From the Garage to the market: a startup looking for its way

Also available at Epub

Summary

This case addresses the entrepreneurial journey of three Business Administration students who are exploring the universe of Startups and how these companies can develop. The objective of the case is to provide a reflection on the possibilities of business models for a developing company, as well as its monetization and its MPV (minimum viable products). The case offers the opportunity for the participant to put themselves in the shoes of young entrepreneurs with an idea in the process of construction.

Warming up the engines: the idealization of a new business

The three friends Renan, Lopes and Macedo joined AD&M Consultoria, the junior company (EJ) of the UnB Business Administration course, to put into practice what they were learning in graduation and to have business experience. After working for 7 months as a Trainees and 10 months as consultants, they envisioned other experiences in the business environment.

The three had complementary profiles and accumulated a desire to support micro and small enterprises in the Federal District. Renan, always with a very entrepreneurial mindset, values the practice of what he learns above anything else. After working for almost a year and a half in the junior company, he chose to leave to focus his efforts on his personal projects, putting some business ideas into practice.

Lopes is a person who recognizes security, planning and organization as the best ways to bring ideas to reality. After having held the position of consultant, he also held the positions of Training Coordinator, in the area of people management, and Business Manager, in the Commercial area. Through these experiences, he developed a remarkable ability to deal with people, both co-workers and customers.

Macedo, on the other hand, is extremely methodical, concerned with all the foundation and the technical aspects necessary to get a plan off the ground. Within EJ, he was a Project Manager, which allowed him to exercise his side and develop it in the professional universe.

Despite having no experience in the commercial area, from the beginning, Renan sought to understand the routine and attributions of the people who were part of the junior company's sales team. He motivated the others to follow some diagnostic meetings and the choice of scopes to be executed. However, in close contact with the processes and methods of negotiation, he realized that some mistakes were made, such as the sale of projects that did not comply with the real needs of the companies, impacting not only the execution of the consultants but also the experience and short, medium and long-term results of the consulting client.

The main point of attention noticed by him in the practical experience of the consultancy was that some of the projects were too theoretical, causing the deliveries to be, several times, "shelved" by the clients. He believed that many of these clients did not have basic knowledge in Administration, that is, they could have difficulties to implement the proposed ideas.

This experience indicated an opportunity for Renan: there was room to create a business in which the barrier of theory was overcome, generating value through practice for entrepreneurs. Then he called his friends for a conversation, explained what he had noticed, and was quickly understood by them. In this way, they began to think about how the problem found could be solved. Thinking even further, they understood that perhaps this was a path for their careers after acting in EJ.

Thus, the idea of Garagem Desenvolvimento de Negócios emerged, a company that would help other ventures ( business to business or B2B) to reformulate their services and stand out in the market through strategies Customer Centric, that is, that define customers and their perceptions as guides of the business model. This concept was first brought to light by Peter Drucker, who stated in 1954: "it is the customer who determines what the business is, what it produces and whether it will prosper".

For all three, all companies must understand what tasks their customers need to perform, what pains they seek to solve, and what gains they want to achieve. This would be done through the reformulation or creation of new business models for customers based on market research, which consists of collecting data and information from consumers or potential consumers of companies/customers.

The three wanted to better develop the concept of their business and bring techniques for the development of Startups into micro and small companies. To do this, it was first necessary to understand how large companies started. Renan once mentioned that great business ideas started in a simple way and many of them were born in a garage. Apple, Microsoft and Amazon are some examples - and today they are among the most valuable companies in the world according to the Kantar ranking. That is why the decision for the chosen name "Business Development Garage", as it represented the main objective of the group: to make small businesses start.

Renan, Lopes and Macedo were confident about the value proposition of the business. The idea would be to translate diagnostic problems in a clear and effective way, transforming customer needs into innovative market opportunities. In view of this, they determined micro and small companies as a target segment, because for them small enterprises that seek their space in saturated markets need to find ways of differentiation.

Still, the friends knew that a value proposition alone would not be able to generate tangible results. Therefore, they began to plan what it would take to formalize the company. And in this context of planning, the first doubts and difficulties arose about how to undertake in the Brazilian market.

And now, how to start?

