren’t vans, they’re assets. The folks who wash your vehicles aren’t washers, they’re technicians. The workplaces where we wash several vehicles on the same day aren’t office parks, they’re recurring service locations. The tech reflects these kinds of generalities, I just didn’t want to overload you with coding jargon.
This flexibility allows us not only to quickly append new services, processes, and partners, but we can even swap in new lines and new types of business.
Along with flexibility, the other key component of our tech stack is that it’s mostly proprietary. Look, I’m a huge believer in small tech and also in using off-the-shelf software packages to do non-core things, like marketing, analytics, CRM, even QA. But as we’re growing, we’re pulling those functions into our stack, which allows us more control, more customization (which is actually more generalization), and the ability to inject new efficiencies into our model that no one else can replicate.
Now we have options. We can white-label our software within and outside the industry, we can start another line of business with a four-year head start on the technology, or we can just keep growing and dominate mobile auto care and maintenance.
Right now, we’re just washing cars. And changing oil… and a couple other things. This is how it starts.
Case 2: The Classic Pivot
At my last startup, Automated Insights, we were originally called StatSheet and worked exclusively with sports data. I joined up with the founder to start creating automated sports content as a way to repackage that data and make it more understandable and valuable.
Soon, we started focusing on just the automated sports content, and when we went to raise our Series A, we realized that the big play wasn’t automated sports content, it was automated content.
We could keep working with sports data, which we were incredibly good at and had a lot of financial success with, or we could risk our relationships in the sports industry and automate content around any type of data.
What resulted was a classic pivot. Had we stayed in sports, we could have remained a sports company with some really good tech. When we changed our name and our model, we became a tech company. Overnight.
We did this by licensing the use of our engine. Our customers never had direct access to our software. We would work with them to determine their needs, set parameters on our engine, and deliver the finished content. Once they gave us access to their data, they were out.
We went from individually priced contracts to monthly license fees, which created a stable pool of recurring revenue, which allowed us to raise more money, which allowed us to take a huge share of this new Natural Language Generation market we had helped create.
Case 3: Let Others Make the Market
One of the most basic ways to get to growth is to get so efficient at something that we can take on more customers than anyone else can. Then we max out. So we get others working for us. The way we keep growing that is to make those others more efficient. The way we do that is with our technology.
The first startup I ever joined was a consulting firm called Financial Dynamics. We did custom software builds for the financial industry. The more customers we got, the more we were repeating our code, so we started creating a repository of functions so we didn’t have to rewrite them every time. Soon, our tech was better than anyone else’s.
Then we dedicated a few of our people to linking these functions and making them plug-and-play. It became a framework for our consultants to use, in some cases saving them 80% of their coding time while allowing for a far more robust and tested final product.
So then we decided to just sell the frameworks.
This did a few things for us. For one, we were now selling to partners who were finding and selling to their own customers, making our sales cycle far shorter and easier. Our revenue went from feast-and-famine to recurring and predictable, enabling us to grow much more quickly. And then finally, our valuation went from roughly two times revenue to about 10 times revenue, because we were now a product company instead of a service company.
Case 4: The Second Time Around
Sometimes failure is one small thing out of place, and you don’t realize what it was until you’ve already given up. Intrepid Media was the first startup I ever founded on my own, and it ran for 12 years, making money, being fun, but never breaking through a ceiling in its growth.
Intrepid was a cross between Facebook and Medium, but back in the low tech early 2000s. Call it a social/professional network for writers. Intrepid won awards, launched best selling authors, even held huge meetups in places like New York and Las Vegas. But after 12 years, mostly doing it on the side, revenue stagnated, and with my time being spent on my “real” startups, I had to let it go.
About a year before I gave Intrepid up, I had started ExitEvent, a sort of giveback program to connect entrepreneurs, advisors, investors, and support organizations anywhere that wasn’t Silicon Valley. As ExitEvent grew, it soon reached a point where it needed software to keep it all together.
I literally un-vaulted the Intrepid code, tweaked the front end, and launched ExitEvent on it within a week. Three years later, after crazy growth, I sold ExitEvent to an incubator/media company.
I’m a big believer in the fact that tech is always an asset. Sometimes you have to rewrite, sometimes you have to repurpose, and sometimes all you have to do is re-skin. So while you’re out there pushing your “books and CDs,” make sure you’re coding for all possibilities, because you never know what kind of change is going to be the right change.