Mainstreet Businesses -- Kelli Soll and Global Service Partnerships

I have been remiss in keeping my blog up to date. This blog re-posts articles I write for the Business Insider at the Idaho Statesman.

Here's the May, 2014 article about Venture College entrepreneur Kelli Soll, and her business Global Service Partnerships

Not everyone wants to start and build a business with investors, high growth and an exit. Some prefer to simply work for themselves.  We call these businesses Main Street or Lifestyle businesses.  Lean startup principles apply to starting a Main Street business as well as to scalable businesses attractive to angel investors.

Venture College entrepreneur Kelli Soll, a partner in Global Service Partnerships (GSP) is an example of the application of lean startup principles to a Main Street business. Kelli and her partner had a vision that they could somehow create a business in Idaho that would deliver value to people here and at the same time attack a literacy problem in Belize.  They wanted to create a profit making social venture that would enable them to earn a living while impacting this social problem in Belize.  How do you do that?

They began by proposing service learning trips to high school students.  Kelli interviewed 90 high school students and educators.  She learned they would love to go to Belize, but there was a problem.  High school students don’t have the money to go. So she had to pivot.  That is she had to find a customer for whom such a trip would provide value and who could and would pay.

She spent 50 hours talking with parents. She learned they might be willing to pay to send their children to Belize, but only if she could assure the parents their children would be safe.  Pivot number two.  She needed to redefine her relationship with her customers. This wasn’t just a commercial transaction; she needed to develop a very personal relationship with her customers to gain their confidence.

Armed with this information, Kelli developed a “minimum viable product” or an MVP.  An MVP has just enough features to see if the customer will in fact pay.  She spent $20 to print brochures.  Note, this was her first cash investment.  She invited those she had previously interviewed to meetings where she gave them her flyer that said she would be taking people to Belize in March 2014 and the fee would be $3000.  Fifteen grandparents, parents, senior citizens and four teenagers signed up to go.  Wow! That was $45,000 of presold revenue.  Kelli’s total investment to date, other than her time, had been $20.

Based upon this assurance that she had paying customers, Kelli then (and only then) went to Belize to set up the partners and activities such a trip requires.  The end of the story is the trip happened, Belizean children’s lives were changed, and fifteen Americans had an amazing experience.  Kelli has now presold two more trips.  That will result in a total of $135,000 of revenue in her six months of operations.  You can learn more about GSP at www.globalservicepartners.org.

The lesson is that she did not first make a significant investment and build a product.  She talked with potential customers and kept talking and changing her plan until she nailed down the customer segment, the value she would create, and a revenue stream.  Only then did she begin spending money on her product—the opposite of most entrepreneurs. 

If not a business plan, then what?

I have been discussing the Lean Startup movement in my recent columns. The movement says that business ideas are based in testable assumptions, and that the first task of the entrepreneur is to test and refine the assumptions; NOT to write a business plan.  This is somewhat heretical as for the last fifty years we thought that the business plan was the first step on the journey to launching a business.

So, how might we organize these assumptions and test them if we are going to do this rather than craft a business plan?  Alexander Osterwalder and Yves Pigneur suggest an answer in their book Business Model Generation.  According to them, “a business model describes…how an organization creates, delivers, and captures value [emphasis mine].”

Their research revealed nine building blocks to describe the business model (definitions are quoted from the book):

1.  Customer Segments. The different groups of people or organizations an enterprise aims to reach and serve.

2.  Value Proposition. The bundle of products and services that create value for specific Customer Segments. 

3. Channels. How a company communicates with and reaches its Customer Segments to deliver a Value Proposition.

4. Customer Relationships. The type of relationships a company establishes with specific Customer Segments.

5. Revenue Streams. The cash a company generates from each Customer Segment.

6. Key Resources.  The most important assets required to make the business model work.

7. Key Activities. The most important things a company must do to make its business model work.

8. Key Partners. The network of suppliers and partners that make the business model work.

9. Cost Structure. Describes all the costs incurred to operate the business model. 

Osterwalder and Pigneur combine these nine building blocks into what they call the Business Model Canvas.  They put the canvas in the public domain.  You can download it at http://www.businessmodelgeneration.com/downloads/business_model_canvas_poster.pdf

The directors and entrepreneurs at Venture College have found this model incredibly helpful as a way to organize our thinking about a particular venture.  Over a period of several months the entrepreneurs tackle each building block by writing down their assumptions, and then testing those assumptions, primarily by interviewing prospective customers. 

To date, our entrepreneurs in the first cohort of Venture College have generated 480 assumptions about their business models.  They have conducted 121 customer interviews and rejected more than half of their assumptions as invalid. 

For example, one of our entrepreneurs believed that there would be a profitable market for an insectarium in Boise.  In the language of the Business Model Canvas, she believed there existed Customer Segments that would Value a visit to an insectarium sufficiently to allow her to make a profit.  What she learned through talking with prospective customers in the various segments is lots of people thought it was a cool idea, but very few were willing to pay the entrance fee (Revenue Stream) such that revenues would be higher than costs (Cost Structure). 

Rather than write a lengthy business plan discussing all the segments, she was able to quickly talk with enough possible segments to learn her idea wouldn’t work.  And, finding this out before she raised the million dollars it would take to create such a facility saved her from huge losses. 

The Screening Committee chair for the Boise Angel Alliance is considering modifying the application process to ask the entrepreneurs to use the Business Model Canvas as a way of applying for funding.  The angels know there are no sure things in startups.  But if an entrepreneur could lay out his or her assumptions and then present the evidence he or she has accumulated to validate those assumptions, it might help the angels improve their investment decision making.

Take a look at the Business Model Canvas as an alternative to writing an exhaustive (and likely very wrong) business plan. Search online for “Business Model Canvas” and you’ll find a great deal of information about this new way of planning for startups.

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Kevin Learned is the Director of Venture College at Boise State University (http://venturecollege.boisestate.edu/) and a member of the Board of Directors of the Boise Angel Alliance (http://www.boiseangelalliance.org/).