The first steps towards the development of Garagem's business came when they had the opportunity to carry out a mentoring with ACE Cortex, a highly regarded innovation consultancy in Latin America and specialist in structuring and developing Startups .

At the beginning of the mentoring they got to know a little more about Startups , innovation, how to deal with uncertain environments and agile methodologies. The main conclusion drawn was: why not try to apply this knowledge in traditional companies? It would be very interesting to apply the logic of prototyping and MVPs ( Minimum Viable Product or Minimum Viable Product) to bring innovation to small businesses. After all, looking at MVPs allows you to launch a new business, product, service, or even get a personal project off the ground. By putting it into practice, it will be possible to test the main points of your idea, with advantages such as agility and reduced costs (RIES, 2011).

However, as with any new service company, they had doubts about what exactly their company would be, what it would offer its customers, and how to offer it. Therefore, it was clear to everyone that the next step would be to reduce the abstraction of the business and answer some fundamental questions:

• How to test a business model at the lowest possible cost?
• What is the possible target segment and what does their buying behavior look like?
• How to position the company in the market?
• Who are possible competitors?
• How will the company be promoted?
  

After the mentoring, one thing was clear, each question presented different answers and paths for each of the friends. In other words, it would be necessary to gain knowledge about the market in order to apply efforts in the right places, increasing the likelihood of success.

Asking College Students for Help: Hiring AD&M

After a few months, the three were no longer members of the EJ. Renan and Macedo began to undertake around other business ideas, while Lopes began to work in the commercial area of a startup . The studies and these activities took a lot of their time for the Garage to finally get off the ground. Thus, Renan had an idea: since there is no time at the moment to start the necessary market research, why not hire a company to do it?

So they made the decision to contract a Marketing Plan with AD&M, the EJ they had previously been a part of. For them, a junior company seemed to be the best option due to the cost-benefit. The idea of the project would be to understand how micro and small enterprises understand innovation to position the Garage in the market according to the purchasing behavior of the target segment. With this, the partners hoped to detach themselves from the common sense that developing something innovative is complex, expensive and far from the context of Brazilian companies.

The first step of the project was an initial planning meeting so that the consultants could introduce themselves and begin to understand the expectations of the project. In the conversation, some pillars for execution were defined:

• Define what innovation was in the view of micro and small companies;
• Define what type of service these companies need;
• Identify direct and indirect competitors.

The responsible consultants conducted a secondary data survey on how Garagem's competitors positioned themselves in the market. The choice of this research as the first stage was because the consultants understood that information about other organizations that had innovation as the center of the business would be essential to base the future of the project. One of them said at the meeting: "It is much easier to put something into practice when examples that work are known." And this idea made sense to the three entrepreneurial friends.

The survey analyzed six competitors and ten potential clients, from consultancies to Startups . From the two stages, directions were prepared for Garagem to assertively position itself in the market and be able to attract the attention of the target segment. Thus, in addition to directing the partners in the communication and dissemination of the business, the consultants developed a guide document on the next steps to be followed by the company.

After the studies were completed, the partners realized that micro and small companies saw innovation as something strictly linked to corporations or the technology area. This barrier would make it very complicated for Garagem to enter the market because it would necessarily involve a paradigm shift. In this way, the first business model – a remodeling or business creation service based on a vision Customer Centric – was discarded by the partners in view of the results of the market research, without even being able to test it.

The time to pivot: introducing Garagem Negócios to the market

Lopes remembered one of the exchanges with the mentoring they had carried out and that was very present in the universe of accelerators and incubators of Startups : If your initial strategy did not give the expected results, be prepared to "pivot", that is, change strategy. At this time, the idea of pivoting the Garage business became increasingly present in the reality of the partners.

The three were still determined to help micro and small businesses, building their careers around this purpose. Given this, it was valid to test a new idea: an entrepreneurial community with the objective of sharing content on different topics and uniting different entrepreneurs. The main pillar of this community would be to create a network of companies with the objective of generating business. In other words, enable contact between related companies, such as a graphic design company, a clothing brand, and a sewing company, for example. The monetization of the service would be done through a monthly fee charged to each participant in the community, thus generating a recurring income model.

