Fabrizio spent his summer starting a new UK company, called iPrice. Through data mining, iPrice extracts insight from retailers’ transactions and provides “value pricing” and broader “insight marketing” optimization recommendations. In this article he describes his experience, and shares some lessons he learned about starting a business.
Looking back, it has been a successful summer and one of those “only at HBS” stories – but my feelings were very different just back in May! With everyone else getting fancy and lucrative finance offers, peer pressure before the summer was mounting and my determination started to fade. However I thought I should give it a try, and with the level of support I had, this was the right time.
Because of the extraordinarily unpredictable nature of starting my new business, and the large amount of flexibility involved, this story can only be told from the beginning to the end, with the promise of keeping it short and simple.
I came to HBS with the intention of finding a true alternative to my frustrating career in consulting, and the stars seemed to be aligning. I was about to complete my PhD, entitled “A new pricing method for airlines;” I could find interesting connections at MIT – where the world expert in the field teaches a course at Sloan, and I could obtain lots of incredibly useful input on how to write a business plan from both staff and teachers of the Entrepreneurship group. On top of that, Davide – my PhD supervisor and former colleague – lured me by promising free housing in London and personal connections to sell my pricing expertise: “If your software works, I will make a millionaire out of you!” he promised.
Thinking of the zero job offers I had collected, the conclusion was easy: “Great, summer in London, start my own business, work in a very(!) low-cost location – looks like a decent alternative to safe money in private equity!”
Well, starting iPrice was a bit more difficult than we thought – none of the three potential airlines interested in trying the new software eventually pursued it. One announced a major merger the same day we had to reach the agreement, the second went bankrupt, while the third focused its efforts on trying to acquire the second.
One extremely rainy and cold month, and several Skype calls later, I had made a grand total of $0 million, cleaned my Amex credit, and lost the interest of my business partner. The plan had collapsed; however, great problem = great opportunity (when disaster strikes, smile and move on!). In this case it was the opportunity to realize how airlines provided an exciting setting for my PhD but not really a sexy environment to start a new business.
“By the way,” Davide says one day, “do you have any expertise on retail pricing? I just got a call from a large company willing to pay us for some support work.”
“Uh? Ehm. Retail you said? Er. Sure! Of course I do! (not)!” I replied.
“Ok. But just a minor warning: if you do not deliver on their expectations, I will kill you,” he exclaimed. (Real conversation). Great partnerships are founded on trust.
I spent a couple of (rainy) London nights figuring out how to use the advanced airline pricing stuff in the more straightforward retail world, and then headed to (not so sunny) Nottingham where my first real client was headquartered. They were one of the largest UK retailers, selling health and beauty products. It was a very well-paid summer project, but still similar to consulting: they needed me there once a week, and “only” wanted pricing tools to support their yearly “category re-profiling.” In spite of the more than half a billion pounds in company value we expected could be on the table, because of the narrow project scope, we could only have limited bottom line impact. Despite this, we had access to lots of data and an opportunity to build our credibility.
Not only did iPrice manage to substitute a “top-notch” consulting firm who had not delivered in the last 2 years, but I even had the privilege of attending my first on-train meeting: the client board member, who saw our project as a priority, wanted to learn of its outcomes and could only see us while travelling between cities, given he would then go on holiday for 5 weeks (I know, in the US, this figure would be considered a typo.)
Despite the many challenges, this project helped us establish a track record, built a team of analysts, and proved we could have an impact in retail and work with a large client. Most importantly, Davide became reassured that I really (?) knew how to deal with pricing projects, so we then designed together a value proposition for new clients, completed all the legal formalities (including registration, tax forms, but also logo, letterhead, website etc.) and celebrated our first accomplishment.
Meanwhile, I managed to experience what was actually the wettest summer on record in the UK, unlike my I-banking friends who had brought sleeping bags to their offices and did not see much of the grey sky at all.
The summer was coming to an end and I was quite satisfied; only one issue left: no more clients! Looking back, three months had passed and no one yet was willing to have iPrice deliver weekly pricing recommendations through our advanced model, with expected big bottom line impact, as originally planned. “So let the recruiting start,” I thought while packing my stuff – two weeks ago.
Shortly after, I got another of those Davide wake-up calls: “Ok, so you really over-delivered on the clients’ expectations. Now it was my turn to work. Come on your last day in London and I will sign you up with a new client! And I promise to keep trying to work on our previous client while you are at HBS.” Executed in one day, we are now signing up the UK’s second largest professional fish and meat wholesaler to take ownership of their pricing. How unpredictable was that?
It now seems possible that this will be my full-time job after graduation. Starting a new company is much tougher than I expected, but there were several positive surprises. Having the right partner was a key success factor, close second to knowing what you want to do and having the determination to pursue it.
Davide helped me enormously and we complemented each other’s skills and roles quite naturally, which was great. Also, opening up a company in the UK was incredibly easy: in less than 2 weeks, almost entirely on-line, and spending something like 500 pounds, we could have all our papers in place. In Italy the same process would take at least 6 months and deplete coffers of money. Having said that, I’m willing to give assistance to anyone willing to go through company formation in the UK, in exchange for a good glass of red wine of course.
The best advice I got before the summer was that, while maintaining maximum flexibility was important, choosing upfront the right industry at the right time was absolutely crucial: even more specific research should be dedicated to industry analysis before venturing out into open waters. I found out that while most large companies learn over the years how to cut their costs, literally none learn how to do “value pricing.” The few service providers who know how to do pricing and extract insight from customer data are growing their revenues at 50% a year and creating a small revolution. A small portion of this huge cake may still be available for new entrants like iPrice, and believe me that the ease in generating revenues is crucial for a start-up with no venture capital backing. You literally cannot afford a month before seeing action in your business bank account.
Several times I thought back on that fancy and lucrative finance offer I had been willing to forego to follow my hunch for entrepreneurship and the lure of “millions” promised by Davide. Yes, I had some stomach aches, no millions, a few sleepless (rainy) nights and definitely will not make the front page of the Financial Times in the next two years. However it was great fun, made me learn a lot, and most importantly, started to build something which may exist even after I quit!