Inside the mind of a successful tech entrepreneur: Nikita Fahrenholz
CEO and co-founder of Book a Tiger, Nikita Fahrenholz explained his approach to building startups into multimillion dollar international companies and “digitizing” niche markets to an audience of co-founders, CEOs, and business lawyers and accountants at the New Markets 2017: Tech/Digital event organised by Connect and sponsor Alliott Group in Berlin.
The need for speed
Nikita Fahrenholz has co-founded two successful startups in the last eight years with Claude Ritter – firstly Lieferheld (Delivery Hero), a fast food delivery service which connects restaurants and delivery services to customers and that has to date secured Euros 1.6 billion of venture capital, and more recently, Book a Tiger, a fast-expanding facility management company.
The three key processes in building a successful platform
During his keynote presentation, Nikita talked about three processes:
- Idea to business model – working out which revenue streams are the right ones
- How we should think about developing products that are better than what has come before
- Data focus and the customer obsession.
No Eureka moment
In reference to Delivery Hero, Nikita admitted that theirs was not a unique, new business idea and that contrary to conventional business wisdom, there never a “Eureka moment”. However, he and his co-founders felt that the timing was right to build a different business model and platform. Nikita explained that more important is that the market accepts your idea – in his eyes, this is the real Eureka moment.
He also explained that the first rollout of Delivery Hero was quite poor and was pounded by journalist critics, but he says the platform was functional, which was the main objective. This business model has since been expanded into 53 markets with over US$2 Billion revenues and the company heading towards a possible IPO.
The need for conviction
Nikita also highlighted the need for founders to have conviction about their product:
"You need to have conviction that your product is solving a real problem – it has to be 10 times better than any product on the market – it can’t be “kinda better” – that is not disruptive but more likely just piggybacking on a trend."
In explaining the Book a Tiger business idea, Nikita explained his conviction that the private cleaning market needed to be digitized and that a platform could be created to provide these services. They wanted to tap into the cleaning ‘black market’, estimated at around US$5 Billion. They wanted to make the experience of finding a cleaner and the booking process slicker and better. The launch went well and they experienced growth of 40-50% month on month. Before long, US$20 Million had been raised from venture capitalists.
A customer driven approach
Book a Tiger kept on growing – Nikita attributes a great deal of this growth to their ability to collect and analyse the data on their customers: “We could see that after about eight months, we had over 1,000 business clients, small companies such as fitness studios – we called them to ask why they were using Book a Tiger rather than regular cleaning companies. They told us that traditional companies didn’t fit their needs as they have a small amount of space, and that it is difficult to find a company they like and that the contracts offered were typically opaque and expensive. Furthermore, they told us about the difficulties involved in giving feedback. Therefore Book a Tiger decided to go after this market.”
Reinventing the customer experience and boosting productivity and profitability through great software
Book a Tiger thus spent two years developing a software platform that connects companies to private and business clients. The trick, as Nikita explained, was not just to be a lead generator – they learned from talking to their cleaning company customers that there was not a single operating system that was operating all these processes with the workforce – the typical facility management companies would have many employees and there are a lot of processes to manage those employees. Nikita explained the other big challenge for cleaning companies:
“A cleaning company is similar to an airplane in that it has a limited number of seats and a limited number of contracted employee hours. The company has to make sure the utilisation rate of each of these employees is sufficiently high to enable the company to hit its gross profit margin. This was the perfect situation in which software could help.”
Book a Tiger gave the new platform to its customers for free so that they could manage their workforce. It also connected these companies to their clients, so that it became a holistic experience for the B2B customer who could enjoy full transparency of what was happening in the company in real time in terms of costs, processes and giving feedback.
In referenced to Delivery Hero’s business model, Nikita mentioned the chaos he had seen in the past with fast food menus shoved through his letter box- he and his co-founders felt they could make the customer experience more transparent and more convenient: “We had reimagined food ordering for the customer but also for the restaurant who could reach customers more easily through advertising on the platform.”