Having the idea that "done is better than perfect", a phrase always remembered by Renan, they knew that regardless of the result, the experiment would be important to understand the market's interest and generate Insights about what could be changed in the business model. Thus, Garagem Negócios started its first MVP (Minimum Viable Product).

Testing the engines: the first MVP of Garagem Negócios

MVP is an acronym for Minimum Viable Product, in Portuguese, Minimum Viable Product. According to the MVP practical guide prepared by Endeavor (2021), "it is a set of primary tests done to validate the viability of the business. There are several practical experiments that will be developed taking the product to a select group of customers, but it is not the final product."

There are several types of MVPs that differ in their form of application and the types of hypotheses that the Startups want to test. Lopes systematized an image of types of MPVs in order to explain to the partners what he had read in Contabnet (2019):

➔ MVP Concierge: It is the simulation of a business model without it actually existing, enabling its generation, through human effort, contacting potential users and delivering the value proposition through manual effort, without having a prototype of the product in hand.
➔ MVP Wizard of OZ: It is the simulation of the real product, but everything is done manually behind the scenes by the "Wizard of Oz", without the knowledge of the person who is using the product, through a prototype that simulates the final product, often through a Landing page or non-automated service.
➔ MVP Smoke: Use of a marketing channel to distribute and present the solution to the potential public, from a demonstration that can take place through a video, a Powerpoint presentation or whatever you think is best. This demonstration can be in an ad or a Landing page .
➔ MVP Prototype: MVP is the simplified view of the final product/service, whereas Prototype is the reduced view of the final product/service.
➔ Dual MVP: It consists of the elaboration of at least two prototypes that test similar businesses, but with some peculiarities that differ from each other, which will be launched simultaneously.

For the MVP of Garagem Negócios, the Wizard of OZ was chosen. Thus, Garagem invited 10 entrepreneurs with whom it already had contacts to form a Whatsapp group and participate in biweekly meetings with different topics. The main point they wanted to test was whether these people would start exchanging experiences and good practices after the incentives given. Three surveys were carried out to measure the satisfaction of the participants, one at the beginning of the project, another in the middle and the last at the end. The objective was to monitor the quantitative evolution of this indicator and to qualitatively analyze the interactions between companies.

After two months, Renan, Lopes and Macedo reached a consensus: the imagined model was unfeasible, because, no matter how hard the three tried, the interactions between the participants were very small. In addition, the tests did not point to any significant evolution in the satisfaction indicator.

Renan, a person who is rarely discouraged, on this day showed some impatience, since the model tested was not yet adjusted. Lopes, more methodical, still believed that a little more maturation was needed and was reflecting on where to go. Macedo, on the other hand, did not let himself be discouraged and reminded his partners: despite the failure of the model tested, the experience provided them with new perspectives on what was being developed. He began to point out some learnings:

• The entrepreneurs who attended the meetings were close people, not necessarily part of the target audience. Therefore, the topics raised were apparently not in line with people's interests;
• The moments of discussion and exchange of experiences, essential for the success of the community, did not occur as expected, since the meetings had a structure more similar to that of lectures;
• The metrics used in the MVP could not express the cause and consequence relationship of the data, they were probably based on the wrong indicators.
  

Changing the route again!

After much conversation, the partners were convinced that the idealized business model would need adjustments, and that this would require strategic thinking and courage to make choices and accept risks. In other words, for the company's business model to present a delivery of value capable of providing tangible results to the market, the tests would need to be improved.

Thus, the partners began to explore other ways for the community to function, now focused on the dissemination of knowledge. To do this, they sought to help micro and small companies solve their problems, initially generating free content on social networks. The differential would be in the format of the content to empower and entertain people at the same time.

In view of this, the business model would be supported by the Attention Economy, that is, on the ability to attract and market the attention of people interested in the content made available to other companies. This approach to information management treats human attention as a scarce commodity in constant dispute in the Information Age (DEVENPORT & BECK, 2001). This shift, already evident in the physical product market, now extends to service offerings.

Lopes had seen in a documentary that this is the approach of companies like Netflix, Amazon, Google, and Twitter, which build direct relationships with customers through referrals, purchases, alerts, and surveys. These digital platforms enhance suppliers' ability to build relationships with customers, as well as offer greater business development support and better tools to differentiate themselves from the competition.

