From idea to startup in five steps: how we built Tembo from scratch
From idea to startup in five steps: how we built Tembo from scratch
We’ve all had those lightbulb moments, lying awake at night, in the shower, or even just emerging spontaneously mid conversation.
Airbnb founders Brian Chesky and Joe Gebbia had their lightbulb moment after hatching the idea to rent out an air mattress on the floor of their apartment. Uber founder Garrett Camp’s lightbulb moment came in the back of an $800 private hire cab. Every founder has that moment, often the result of a process of thinking and problem solving, at which point a business starts to take shape. But what happens next?
Taking an idea and building it into a business is a long, thorough process of validation, verification, and testing. Richard Dana, co-founder and CEO of family money lending platform Tembo, will attest to the fact that it certainly doesn’t happen overnight.
Richard tells us the story of how Tembo grew from an idea into a business plan into a fully formed startup through the Founders Factory Venture Studio.
Step 1: The lightbulb moment
The past few decades has seen great progress across a vast range of industries, as innovation powered by technology has transformed accessibility and efficiency for countless products and services. One notable exception, however, is property. The property market has taken huge steps backwards in many ways, particularly in terms of how long it takes people to buy their first house, as well as the insecurity you have around rental.
Richard, a born and bred Londoner, saw this no more clearly than when walking around the UK capital. “On the one side of the road, you see a lot of nice big houses, and all the people who live there are older. The value of the properties has gone up and up, but the money is locked up in those properties, so they’re just sitting on that value. On the other side of the road, you see these shared houses with several young professionals living in them who earn good salaries but can’t afford to buy their own place.”
This problem stretches beyond just property. Richard identified a much greater issue of wealth imbalance between generations. Millennials earn 20% less than baby boomers at the same stage in life, which among other things impacts how quickly you can buy a house (both in terms of savings and access to mortgages).
To address the problem, Richard thought—what do the super wealthy do? He saw the explosion in popularity of family offices, essentially professionals to manage family money and preserve wealth for future generations. You shouldn’t have to be super rich in order to do this.
This was the lightbulb moment: a platform which could help older generations unlock wealth that’s tied up in their properties in order to help younger generations to get their feet on the property ladder.
"Even capturing a small part of that opportunity was always going to be huge."
Step 2: Validating your idea
If you’re considering whether your business idea is worth pursuing, the next step you need to take is to verify your idea. At Founders Factory, this is a key part of building your business case (deck) for the investment committee which evaluates if your idea is suitable for venture building.
One of the first tests is whether the idea is big enough in scope. “We might determine ‘big’ as a future unicorn, a market defining company, or leader of industry disruption,” explains Paul Egan, Founders Factory CTO. “With certain companies, a leap of faith is required, especially if you’re creating a new market.”
Tembo easily passed this test. Thorough desk research, as well as bouncing scenarios and ideas off his colleagues at Founders Factory, suggested to Richard that there was a big market for Tembo. Moreover, there weren’t any identifiably strong competitors in the space.
Beyond the initial property concept, the wider picture of intergenerational wealth imbalance presented a huge challenge that could be addressed. The idea went into a ‘pre-studio’ phase with Aviva Ventures, one of the Founders Factory corporate partners. Strong feedback from Aviva revealed the vast potential of the concept, stretching beyond just mortgage and into areas like pensions and life insurance. “Even capturing a small part of that opportunity was always going to be huge,” Paul says.
You also need to see whether people want to use it in practice: this is where the rubber meets the road. This phase required first-person research, putting together focus groups with parents and children and distributing online surveys. They discovered that while a small percentage might have been reluctant to lend or accept the money, the majority were more than willing to take part.
So over the course of verifying the idea, what emerged was that:
There was strong market demand
There was no major notable competition
It had wider potential beyond the initial concept
People want to use it
After presenting the deck to the investment committee, the green light was given to start working on Tembo in Summer 2020.
