Back in December, we told you about Belly, a Chicago startup that created a new digital-based loyalty program for small businesses. At the time, it was just one of a jumble of startups crowding into the local commerce space. Today, though, Andreessen Horowitz is announcing it's putting $10 million into the company. That's notable since the firm's philosophy is to focus on only the 10 or 15 companies it thinks are going to matter in the long run. (Facebook, Airbnb, and Groupon are all in its portfolio.)
All of which leads to an important question: How did a startup, that's barely a year old, that only has 1,400 customers, and whose founder is a first-timer become in a mere 12 months a company that the experienced hands at Andreessen Horowitz not only believe is going to be a game changer, but will be a leader in its class?
Would-be super startups, listen up:
Choose a big problem
Local stores are in a quandary. Customers can walk into their stores today, take a look at what they've got, and then, thanks to smartphones, figure out if someone else has their stuff for cheaper. "The Internet has enabled incredible transparency on pricing," Andreessen Horowitz partner, Jeff Jordan, who's joining Belly's board, tells Fast Company. "There are a whole bunch of models that are providing pricing pressure, particularly to small merchants."
If stores can no longer compete on price, they have to compete on something else. Both Belly and Andreessen Horowitz believe that means relationships—giving people a reason, other than price, to keep choosing particular merchants over cheaper alternatives elsewhere.
Don't boil the ocean
There are myriad ways of strengthening the merchant-customer relationship, but Belly founder Logan LaHive, who started working on the business a year ago, didn't try to tackle everything at once. Instead, he chose to focus on just one aspect: loyalty programs.
He's come up with a system where merchants can get creative with the kinds of rewards they offer. It's no longer the generic "buy 10, get one free." Rather, merchants can choose to offer something unusual they think their customers would actually like. Some actual examples: A sandwich store will name a sandwich after you. A grocery store will let you cut in line. And a comic book store will let customers who make 50 purchases punch a store employee in the gut. (We're assuming that's been cleared with OSHA.)
But build in the foundation for a wider play
The Belly service is powered digitally—through an iPad in the merchant's store and iPhone and Android apps for customers. (Customers without smartphones can track their purchases on a paper card.) That means Belly has a built-in launching pad for adding more services later that can further fuel the merchant-customer relationship—and further solidify its appeal to merchants.
"A by-product of what Belly is doing is putting a connected computer into soon-to-be tens of thousands of small merchants," Jordan says. "We think that has very interesting potentials for strategic applications down the road." (He declines to elaborate, though, saying, "We don't want to telegraph where we're going.")
Gain traction quickly
Once investors bet on you, they're going to expect you to be able to scale faster than you ever expected. A lot of the technology and ideas that are being developed today aren't defensible on their own. It just doesn't take that long to build a lot of the apps coming into the world today.
So investors are looking for other indicators that you're going to be able to own your market. Getting rapid uptake is one slice of evidence that you're the person they're looking for. It means that you've developed an offering that's appealing (as opposed to one that's just okay or, worse, doesn't actually work very well) and that you've figured out how to get people to adopt it rapidly.
Belly has 1,400 merchants using its system so far in six cities, with two more being added today. That's impressive considering, again, that the system was barely a flicker of an idea 12 months ago. "We think the most important thing in this market is [to be the] first mover and to get out there fast," Jordan says. "These guys probably added more merchants last month than any of the competitors have in aggregate."
Take up residence with some of the hottest investor-operators of this generation
LaHive, who previously was in charge of new business at Redbox, got himself hired as a Founder-in-Residence at Lightbank, the venture firm belonging to Eric Lefkofsky and Brad Keywell, the original investors in Groupon and former entrepreneurs themseles. As part of the deal, he got to move into their offices and hammer out his idea while sitting mere feet away from Keywell.
LaHive says that helped him move faster. There were various things about getting a startup off the ground that he didn't have to figure out on his own. He could just ask.
Plus, his proximity to Keywell and Lefkofsky gave Andreessen Horowitz confidence to invest in the otherwise unproven first-time entrepreneur. "Brad and Eric grew Groupon out to hundreds of thousands of merchants incredibly quickly," Jordan says. "That DNA is critical in this model."
[Image: Flickr user Oregon State University]