While in the process, I could see that there was a lot wrong, I was unable to zoom out to strategically implement corrections to each of the challenges to right the path.
The hope is that this will be somewhat enlightening to very early stage entrepreneurs that face some of the thinking that I was facing, and is also a selfish form of catharsis for myself as I look back and reflect. Here we go, part 1 of about 53 (let’s hope not that many).
Context and Go-to-market strategy
My initial go-to-market strategy was transaction-commission based at trendy restaurants. The MVP value proposition was, very simply:
- Customer sits at table
- Customer scans QR code which assigns them to table and opens restaurant menu on app
- Customer orders to kitchen via app
- Customer receives the order from waiter
I saw infinite possibilities in expanding this model to solve all the pain points of the restaurant experience, and use aggregated data to inform ordering decisions for customers based on other people’s orders and pairings. I’ll dig more into the learnings of this phase more in a future post.
After multiple failed attempts there (43 client restaurant meetings to be exact), I realized the product-market fit was off, and they were concerned about tastePal affecting their existing operations, which without oversimplifying too much, was:
- Waiter takes order from patrons
- Order is printed in kitchen
- If kitchen capacity is full, waiter hides in kitchen until kitchen has capacity to receive further orders
- Waiter collects more orders when kitchen has capacity
The restaurants in my market were not ready for technological disruption to this process, and they saw many potential operational challenges that implementing an app would bring. Their mantra was, If it’s not broken, don’t fix it.
The ‘pivot’ (yeah, we all hate that word)
So I had to take a slightly different path - the office canteen market.
In South Africa, it’s not practical to walk out of the office to a nearby takeaway store or restaurant. The walking infrastructure is just not adequate, so it would require getting into the car, driving 3-10 minutes, finding a parking spot, ordering, walking back to the car, parking at your office, and walking back to the office. Impractical on a daily basis, and a waste of 20-40 minutes. So most offices for SMBs and corporates have their own in-house catering solutions. This was an interesting market from a tastePal perspective, because each catering company provides anywhere between one and 1000 SMBs with canteens.
The new tastePal (MVP) value proposition for office canteens became:
- Employee sits at desk
- Employee opens the app, views their canteen menu
- Employee orders directly to canteen
- Employee pays via a pre-loaded digital wallet, or via credit card
- Employee receives Push notification when order received
- Employee receives Push notification when order is ready
- Employee collects order
- Employee saves 20 minutes per day from wasted waiting times in queues
So I thought - if I can build a good relationship with these catering companies, prove the concept, it’s possible to roll out the product to their entire office client base.
I had some success early on. After a stressful and exciting pilot process (to be discussed further in a future post) with a catering company that supposedly provided office canteens for 400 SMBs, I was awarded the contract.
The Business Model
Let’s look at the pricing model. This is what I really want to focus on in this piece. Rather than committing to a commission model, I decided it made more sense to pursue a onboard + monthly retainer fee model. Why? Firstly, I liked the predictability of a retainer model in a B2B - easy to predict revenue, and easy to plan for costs. Secondly, office canteen meals in South Africa are greatly subsidized, so a typical meal would cost £1. If I was able to charge as much as 20% commission on each transaction through tastePal (optimistic), we would have been collecting £1 a day for the first few months of operations (with a measly 5 orders a day only per canteen). In hindsight, one potential benefit of a commission model would have been that it would have been seen as risk-free by the catering clients - if no-one uses the app, they don’t have to pay, less barrier to closing the sale, shorter sales cycle.
A counter-argument to the commission model, was that without committing to the monthly fee, the catering company had no ‘skin in the game’ and no reason to push the use of the app on our behalf, which was a key part of my thinking as a strategy to getting awareness, adoption and eventually engagement. I thought, if the catering company commits to a setup fee and monthly retainer per canteen, they’re fully incentivized for the app to be adopted - they’re locked in - and that would save us from too much time commitment in getting adoption and engagement. It didn’t quite work out that way.
So what pricing model did we go with? In GBP terms, I charged around £300 for setup at the canteen, and around £80 monthly retainer per canteen. The thinking behind this was that if we’re able to secure contracts with 3-5 medium-to-large catering companies - it would be realistic to have a captive market of 1000 canteens under contract within 18 months, which would have had us in a reasonable position of £80k MRR.
Why did this fail?
A few reasons.
Our product was sufficient but elementary. Not the tried and tested product at scale that medium-to-large catering companies needed. I thought I could be “scrappy” and scale gradual product development as we gradually increased our revenue, and re-invest all revenue into product improvement. The problem with that, however, is that major corporations who would be making a major commitment, needed to see the product that fit their needs now, and not the promise of a gradually improving product that would learn / adapt / improve over time.
Rather than committing to this go-to-market strategy of medium and large catering companies, and investing heavily in product, I re-focussed sales time on the smaller catering companies, which I perceived to be lower hanging fruit with shorter sales cycles. I thought I wouldn’t have to invest in product (at least in short-term) if I went this route, because our MVP would be sufficient to solve the problems for these smaller catering companies. These smaller catering companies would provide canteens for 1-10 SMBs, but would allow us to further prove our concept, and would at least provide some revenue on the table which we could hopefully leverage to pay part-time software engineers.