Step 3: Hiring a founding team
Hiring a founding team is an immediate priority for any new venture. Founders Factory began a market search to find the best possible candidate for CEO to lead the project: but as the main driver behind the idea, and given his experience in financial services, it was hard to look beyond Richard, our CFO at the time, for the role.
For the other two co-founder roles, Richard had two specific profiles in mind. One candidate with industry expertise—Eddie Ross, their CPO, who’d worked at Mojo Mortgages—and one candidate with outstanding technology pedigree—Geoff Wright, their CTO, who’d worked at Babylon Health.
Hiring was a bigger challenge that Richard had thought, for several reasons:
It was all done remotely
It’s very time consuming and demands constant effort
You need to be very thorough and fast at the same time—it’s difficult to reverse a hiring decision
One of the main criteria in hiring was finding people who were motivated by the mission of the company. Richard wanted to attract people who saw the wide reaching potential of the company, and what it was trying to do.
"You have to aggressively prioritise, and know what could kill your business."
Step 4: The product design phase
The next phase of the venture studio process is all about the immediate first phase of the product, what should it be, who are the key stakeholders or users, and what should it do for them, and these answers are found mainly through a problem/solution fit process.
Part of this involves identifying and interrogating the project’s riskiest hypotheses through a series of workshops with the product coaching team. This takes many of the questions posed in the investment committee deck, understanding what has been learnt, and what you might still be unsure about.
“When you’ve passed the investment committee, that doesn’t mean that it's a validated opportunity—there are still many questions, and at no point do we think ‘job done’,” Paul says.
Most importantly, they needed to test the hypothesis (there’s a difference between asking in a survey, and users actually putting their money where their mouth is): would parents actually be willing to lend money to their children, and would children be willing to accept this?
This stage also involves a great deal of prioritisation mapping. Knowing what to prioritise is one of the biggest challenges that founders face. “Early stage startups are awash with uncertainty,” Paul explains. “There’s a temptation to resolve every unknown, but you have to aggressively prioritise and know what are the things that could kill your business.”
The Founders Factory Venture Studio has now built over fifty ventures from scratch. That, combined with the team’s individual entrepreneurial experiences, gives the team a good indication of what’s worth prioritising.
Step 5: Building a minimum viable product
After identifying and questioning particular hypotheses, the next step is to actually start to build a first iteration of the product to begin to get user feedback. This is known as the Product/Market Fit stage—an iterative process of getting more quantitative validation that what you’re doing works.
Building a minimum viable product (MVP) would allow them to get Tembo in the hands of consumers and collect early feedback.
The building process was extensive and thorough. As a financial product, they had to go through FCA regulation early on as they were building the MVP to ensure it was compliant. But by the end of November 2020, the Tembo team had built a very simple website, and the test they set themselves was to get ten sales. “It took us longer than expected,” Richard remembers, “But once we’d achieved that, we were comfortable that there was an underlying demand for what we were doing.”
Ultimately, this suggested that there was a viable market, and the success of the product was now in their hands. “I know that if we don’t make it succeed, then it’s our fault not the market’s fault. There’s a clear issue, but we might not communicate it in the right way.”
Richard’s main advice for other founders:
This means really making sure you’ve done your research in all aspects of the area you’re dealing with. As soon as you start being questioned about your business, such as when you’re raising investment, you’ll need to be able to show your deep knowledge and credibility.
The previous company that I launched was in the travel sector, which was an industry I only knew as a consumer. This meant my skill set didn’t really give us a competitive advantage. Conversely, I’ve always worked in financial services, meaning that I feel ahead of the game in many respects.
It’s never going to feel like the perfect time to start a business, so you’ll need to take a risk. We see constant struggles and challenges, but I feel really positive about what we’re doing, both in terms of its impact for the world, but also that if we don’t build it, someone else will. There will be a successful business here, we just need to prove that it's us who’s going to build it.
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