The need for speed when developing products
Nikita explained that time to market was critical and that conventional project management using tools such as GANTT charts doesn’t always work in such a fast-moving market due to the number of unknowns when building a product: “When we first launched Delivery Hero, we knew it wasn’t ready – however, it was a smart move as we could test it against real live data and learn what the customer actually wanted and how to adapt the software.”
Nikita and his team took the same iterative approach with Book a Tiger, releasing a very basic first product for their customers, then adapting it based on feedback. Rather than spend a long time developing a product that is 100% right, the company opted to go with a product that was 80% ready – Nikita commented: “A good idea violently executed now is better than a perfect plan executed next week.” The company can do as many as five software deployments in a day in attempting to get the failure curve down to zero.
Data focus and customer obsession
While bad feedback can be disheartening, Nikita referenced the principles of building a business of Ray Dalio, the American investor and hedge fund manager who talks about the need for the team to face harsh realities and to keep reminding yourself to stay focused on the “bad stuff” rather than unimportant KPIs such as website traffic increases and growth in the top line that “may not always translate into profit on the company balance sheet”.
Teams need to focus on the negatives and concentrate on “making the right decisions without ego getting in the way – you can’t take it personally, sometimes it’s just not your fault, it’s just circumstances.”
However, Nikita did emphasise that teams shouldn’t get too gloomy about poor feedback and must take a balanced view of the data: “After all, bad feedback may only be coming from a small fraction of the total customer base.”
Don't believe your own hype
Although the business was growing, Book a Tiger’s team was quick to see in the data and customer feedback that there were issues and that repeat business wasn’t always coming. Rather than resting on its laurels, the company reacted:
“Never believe your own hype, look at the critical things – we started with the idea of connecting freelance cleaners to the platform. However, after 12 months, we realized this was not what we wanted to do and we changed our model.”
The idea of the best feedback being freely available from your own customers is one that Nikita was keen to stress, commenting that it is important, particularly in the early days, to try to read every customer feedback email to get intuitive ideas about the customers’ needs rather than paying for expensive market research: “Reading feedback and listening carefully gives us a good gut feeling about what is right and wrong guides us for the mid and longer term.”
This laser focus on customer data is what investors really like about the businesses Nikita has been involved in building and is a factor that sets them apart from many other startups.
Fall in love with your product and move quickly
In summary, Nikita’s message was that startups must have conviction that they are building something way better than everyone else; they must execute their idea fast; take smaller steps rather than larger ones; and “have the balls to take the big decisions.”
Nikita commented that he sees too much “decision freeze” in management: “The world is moving fast, you can’t be slow. Fall in love with your own product and iterate constantly.
The need to understand macro-economic factors when targeting expansion to new markets
When explaining his involvement in expanding his companies’ presence to new geographic markets, Nikita explained that they would either expand organically into a market or through investment into an existing team. When going into a new market, Nikita emphasised the need to analyse the basic macro-economic picture in the country:
Is there really a market?
Growing pains in new markets
Nikita referred to cities in India where Delivery Hero’s post code system which had been used so successfully in European markets, was unable to cope or where adverse weather conditions made doing business very difficult. He also explained that ingrained views of how expansion can be achieved sometimes have to be overcome when acquiring a team in a different market and your structures and views have to be imposed over the team, despite the conflict, to try to make it work over a short period of time: “When we tried to introduce telesales in Uruguay and South Korea, there was kick back initially, but we need to use this tactic to scale up by around 500 restaurants a month.”
How professional advisors need to adapt their approach to help fast-growing startups
For a fast-growing startup, hefty bills, plush offices, long meetings, impenetrable hierarchy and working through the minutiae are not high on the list of ‘must haves’ when working with a law or accounting firm: “Many services are now commoditized – I do not tend to like working with the bigger firms with their cumbersome layers of partner, associate and analyst that slow down getting advice. We need advisors who will call us back quickly and provide a checklist that explains what we need to get right first and what we can fine tune later.
“When entering a new country, in the first few months we are not obsessed with getting everything perfect – certainly we don’t want to do anything illegal, but we just want to get going and be told what to do.”
Nikita expressed his preference for working with smaller firms of lawyers and accountants where the partner is “actually working on our stuff, knows our business, is fast and focuses on the right things. We want the full experience and pragmatic solutions.”