3 Critical Questions for Startup Entrepreneurs

When endurance athlete Bryan Pate was no longer able to run for fitness, he missed the experience so much that he became determined to somehow recreate the outdoor running experience without the wear and tear on his body. So Pate approached his friend Brent Teal, a mechanical engineer and fellow ultra-marathoning enthusiast. Teal went about creating a fitness device that would meet Pate's needs, which the two suspected was also an unmet market need.

After three years of development, trade shows, and cheap hotel rooms, Pate and Teal took their prototypes to the largest bicycle trade show in North America to recruit potential manufacturers. Their company, ElliptiGO, delivered its first bike to customers in late February 2010 and since then, the company has raked in over $2.5 million in sales.
As of March 1, there are over 1,300 ElliptiGOs on the road and the company has expanded its retail presence to over 100 retail locations in 18 states in the U.S. (including Zane's Cycles, which you've read about on this blog). None of this happened by accident, of course. Like all startup entrepreneurs, Pate and Teal needed to be laser-focused from the outset, when taking a scatter-shot approach can result in a huge waste of time and resources. To gain clarity and focus, they asked themselves these three questions.

Who is my customer? The ElliptiGO, which costs $2,500, has several potential applications (e.g., fitness device, commuting/personal transport, security, kids recreational toys, etc.) and end-user groups. But in the early stages of the company, the founders felt it was important to select and narrow its focus to one or two sub-groups rather than try to appeal to several customer groups simultaneously. "We tried to identify what subgroup would have the biggest need for the product and the highest willingness to pay for it," says Pate. The partners decided to hone in on injured runners. "I'm an avid runner still," says Teal. "Running becomes a huge part of people's lives and if you have to stop, it really impacts your live negatively. They're very motivated to find something that can replace it." A secondary group they identified: runners who want to cross train but don't want to do it on a traditional bicycle.

What's the distribution channel? Teal and Pate originally thought that traditional retailers would not be a good distribution channel for the ElliptiGO. They didn't think they could meet retailer margins and they assumed that fitness retailers would not be willing and able to successfully sell their product. So they recruited independent reps in 20 geographic areas and sold about 1,000 bikes directly to individual customers. "In May 2010 we were approached by a specialty fitness retailer who was willing to work with us at low margin," says Pate. "He ended up doing significantly better than our reps. As we got more traction with specialty fitness retailers, we approached the bicycle industry, and it became clear that we could be viable through retail channels." The ElliptiGO is now in over 100 shops nationwide. The company has also expanded internationally to Canada, Australia, and the UK, from which it serves the entire EU.

How big is my vision? Pate and Teal say that they are not simply inventing a product, but launching a new category and, ultimately, founding a new sport. To that end, the company has: 1) pushed consistently to have the new category be more generally described as "elliptical bicycles" as opposed to allowing the brand name "ElliptiGO" to become the category, and 2) hosted the first "world championship of elliptical biking" in November 2010, in order to plant seeds now for a future industry of elliptical biking events/races. "We want elliptical biking to become an aspect of society that is on par with mountain biking or snowboarding, with its own competitions, media, and associated products," says Pate. Why? "We hold what we think is the critical IP that underlies this industry, " he said. So he believes that a significant part of his company's revenue model will involve licensing patents to others entering the industry.

Pate and Teal project that revenues this year could be close to $10 million as they continue to expand distribution in the US and globally. Yes, the product itself will have a lot to do with that. But if they do reach that ambitious goal, it will largely be due to the critically important startup decisions they made over the past year.

What startup decisions did you make that have had a lasting impact on your company (either positive or negative)?

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