The partners knew that to make the business viable it would be necessary to understand the behavior of the target audience, study other segments that could be interested in the channel that was being created and would need to be capillarized, that is, the scope that a company has in the market in which it operates. The more it can permeate the market and expand its operations. The idea that everyone agreed on, to be remembered, was written by Macedo on a piece of paper: Garagem aims to be a consolidated company with a recognized entrepreneurial ecosystem positioned in the market.

From this perspective, it was clear to friends that a small merchant who decides to formalize his business on social networks, instead of looking for a communication company or a market consultancy, will look for Garagem, which will offer him the connection with other companies, already in the ecosystem, that work with digital marketing. "Such a connection in the ecosystem is the key piece of the future of Garagem Negócios, as it increases the visibility of companies that are forming a network and increases the reach of more customers", was the vision that Lopes defended. "The idea is to detach from the operational mode and focus on the managerial and strategic part," said Macedo when asked about the future of the company. As for profit, this would come through a percentage on the exchange of services between the companies connected through the intermediation of Garagem Negócios.

Faced with the business idea exposed, the partners still wondered what the win-win relationship would be, how to demonstrate it to potential partners, and how to convince the target audience that being within a business ecosystem is more beneficial than seeking traditional market consultancies. Seeking to give more clarity to the ideas in the minds of the partners and systematize the possibilities, in the last meeting they had, Macedo took this picture to analyze together:

Faced with so many possibilities and uncertainties, the three partners will have to make a difficult decision: how to launch Garagem Negócios - a choice that will influence their position in the market and the long-term profitability of the idealized business model.

Discussion questions:

1. Considering the current scenario, analyze the pros and cons of the first business model idealized by the partners. What modifications would you make to make it viable?
2. About business model 2, do you believe that the hypotheses raised are sufficient to explain the failure of the MVP? What modifications could be applied to increase the possibility of success?
3. In model 3, is the positioning of Garagem Construction and Intermediation Business of a business ecosystem viable in the long term? What are the benefits for potential customers and partners?
4. How could the implementation of a model based on the Attention Economy be to monetize the business?
5. Choose one of the three proposed models and propose an MPV for it.
6. What do you suggest to make the business idea even more tangible?
   
   

Gallery

References

Contabnet (2019). 5 types of MVP for your startup to validate a product or service. https://contabnet.com.br/blog/tipos-de-mvp/
Devenport, Thomas H.; Beck, John C. (2001). The attention economy.
Drucker, Peter (1954). The practice of management.
Endeavor (2021). The Practical Guide for your MVP – Minimum Viable Product. https://endeavor.org.br/estrategia-e-gestao/mvp/
Kantar (2022). What are the most valuable global brands in 2022? https://www.kantar.com/north-america/inspiration/brands/what-are-the-most-valuable-global-brands-in-2022

Ries, Eric (2011). The lean startup.

Supplementary Materials

Ace Startups (2020). The strategy of radical innovation.
Ace Startups (2020). Radical transformation.
Caroli, Paulo (2018). The MVP canvas. https://caroli.org/o-canvas-mvp/
Hsieh, Tony (2010). Satisfaction Guaranteed.
Sinek, Simon (2009). Start with why.

About The Authors

1. João Victor Lopes de Abreu : is a Business Administration student at the University of Brasilia, a member of the Casoteca ADM team, a former member of AD&M Consultoria Empresarial and a partner at Garagem Negócios. Email: lopes.jv98@gmail.com
   
2. Renan Gabriel Rodrigues Freitas : Business Administration student at the University of Brasilia, member of the Casoteca ADM team, former member of AD&M Business Consulting and partner at Garagem Negócios. Email: renanfreitas37@gmail.com
   
3. Helena Araújo Costa: professor at the Department of Administration at UnB and coordinator of the Casoteca ADM. helenacosta@unb.br
   

This case was written based on information provided by the company and based on other references cited. It is not the authors' intention to evaluate or judge the company in question. This text is intended exclusively for academic study and discussion, and its use or reproduction in any other form is prohibited. Copyright infringement will subject the offender to the penalties of Law No. 9,610/1998.