Many review websites, such as Yelp, are based on the premise that the wisdom of the crowds can help a user to select from anywhere and everywhere purely through wading through ratings and reviews. However, it can certainly be the case that when making a selection, the user is looking to specifically avoid crowds, harkening back to the day when recommendations were started with a friend saying “I know this great little place…”

Greatlittleplace.com focuses on identifying locations where “charming and individual is the order of the day.” The company originated as an idea on Facebook to share ideas for spots in the London area, and quickly grew to provide charming choices in close to 50 global cities with around 250,000 followers. The founders point to the viral nature of the concept, content creation, and the catchy name for the explosive growth through only a year and a half of existence. In fact, the company was literally founded on the backs of their users, as the company crowd-sourced funds to start operations rather than approaching VCs or private investors from the start. The users, seeing the value in not having to wade through seas of reviews to find memorable places, quickly responded. However, as they look to take their rebellion against chain restaurants from simple Facebook groups, Twitter feeds, blogs, and a newsletter into a money-making endeavor, they face many challenges, not the least of which is expanding the user base across new markets. The new website will include some new features (geo-location, communities, events), but the brand itself is the only true differentiator.

One of the fundamental issues in growing to scale is that the company relies on co-creation but exists on the strength of its brand. Currently, the company’s website is continuing its organic growth and focused solely on the London area. Around 1% of their base makes suggestions for the next great little place, and the founders work closely to edit suggestions and provide color commentary around each location to protect the brand they have founded. Though the website continues to gain users, it needs to expand its reach outside of the London area in order to hit a mass big enough to monetize.

The other 40+ cities with a “I know this great little place…” group on Facebook are being led by volunteers. Without extensive knowledge of many of the markets, the company’s founders are relying on these selected volunteers to carry on the same charming criteria used for the London site. Since Facebook communities do not expect the same level of editing as a formal website, this model has worked to grow followers. However, the company faces the risk of distilling the brand and knows that it needs to bring on the global communities when it launches the formal website in January. Thus, a key portion of the new website design will be centered on an algorithm to ensure that a highlighted location is indeed a great little place.

Rather than rely on the masses like Yelp, the company will continue to verify each location to match its branding and user expectations. Currently, only 40% of suggestions make it to the site, but the selection process is very manual and the selection criteria are very qualitative. The founders are looking to mechanize the process of capturing user sentiment instead of user ratings. Since their website will be very binary (either the location makes the cut or it doesn’t), they are shying away from a star rating system leveraged by many other sites. Similar to Digg, they envision a holding area for suggested locations wherein a spectrum based rating system will allow users to comment on how memorable and charming they have found the location. In order to make the cut, a location will have to pass some hard metrics (such as a view to review ratio), as well as softer metrics (such as the tone and diction used in the comments). They clearly understand that the website is only as good as the locations it includes, but without knowledge of the entire globe, their very emotional brand is going to rely heavily on a very functional algorithm.

Many aspects of college admissions consulting have been moving online since I first applied to college in the early 2000’s and have since changed dramatically. I witnessed this when I applied to business school almost a decade later after revisiting this industry as a potential customer. In 2000, college admissions consulting groups were typically run by experienced professionals, who charged applicants fees to edit college essays, review applications, and give one-on-one personal advice. As the college admissions consulting industry evolved, the number of consultants and the price for services have increased over time as competition and demand for consulting services steadily increased. This was very obvious to me when I saw that essay editing services, which typically cost around $30 a few years ago have increased to the $90-$100 range when I applied to business school. I decided to do some research to see how the market has changed over time and also to explore whether or not there is a business opportunity to come into this space at a lower price point.

Over 12 million students are enrolled full time in postsecondary institutions, implying that over 4 million students are applying to college each year, according to the National Center for Educational Statistics. Due to the improving access to education, and the increase in high school population as a result of baby boomers and globalization, applications to top tier colleges are skyrocketing and admit rates are dropping. The class of 2015 saw almost 300,000 applications to Ivy League schools plus MIT and Stanford, at an average admit rate of 9.41%, according to research done by Hernandez College Consulting.

College is a transformational period in an individual’s life and an investment in the future. Given the increasingly competitive nature of the college admissions process, some students turn to professional consulting firms, paying on average $4,000 – $40,000 in consulting fees. After conducting a survey of current Harvard College students, 4 out of 52 paid over $4,000 in admissions consulting fees and 19% used admissions consulting services when they were applying. According to the Independent Educational Consultants Association (IECA), a recent survey of their members revealed average fees of $95- 375 / hour.