What went wrong here?
It turns out £300 up front cost per canteen and £80 monthly is still too high a price point for smaller catering companies, if they aren’t 100% sure it will drive further revenue to compensate for cost. The reality is that smaller clients are more price sensitive, and are open to SaaS products that are as close to a guarantee as possible of either cutting their costs or boosting their revenue. They need some evidence that this is the case to outweigh the spend on the software. I had some quantitative data from rolling out the first 5-10 canteens, but the sample was too small for many of them to commit at that price point.
It’s also important to note here that smaller catering companies were in a perpetual state of fear of losing their SMB contracts to the larger catering companies, and if they lost any contracts, their revenue would take a huge hit. They were reluctant to commit to any new costs with this in mind. My clients were in a defensive mindset rather than a mindset of aggressive growth and innovation; maybe this was a function of the market, maybe of the timing; and maybe just my own failure of communicating the value proposition effectively for them to see tastePal could help them retain business.
I was too stubborn and slow in decreasing my price point or changing the model
Why? I was still of the belief that the value of the product would far outweigh the cost. Perhaps more than that, I was desperate. I was too involved in the setup and support process, and despite being a SaaS, I hadn’t streamlined processes enough. We should have focused more on product. I felt that I had to charge enough that it would at least cover some of the time cost of providing support. In hindsight, if we had invested more in product, the setup and running process would have been slicker and more automated - I could have charged less for the product; reduced the sales cycles; saved myself time from support; and increased sales; and scaled faster.
Why didn’t I invest more in product?
Bootstrapping is a sexy idea in principle. Use savings runway from previous job; run a good business with manageable sales cycles; illustrate value; gradually build MRR to cover operating costs; run a lean operation; reinvest revenue into product and support; and grow a solid business.
Why couldn’t I do that?
The team was lopsided. I was the sole founder. My brother built an incredible MVP for a discounted fee which was amazing to get us going, and then we got a brilliant part-time software engineer, but we couldn’t move fast enough without full-time software engineers to build on the rock solid foundation. Therefore all product work took a backseat / took longer than necessary.
In a well-balanced SaaS with 2 or 3 founders with complementary skills, a bootstrapping model can work. I still love the idea, in principle. However, I needed to compensate for my lack of skills by investing heavily in the right areas. I didn’t. I was stubborn with the bootstrapped approach. I fell in love with the idea of a B2B monthly retainer bootstrapped slow and steady model, but I didn’t have the right team, product, pricing, runway or sales operations to execute it.
What if I raised a seed round?
This would have been a game-changer in two ways. It would have provided runway that would have kept the desperation away, and would have helped me to charge fees in line with what the market was willing to pay and in line with the value we were providing at the time. I could have gradually increased fees as we improved product and as we increased value, without rushing the process. Secondly, I could have invested in a full-time team of software engineers to build the product in line with our go-to-market strategy.
We could have started with the smaller catering companies, built the product that solved their problems, in collaboration and constant discussion with them. We could have built a self-setup product that allowed them to set up the menus more easily, manage the orders comfortably themselves, integrate with their POS, do their reporting, all while providing our initial VP of cutting queue time with app orders. While doing this, we would have had leeway to gauge from them if they prefer the commission model or the retainer model, and used our initial customers as a reference point to determine fair price. As we improved the product, we could have moved upstream to the bigger players in the market, with a fully proven product, strong MRR, rock solid pricing model, and features commensurate with the problems they’re experiencing.
Bootstrapping can lead to a startup being too sales heavy. This was the case with tastePal. Trying to compensate for lack of product to get an ‘in’, but I’m unsure of it’s sustainability as a long term model. Bootstrapping can lead to desperation, as compensating for lack of product could lead to clients being skeptical to commit, as they identify flaws. Selling B2B is hard enough as it is even with the perfect product.
This is not a call for all early stage startups to aggressively pursue a seed round, but rather to take an honest step back, zoom out of the business as much as possible, and identify what the fatal flaws are or could be, and take an honest appraisal to see - how do we stop these challenges from killing the business before it has a chance to thrive?
Key mistakes noted here:
- Single founder, key skills gaps and insufficient people with ‘skin in the game’ playing devil’s advocate to ideas
- Unfocused go-to-market strategy - pursuing large clients with early stage product
- Approaching low-end clients with medium/higher end pricing
- Lack of SaaS setup automation and solid repeatable automated process loops
- Tried to compensate for lack of product with too much focus on sales
- Lack of sales operations and automation; all sales were too manual
- Too much reliance on sales pipeline closing, without questioning why sales cycles are taking so long and acting swiftly to change situation
This is just the beginning. In the next post in the series I’ll dig deeper into some of the elements of the above and address other operational, sales, marketing, product, awareness, engagement, adoption, SaaS, partnerships, as well as other forks in the road that I experienced.
Until next time!
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