Entrepreneurship Can Get Even Better The Second Time Around
As a teenager, Alex Yakubovich moved with his family to Cleveland, Ohio. Still in high school, it could have been an uncomfortable transition, but he soon met Stan Garber, a fellow émigré from the former Soviet Union who shared his interest in trading stocks at lunchtime. It was to be a fortuitous partnership.
The pair would go on to start Onosys, a successful software company, with Stan’s neighbor and best friend Oleg Fridman, while they were still in high school. The team would run the company for 11 years before selling it to LivingSocial. Along the way they learned many hard lessons about the realities of growing and running a business.
One of the most frustrating obstacles they encountered was the corporate procurement process, which is rife with inefficiency. As entrepreneurs, they found it maddening, illogical and often cruel. Yet in time they eventually began to see it as something much more — an opportunity to build an even better business the second time around.
The company that became Onosys started out simply enough. In the summer of 2003, when Alex and Stan were still seniors in high school and their friend Oleg was already headed to Case Western Reserve University, the three decided to start a web development business to earn extra money.
They got their first job from a family friend, who introduced them to a gynecologist that needed a website. It was more difficult than they thought it would be and was made even more so because they also took on the task of developing detailed medical content for the site. Still, they saw how it could be a good way to make money, so they stuck with it.
A year later, when Alex and Stan graduated from high school and joined Oleg at Case Western, the team began to pursue their business more seriously. They began going to established development shops to ask for referral business that was too small for the big guys to take on. It wasn’t particularly glamorous, but helped them to pick up odd jobs here and there.
Opportunity unexpectedly arrived in the form of Rascal House Pizza, a small chain in Cleveland that catered to the college crowd. The company needed someone to set up an online ordering system to expand its business. The boys took the job on and soon realized that it could lead to much bigger and better things. After all, what sells better than pizza?
By 2007, the team all had college degrees and realized that instead of spending their time developing a new website for each customer, they could leverage their efforts by white labeling the online ordering software. So they convinced an angel investor to give them $500 thousand in seed capital and got to work.
The first step was to revamp the original technology they had built for Rascal House, streamlining it to make it more stable, functional and user friendly. Then they started hitting the trade shows and building relationships with big brands like Papa Johns and Boston Pizza, the massive Canadian chain. Slowly, Onosys seemed to be gaining traction.
Yet the boys also learned much about how frustrating the corporate procurement process can be. Often, they would complete a “Request for Proposal” (RFP) only to find that the person who sent it had left the company and someone else would begin the process anew. Paperwork was often lost and requirements would arbitrarily change. It all seemed incredibly disorganized.
Nevertheless, the team soldiered on and the business prospered. By 2012, their software was running online ordering for over 4000 locations and the company was sold to LivingSocialfor a sum well into eight figures. They had come a long way from the gynecologist’s office, but would see even greater opportunities ahead.
After the sale of Onysys, the management team was absorbed into LivingSocial. The boys were no longer bootstrapping entrepreneurs, but senior executives at a well funded firm and there was a certain amount of prestige in that. Still, they soon found themselves thinking about starting something new, although they weren’t quite sure what.
They also began to reflect on their experiences as first-time entrepreneurs, reading books such as Steve Blank’s The Four Steps to the Epiphany, Alex Osterwalder’s Business Model Generation and Marty Kagan’s Inspired, which helped them put things into focus. Gradually, an idea for a new venture began to emerge.
They thought back to their frustrations with the procurement process and the almost kafkaesque manner in which RFP’s were handled. What seemed like it should be fairly standard — almost all RFP’s asked for roughly the same information — was a tangled mess. Even worse, the process was typically handled manually, which was almost comically inefficient.
So Alex and Stan began to work with two friends from college, Andrew Durlak and Chris Crane, to research the market. They quickly found that the problem was even more pervasive than they had originally imagined and, although there were plenty of vendors selling automation software for procurement, they were rarely used due to poor user experience.
It seemed like a major opportunity. So in 2013, Andrew and Chris founded a consulting firm called ProcureLabs. The next year, this folded into ScoutRFP and Alex and Stan left LivingSocial to join them.
Today, ScoutRFP is a thriving enterprise, with revenues in the millions and growing at roughly 300% annually, according to figures supplied by the firm. It also recently announced the completion of its Series B round of $15.5 million in financing, bringing total investment in the company to $27.25 million. Alex and Stan have, in effect, gone further with their second venture in roughly half the time.
That’s no accident. The lessons they learned building Onosys have allowed them to avoid some of the mistakes they made the first time around. First, although every entrepreneur wants to bring in great people, they found it more important to build great teams. “Whenever we sacrificed the well being of the team for someone whose skills we thought we needed, it turned to be a mistake,” Alex, now CEO of ScoutRFP, told me.
They also found that the key to successful entrepreneurship is not necessarily having great ideas, but finding a good problem. So in their second venture they focused on listening to people’s business issues. That’s how they realized the key to ScoutRFP’s success wouldn’t be to build more features than their competitors, but to provide a seamless user experience.
Probably most of all, they found that the most essential business skill is learning itself. That’s how even successful entrepreneurs can do even better the second time around.
An earlier version of this article first appeared in Inc.com