Given the expensive nature of the current admissions consulting industry, many students cannot afford professional help. The market potential in the Ivy League plus MIT and Stanford market is $45 million / year (300,000 applicants x $150 average consulting fee). The addressable market of all students applying to college is over $600 million / year (4 million applicants x $150 average consulting fee). This does not include international numbers, and there is likely high demand for consulting services for U.S. colleges in the Asian market. The potential in ancillary markets adds to this number, as this service is highly scalable to graduate schools with opportunities to participate in other education and test preparation industries.

Most expert advice companies in the college admissions space focus on streamlining or simplifying the process of applying. These startups operate in a space that is relatively crowded according to Crunchbase. Examples of companies include Evisors, TutorCloud, and EssayEdge.

After spending time thinking about and doing research in this space, I believe that the the current business model in college admissions consulting is not effective at scaling because the number of college applicants that can be serviced is limited by the number of consultants available within the firm. One way to eliminate this inefficiency is to take the role of the market maker and crowd source consultants to increase capacity when needed. Of course, quality control of the consultants becomes an issue. Possible solutions to this problem include interviewing the consultants and creating a ratings/review system to inform customers of quality. In summary, there appears to be an opportunity, but more research on how to execute a market entry needs to be conducted.

Throughout my career, I have had the opportunity to build a number of online ventures; and from each, I have learned important lessons. I share with you the insights I have picked up along the way – some shared by supportive friends and wise advisors, others drawn from my own heart-wrenching experiences and deepest triumphs.

 Idea Formation

Not every idea is worth your time.  While great execution may drive growth, your start-up will never fully achieve traction if your idea is fundamentally flawed.

Consider the following.  According to Paul Graham in The Top Idea in Your Mind (July 2010), “Most people have one top idea in their mind at any given time. That’s the idea their thoughts will drift toward when they’re allowed to drift freely. And this idea will thus tend to get all the benefit of that type of thinking, while others are starved of it. Which means it’s a disaster to let the wrong idea become the top one in your mind.”

Given this risk, what should you do to ensure that the idea at the top of your mind is the right one? There are three options: (1) solve a problem you have, (2) solve a problem someone else has, or (3) solve a problem for which only terrible solutions have thus far been built.

Regardless of whether this problem belongs to you or someone else, be certain that it is an issue experienced by enough people before moving forward with a solution; it would be devastating to learn that few in the world have a need for the tool you spent the past year building.

As for problems that have already resulted in well-known solutions – do not shy away; instead, be emboldened if you think you could provide a better solution. Where would we be if Mark Zuckerberg had decided not to build Facebook because the social network MySpace existed? Likewise, if Larry Page had not had the courage to improve upon Yahoo’s search algorithm, we may never have had Google.

Once you have pinpointed a problem and shaped an ensuing idea, build the prototype as quickly as possible. Do not wait until it is perfect to get it out to market. The worst mistake you can make is to give potential competitors time to get their product out before you do. After all, whoever receives press coverage first receives an indelible “patent” on the idea, no matter who actually deserves the credit; once the media decides to cover one start-up, it is unlikely they will cover another like it again to the same degree.

 Idea Mobilization

 As you build your prototype, you should be simultaneously attracting users. To do this, it is essential that you create a splash page. Though LaunchRock is still invite-only, I highly recommend utilizing Unbounce until you are able to sign up for LaunchRock; these two websites will allow you to sign up users while your product offering is not yet complete. Simply upload your logo onto the splash page, in addition to your product’s customer promise, and allow for people to become early adopters by entering their email addresses and reserving their usernames.  You can additionally build anticipation by revealing to users what number in line they are to receive full access to your product. I would even recommend enabling a feature whereby users are allowed to jump in line if they are able to entice multiple friends to sign up; new start-up Everlane is effectively utilizing this tactic, their community already 50,000 members strong.

To battle the initial inertia your start-up may experience as you launch your product, focus on attracting a niche segment either by topic or by geographic area; this way, you avoid spreading your customer base and marketing strategy too thin. You can also overcome the cold-start problem by becoming a super-user yourself. Energize your user base by contributing as a user yourself and thereby enhance the value proposition of your business from the inside out.

