Secret is a YC startup

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Brian Chesky and Joe Gebbia discovered the secret recipe for their startup Airbnb by accident. Because they were short of money, they rented three air mattresses to sleep during a conference in their hometown. In doing so, they discovered that travelers are ready to stay in private apartments. A short time later they also found out that homeowners like to earn extra by renting out vacant rooms to strangers.

The realization that a private room can be a popular alternative to a hotel was the secret recipe that Airbnb started. What many didn't think was possible has now become a matter of course: The company has now brokered more than 100 million overnight stays.

Every founder needs his "secret sauce"

Every founder needs such a secret recipe, because startups are initially unknown and their products are often unfamiliar. This makes potential customers skeptical and they can hold back from buying. In order to overcome this reluctance, the secret recipe must also deliver considerable advantages over what the customer already knows. That's why investors want to get to know the secret recipe of a start-up, and they shouldn't be missing from any pitch.

The picture of the secret recipe comes from the USA. There is the popular story of Colonel Harland Sanders, whose delicious but secret spice mixture is said to have led to the success of Kentucky Fried Chicken from 1940 onwards. In English, a start-up's secret recipe is called Secret Sauce.

What's a secret recipe?

A secret recipe is a special advantage that founders develop for their startup. It is characterized by the following properties:

  • It's new in its industry.
  • No competitor owns it or anything like it.
  • It gives the start-up a clear competitive advantage.
  • It cannot be copied - or at least not quickly - for others.

With the help of their secret recipe, founders can develop a product that is unique and noteworthy. Marketing expert Seth Godin said, You're either remarkable or you're invisible. Make a choice. ("Either you are remarkable or you are invisible. Make up your mind.") Ideally, thanks to its secret recipe, the product will become a topic of conversation among potential customers - that means free marketing for the founders.

For example, Tesla's S P85D electric car has enormous acceleration, which is referred to as Insane (“insane”) on the control panel. With the even more powerful S P90D model, the driver can even choose the Ludicrous (“hair-raising”) setting. Tesla owners love these names, and everyone is talking about the insane or hair-raising ability of their cars to accelerate.

“5% cheaper” is not yet a secret recipe

Sometimes founders believe that they can be successful with well-known product features such as “higher quality” or “5% cheaper”. However, these properties are not secret recipes because they are neither unique nor remarkable. It would be very difficult for a start-up to convince its target group with such commonplace claims; Just being a little better than what already exists is simply not enough for a start-up product.

The secret recipe gives founders the head start they need for their startup. The more difficult it is for others to catch up on this lead, the longer they have time to build their startup without having to fear direct competition. If you work quickly and have the necessary amount of luck, you can build up a position in the market during this time that nobody can push you away from.

The secret recipe calls for creativity

In the beginning, startup founders only have their own creativity as a chance for survival. They find their secret recipe by recognizing a possibility that no one else has noticed and then developing a new solution for it. This new possibility can be an opportunity in the market or a new, better solution - or even both at the same time:

  • The founders have found an unmet customer need. Either this need has always been there, but nobody paid attention to it, or it has only emerged recently and has not yet been taken up by any vendor. For example, today more and more people want to avoid having their private messages stored and used by large American Internet companies. This has been recognized by the startups RocketChat and Wire, which offer communication tools in which user messages are neither saved nor fall into the hands of third parties.
  • The founders have observed that a certain thing is not working or is inefficient. For example, small children grow so quickly that their clothes are more likely to be too small than to break, which is why clothes can usually be worn by more than one child. Two founders in Magdeburg have recognized the opportunity and offer parents a corresponding clothing rental service at www.kilenda.de.
  • The founders invented a new technology or method that enables a better solution to an existing customer problem. For example, Drew Houston developed a technology called Dropbox that enables seamless access to data across different people and devices.

The famous startup accelerator Y Combinator in California asks founders in their application form: What do you understand about your business that other companies in it just don’t get? ("What did you understand about your industry that other companies simply did not understand?") With this question, the startup forge would like to get to know the founders' secret recipe; She is looking for startups with disruptive ideas with which they can prevail against large, established companies and have great growth potential.

Secret recipe and customer benefits

People buy products because of the benefits they get from them. For example, the product helps its user to solve a problem more quickly, to save money, or to fulfill a wish.
The secret recipe can deliver customer benefit in two different ways:

  • The new product offers a significantly improved customer advantage over its predecessors. For example, at Airbnb in Berlin you can get a double room with kitchen for 14 euros per night. No hotel can keep up with that.
  • The new product offers a new, unprecedented customer benefit. At Airbnb, travelers get an authentic experience because they get to know locals and their living environment, which is not possible in a hotel.

Ben Horowitz, one of the most famous startup investors in Silicon Valley, once said, The primary thing that any technology startup must do is build a product that’s at least 10 times better at doing something than the current prevailing way of doing that thing. ("The most important thing a technology-based startup has to do is build a product that does a job at least ten times better than it currently does").

That's exactly what Google did in 2004 with its Gmail email service. Back then, email users typically got up to 10 megabytes of storage. As a result, they had to regularly delete old emails to make room for new ones. In contrast, Gmail offered its users 1 gigabyte of storage, which is more than a hundred times that. Your users never had to worry about a full inbox again.

Did you find your secret recipe?

Fill in the blanks are a popular tool in start-up planning and we are happy to use them in our support. They help the founders organize their thoughts and get to the point.
Here is a fill in the blank for the secret recipe, which consists of four sentences:

  1. We were the first to realize that (knowledge).
  2. That's why we develop (solution) with (secret recipe).
  3. This gives our customers (customer benefit).
  4. No one else can offer this advantage today.

Jeff Bezos might have filled out this gap 20 years ago for Amazon as follows:

 

  1. We were the first to recognize that book lovers appreciate a large selection but have to spend a lot of time driving to the bookstore.
  2. That's why we're developing an online bookstore with more than 1 million books, all just a click away.
  3. This saves our customers time and effort and has a greater chance of finding the right book.
  4. No one else can offer this advantage today.

We recommend this little exercise to all founders in the preparation phase, because it helps them to fine-tune their offer until it is attractive and unique. Once you've found your secret recipe, this exercise will be easy for you, and your startup will have that “certain something” to attract prospects and inspire customers.

Authors
: The three authors work at the University of Magdeburg. Jana Görs and Stefan Knoll look after students interested in founding a company in the transfer and start-up center; Graham Horton gives startup lectures at the Department of Computer Science and is the author of Founder's Playbook, a guide for founders and founders