Day Two: getting to the market with the PRODUCT.
Day Two: getting to the market with the PRODUCT.
Day Two of Seven Day 100$ Startup
If you’re new, welcome! I’m Arjun Agarwal and this is my newsletter. I hope it convinces that startup economy is not that bad and you too can be a part of it.
I would like to request my not-business loving readers to also read through this. Business terms have been used at a minimum and have been promptly explained when used. This is a public experiment which I believe everyone should try.
PRODUCT
A company makes money by selling a product, it can be something physical, digital or a service. Today’s goal will be to clamp down on a product, its cost to consumer, its cost to manufacture, packaging and basic marketing strategy.
That may sound like a lot but it will happen very easily with the power of flow.
What are you selling?
Simple question, what are you selling? I am selling pre-mixed coffee in envelopes.
Now we’ll do a test to see if I should sell that, it’s a simple questionnaire:
Are you interested in this product?
Would you buy this product?
Do you know enough about this kind of business to stand a chance?
Are enough other people as interested in this as you are to make a business?
Is there a compelling story about why you are starting this business?
Can you conceivably put a product into the world in 48 hours’ time?
Is the competition sufficiently rubbish that you think you can do better?
Does it pass the grandma test?
Now, yes I know due to the method of idea generation, You’ll have some questions answered already. But to be safe, they are here.
Grandma test: Can you explain the concept to a grandma, simple. I am not saying that Grandma’s are not technical. Far from it, my Grannie is minimum 10 times as smart as I am. The only thing is that the Grandma’s are not aware about a lot of things but if one can create a good enough analogy, they can be explained anything. The question is can you make that analogy for your business?
Now back to the questionnaire, let’s answer it:
Are you interested in this product?
Hell, yeah! I love coffee and can drink it anytime.
Would you buy this product?
Why not? I would love if I would not need to mix ten things myself into a cup to get that great tasty coffee. Free brownie points if it is comparatively cheaper.
Do you know enough about this kind of business to stand a chance?
I can make many(like in the 50s) types of coffee and coffee based drinks. I think know enough about making coffee as well as food processing to stand a solid chance.
Are enough other people as interested in this as you are to make a business?
Google Trends confirmed it on Day One.
Is there a compelling story about why you are starting this business?
Again, see Day One.
Can you conceivably put a product into the world in 7 days time?
YES.
Is the competition sufficiently rubbish that you think you can do better?
No offence to Nestle and Starbucks. But yes. Nestle’s all in one blend is so bland that I prefer drinking plain water to it. As for Starbucks, best of luck making me pay $3.45 for 31 ounce of iced coffee. I think that I can make instant coffee envelopes which will taste and cost much less than whatever my coopetitors are selling.
Does it pass the grandma test?
I sell coffee in envelopes as it costs less and can ship internationally. My granny got it.
That does it. We have a product.
Costing: The real game
So, I plan to sell coffee as a subscription. Every month you’ll receive coffee in envelopes, in enough sachets to last you the month. So let’s figure the cost of goods sold(COGS) which is the sum of product cost(i.e. what you spent to make the product) and fulfillment cost(i.e. what you spent to get the product in the customers hands)
It costs me 6 USD to make the monthly pack, note that these are the highest bounds for the price of everything. On the assembly day, I will most probably find a way to save money. My custom packaging will cost me 0.30 USD and my postcard will cost me 0.20 USD. That means the product costs me 6.50 USD.
Now to the fulfillment, international posting will cost me 2 USD and as I am packing myself, I’ll keep the packing cost at 0.50 USD keeping future in mind. That totals to 2.50 USD.
That means I have a COGS of 9USD. I am gonna keep my rate at the industry standard, 1 USD per cup or 30 USD per month.
So that sets the gross profit(cost subtracted by COGS) at 20 USD. I know that 30 minus 9 is 21, but we have to deduct 2.9% + 0.30 USD as that is the average transaction fees. So that does that.
Now let’s talk about COCA(cost of customer acquisition). Basically just take it 8 USD and you’ll be fine.
That means that I’ll make a profit of only 12 USD for the first customer. But as I am in the subscription game, I’ll make a profit of 20 USD per customer after the first month.
Sorry for the bummer but some customers will leave every month. That is called churn. So now the question is how much should we estimate the churn? 8% is the standard. It means that a customer will normally sit around for twelve months, i.e. duration is 12.
So that sets the CLTV(Lifetime customer value) at a whooping 232 USD. Basically just multiply the retained profits by the duration and subtract the COCA.
Now let’s talk seed, basically number of early adopters. I’ll take the standard 50.
And finally let’s talk about re-invest in COCA, basically how much percentage you re-invest in your cost of customer acquisition. I’ll re-invest 50% in COCA.
Also growth cap is 25%, but I’ll skip explaining it as it really won’t matter.
Packaging
So with all the unit economics out of the way, let’s do some creative work.
Today’s goals:
Make the logo
Make the packaging
Yes, you can hire graphic designers to make logo’s for you but then you can also do it for free.
I personally have attended multiple courses on graphic design and am therefore going to use my acquired skills to save myself some money.
I used Canva here as it is a more accessible platform.
I can just make stickers and paste it on plain white envelopes and viola, we have some custom packaging.
As for the postcards, I have made them before and they hardly take time. Here are few I made a while ago.
They can be printed cheaply and and add a touch of personalization to the packet. That should be all I need for my packaging.
Marketing 010
Yes, It’s normally 101 but today we are just doing the 010 as this is simpler than simple. It is like addition to quantum physics. It’s that basic.
Marketing can be divided into three buckets: Lifestyle, Evidence and Experience.
Lifestyle: Basically selling you the feeling. Like Gucci or Boat or dare I say, Apple for the early years. They don’t market on the basis of a superior products(or in case of Boat don’t have an superior product.). They sell you a lifestyle. Eternal symbol of luxury was a tagline of Gucci. Normally, luxury brands, non-essential or food brands fall in this bucket. It is expensive but helps builds big brands.
Evidence: Marketing on the basis of studies and data. Best example is HeadSpace which tells you the benefits of meditation and then sells you it’s subscription. It costs less but defensibility is hard to achieve.
Experience: Marketing on the basis of the fact that once you use our product, you will not be able to switch. Used by very few companies(Apple nowadays), mostly in the tech and food space. Only for the brave of heart. It is comparatively cheap and building a brand is also possible but needs noticeably superior product.
Personally I am going to go with experience based marketing as I believe my product is noticeably superior in comparison to my competitors. To achieve the same I am planning to give one week trial pack free to all who take a survey on the website, which I’ll work on on day 4.
But for today we are done.
Balance Sheet
Start - $100
Spent - $0
Time left- 5 days.
The AA guarantee
The AA guarantee says that:
If you follow the series of articles dedicatedly and diligently and still don’t manage to make a business you are happy with, I’ll buy your business for the 100 USD you may have spent. That means you get the learning of the fail but none of the loss.
This guarantee is in place to motivate all of you, whether or not you were interested in startups or not, to create something.
Warm regards,
Arjun Agarwal.
Despite being a business lover, this newsletter is not sponsored by a giant, all-powerful corporation. You can help me grow in three ways.
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