You can also jumpstart your business by launching a PR campaign. To do this effectively, you must convince influential bloggers such as TechCrunch and LifeHacker to write about your start-up. If possible, pitch your start-up to journalists by attaching your product to a currently trending topic so that they will be persuaded by the promise of strong readership and high ratings.

However, I believe the most powerful method for mobilizing users remains viral marketing – where the use of your product literally involves informing others about it. For example, when a user utilizes the fundraising platform KickStarter, they must aggressively pitch their fundraising campaigns (and thus promote their KickStarter page) to hundreds if not thousands of their friends; in this way, KickStarter regularly receives extensive, quality attention from potentially new users without the need for marketing beyond their own users’ efforts. Develop a way to incorporate viral marketing within your own product offering, and you will see your user base flourish.

While execution is far from everything, these early mobilization strategies can serve as key determinants of your start-up’s success.

I love to cook. When I graduated from college, my mother bought me a KitchenAid mixer in pistachio green that still resides in my kitchen (and is regularly used for cookies, bread and other treats). I’ve been a Food Network devotee for years. And, I proudly consider myself to be an early adopter in the robust food blog world.

However, even I have been blown away from the recent proliferation of food-related online businesses offering to do everything from sourcing ingredients (Foodzie , Gilt Taste) to suggesting recipes (Foodily, Gojee) to organizing your shopping lists (Tasty Planner) to preparing meals for you (cookitfor.us, Gooble).

Don’t get me wrong; I love searching many of these sites and finding new recipes. In fact, despite my collection of cookbooks ranging from my grandmother’s hand-written recipes to Ferran Adria’s recent book, “The Family Meal,” I rarely open them to use a recipe. I prefer the online process, with more beautiful photos and detailed instructions than any static cookbook (at least that I’ve found) has managed to provide.

However, as a business student, I’m perplexed by the business models of many of these startups. There are natural opportunities to partner with major food companies for sponsored content and other advertising. Allrecipes (a grandfather in the field, having been founded in 1997) has done a good job with sponsored content, weaving company sponsored recipes (e.g., Hunts Lemon Tomato Chicken Pasta) with user-generated recipes for a robust search and suggestion platform. However, Allrecipes, purchased by Reader’s Digest Association in 2006 for $66M was recently put up for sale. My hunch is that the owner, whose print business has struggled in recent years, has likely had trouble monetizing the site beyond limited advertising and sponsorship.

What about other monetization opportunities? There could be a natural affiliate sales commission in selling ingredients for recipes, but I have two problems with this. First, many ingredients are perishable and don’t easily lend themselves to online purchasing and shipping. Secondly, many of the non-perishable ingredients are spices where you pay for a jar that may last for several years.

One area where I think there could be an opportunity is in moving these recipes from online to offline. There are many food bloggers who, having generated a strong following online, are creating an offline persona. Most notably, “Pioneer Woman,” Ree Drummond, turned her Oklahoma-based home cooking blog into a multiline business: her cookbook was at number one on Amazon’s Cooking, Food & Wine category before it debuted, her life story is being made into a movie starring Reese Witherspoon, and she now stars in a Food Network show. Tastebook has tried to systemize the blog to cookbook movement by selling make-your-own cookbooks based on compiling recipes from numerous food blogs and sites. However, as far as I can tell, their business hasn’t done extremely well, with traffic peaking at ~2M monthly visits to fewer than 250K this year.

Tech Cocktail recently suggested that 2011 might be the “year of the recipe.” But even if I wanted home-cooked meals three times a day every day of the year, this would still be only 1,095 meals. Allrecipes.com alone has recipes numbering into the millions. While I’m really interested in this market, unless I go viral as a food blogger, I don’t know exactly what the larger business opportunity means for me. However, it is an area that interests and continues to intrigue me as sites seem to be cloned repeatedly. How many recipes for Chicken Cacciatore do I really need?

by Cynthia Samanian and Barry Malinowski

ShoeDazzle is a pioneer of sorts in the retail e-commerce space and has achieved impressive results in just a couple years, making it an incredibly interesting company for us to profile. The company boasts over 3 million registered users, 1.5 million “likes” on Facebook, and is shipping more than 150k pairs of shoes each month, which implies annual revenue north of $70 million (up from $25 million in 2010). In addition, the company has raised $60 million of venture capital, the most recent round at a valuation of $280 million.

