“What do you look for in a successful startup?”
That’s a great question I often get from first time entrepreneurs and my students at Cornell.
So today I’ll pick apart a wonderful startup to show you what to look for – and to apply that to your new enterprise. I’ll use a story from today’s Wall Street Journal about Open English to show you how this is done.
OPEN ENGLISH: A DISSECTION
This is what the press document looks like:
CARACAS, Venezuela— Andres Moreno set out to start a language school that would operate around the clock, staffed with native English speakers and offering easy access to students looking to avoid gridlock in this bustling capital.
His project became Open English, an online school launched here in 2008. Propelled by an ad campaign featuring Mr. Moreno as a straight-man to a foil who humorously butchers simple English phrases, Open English is now valued at an estimated $350 million. It has 100,000 students in the Spanish-speaking world, including 5,000 in the U.S., and has a new headquarters in Miami.
"We wanted to create something that was monthly and cheap and allowed you to get started," said Mr. Moreno, Open English's co-founder and chief executive, in an interview at the New York offices of Technology Crossover Ventures, a venture-capital firm that has invested in Open English. "That has been the niche Open English has filled."
The company Mr. Moreno directs has raised an estimated $120 million in venture capital, underscoring the market potential of Latin America's fast- growing middle class and the new flow of investment dollars toward startups in the region.
This is “the rest of the story”:
- Founder is a risk taker. Before starting Open English, Mr. Moreno had dropped out of college, abandoning an engineering major, to launch a language school called Optimal. "My parents were not thrilled," said Mr. Moreno, a Venezuelan who lived in eight different countries, including the U.S., as a child.
- First idea troubles pivoted into a successful idea. He hired native English speakers from abroad to live in Venezuela, assigning them to tutor the employees of businesses in Caracas. But moving the tutors from office to office in this capital's nightmarish traffic proved to be an obstacle. Clients were also leaving the country because of the high crime and political instability.
- Second idea occurred spontaneously. Messrs. Sarmiento and Moreno said they had a eureka moment over pizza, coming up with the idea of moving classes online. "I used Skype, and it dawned on me that there had to be a way to apply that technology to enhance human interaction over the Web," said Mr. Moreno.
- Began with personal savings paying the bills. Mr. Moreno said he started cramming computer programmers into his apartment while tracking his dwindling savings. He turned to raising venture capital in the region, though he recalled that "there wasn't a lot of education on the investors' side of what a tech startup could do and how it could grow."
- Raised big venture bucks with confidence and determination. It was when he was down to his last $700, he said, that he boarded a plane to woo investors in Silicon Valley. He spent six months sleeping on a friend's outdoor couch, he said. After two years traveling back and forth, he eventually raised $2 million in a seed round. Open English now employs about 2,000 people.
- The combination of elements of the business plan was attractive to venture firms. Jeff Lieberman, a managing director at Insight Venture Partners, said the robust growth of Latin America's Internet penetration and Open English's availability of live online instruction caught his attention. "The on-demand nature of it, the ability to get live instruction, is pretty critical," said Mr. Lieberman, whose company invested in Open English. "Obviously, Internet access is a requirement, and in Latin America Internet access and infrastructure is rapidly increasing."
- Highly focused on a single market segment. Open English competes in a crowded field of online language instruction. Unlike larger rivals Busuu and Babbel, it focuses on a single tongue, English, which in Latin America is vital for career advancement. Its service costs about $80 a month and offers live online instruction around the clock in small group classes.
Mr. Moreno, 31 years old, said his firm isn't "trying to create an app to teach people a few words because there are companies in the U.S. that do that very well and others that teach 30 different languages."
While Open English is focused on the Web, stronger growth can be found in catering to the mobile market, said Sarah Galvão, a spokeswoman from Busuu. "We grow [three] times stronger in mobile than in Web," she said.
- Used humor to stand out in a crowded market. Mr. Moreno plays a director filming a Wild West shootout. An actor strikes a Clint Eastwood-like pose, stares down two gunslingers in front of a saloon and says: "Comam Mamey." As the other actors laugh, Mr. Moreno, megaphone in hand, corrects him: "You're supposed to say, 'Make my day.' "
- Focused on an ideal customer. "I saw the Open English commercials, and they were hilarious and very creative," said IT professional Diony Lugo, who works for Bosch Venezuela and decided to take the 12-month course.
Mr. Lugo said he had spent a year-and-a-half in a traditional classroom setting before switching to Open English. "I'm the kind of person who likes to sit at home and on my own time log onto class," he said.
- Exploited a new wave of change. Naomi Baron, a linguistics professor at American University in Washington, said there has been a broad shift from teaching the finer points of grammar to equipping a student with the ability to get their point across, to speak and listen. "The notion of online learning is not unheard of and can help people learn," she said. "But just hearing a native speaker all the time guarantees nothing."
Mr. Moreno said that while Open English emphasizes "our live teachers, our learning platform aims to provide a well-balanced study plan, including reading and writing."
- Riding a rising tide. "The demographics are there," said Cate Ambrose, president of the Latin American Private Equity & Venture Capital Association, an industry group representing firms investing in Latin America. "You have a growing middle class and a young demographic with a climbing increase in the consumption of technology."
The number of Internet users in Latin America is now estimated at 300 million, or half the population. According to market-research firm comScore Inc., the region's online audience grew by 17% in the year ending in April, five times the growth seen in Europe.
Internet penetration has increased as the number of people in Latin America's middle class surpassed the number of poor over the last decade.
- Raised capital from deep pocketed venture firms. Other investors in Open English include Flybridge Capital Partners, Redpoint Ventures and Kaszek Ventures. Last year, Open English received an infusion of $65 million during a financing round led by Technology Crossover Ventures with a valuation of about $350 million.
Consider those elements and apply them to your startup. How do you compare?
Look to startup successes like Open English. Learn how they did it. Apply the elements to your plan for your new enterprise. Especially examine how each element combines with others to create an unfair competitive advantage. At the end of the day, that’s what bloggers, investors and potential employees are looking for. When you can do that, you are on your way to startup success.
I wish you The Best on your Adventure!