In this post, we’ll explore ShoeDazzle’s use of the subscription model, assess its growth trajectory through new product lines, and reflect on the company’s influence on the retail e-commerce industry.

About ShoeDazzle
ShoeDazzle was launched in March 2009 and is based in Los Angeles. Co-founders include Brian Lee and celebrity spokesperson Kim Kardashian. Incidentally, Brian Lee co-founded his prior company LegalZoom with another celebrity, Robert Shapiro. ShoeDazzle is one of many recent companies with a laser focus on the female “shopaholic” consumer. More specifically, the typical ShoeDazzle customer might live in one of America’s small towns and be disappointed with the lack of styles offered by the local brick and mortar retailers.

Enter ShoeDazzle. Their idea is to bring the real world boutique experience to the masses via an online environment. When a prospective customer lands on the ShoeDazzle homepage, she is asked to fill out a quick “style quiz” to capture her taste in fashion. After a 24-hour wait that gives the illusion that a real celebrity stylist is hard at work, the customer is invited to view her personalized online showroom, which includes five different pairs of shoes, all ShoeDazzle manufactured and branded. Each shoe costs $39.95, which includes shipping both ways. If nothing appeals to the consumer, she can request alternate selections or “skip” the current month and wait until her showroom is refreshed the following month. The monthly “subscription” kicks in only after the customer’s first purchase. It’s worth noting that only around 5% of ShoeDazzle’s registered users buy in a given month – and a significant portion of registered users have yet to make their first purchase.

A New Twist on an Old Model
Subscription models date back nearly a century to book-of-the-month clubs, and since then have appeared in many forms – e.g. CD-of-the-month clubs, magazine subscriptions, replenishment of staples. While subscription models aren’t inherently bad for consumers, more often than not they’re designed to benefit the company in the form of upfront payment, recurring revenue, predictability of demand, reduced competition, etc.

Women’s shoes seem a reasonable fit for a subscription model given the product seasonality and the stat that that the average woman buys nine pairs of shoes per year. ShoeDazzle has adapted traditional subscription models to make the model more consumer-friendly by eliminating the obligation to buy each month. But there’s a catch… If the customer does not buy or opt out by the fifth day of each month, her credit card is charged $39.95, which can be applied toward future purchases within the next 12 months. This detail benefits the company in several ways. For one, the penalty for not responding results in email open rates that are higher than those for the e-commerce industry. In today’s world of email overload, just getting consumers to read your emails and visit your site is half the battle. The upfront charges that result from failure to buy or opt out benefit the company’s cash flow. Our experience with other opt-out models suggests that these charges could amount to millions of dollars. Finally, the subset of credits that ultimately go unclaimed go straight to the company’s bottom line. This is all well and good for ShoeDazzle so long as consumers continue to put up with it.

The Future Beyond Shoes
Recently, ShoeDazzle has extended their product line to include jewelry and handbags, maintaining the single $39.95 price point. From a consumer perspective, this appears to be a natural set of complements, given that accessories can be styled with shoes. On ShoeDazzle’s end, the hope is that product category expansion leads to a larger share of consumer spend. But the monthly subscription model may be conditioning consumers to buy only one product per month, thereby rendering the accessories substitutes for the shoes. If that’s the case, and we assume margins for handbags and jewelry are equal to shoes, overall company margins will decrease as production scale decreases on each individual product. The company may be best served by adding a higher price tier, especially in light of rising manufacturing costs in China across the board.

Industry Influencer
The emergence of ShoeDazzle copycats such as Just Fabulous and Sole Society is to be expected, but the rise of subscription models in other product categories is more interesting. There’s Birchbox for cosmetic samples, Stitch Fix for women’s clothing, StyleMint for t-shirts, and the list goes on – supposedly the BeachMint founders have  identified over 100 subscription businesses. There are quite a few differences in the models (e.g. private label vs. third-party products, obligation vs. no obligation, monthly vs. quarterly), but we believe it’s only a matter of time before consumers reach subscription overload.

Will the proliferation of subscription models like ShoeDazzle, each with its own rules and obligations, squeeze the fun out of online shopping? Or will this model provide an opportunity for companies to better serve the needs of consumers through personalization and value, in an otherwise crowded marketplace?