“…it’s kind of shocking that a lot of early-stage companies don’t do their market research, and they just kind of go full steam ahead, invest money and time into a product that nobody possibly will be willing to buy.”

Interview by Mike Sullivan

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Mike:
Hey, everyone, this is Mike Sullivan and thanks for joining us on MO.com, where we feature small business owners and entrepreneurs and bring you hints, tips, insights, and perspectives on what it takes to be successful.

Joining us today is Laura Rokita and Jonathan Pirc of Lab42. Lab42 is a Chicago-based, innovative market research firm. They were spawned from the incubator at Sandbox Industries, and I’m very excited to have these two here with us today to talk about Lab42 and the way they’ve kind of broken the mold of market research and taken kind of a high-cost product and made it a more affordable product.

Thank you both for joining us, and to start things out, let’s talk a little bit about your backgrounds and kind of how you came together to form Lab42.

Laura:
I came from IT consulting, and after that I kind of wanted to get started in the startup world. So I came to a place called the Sandbox Industries in Chicago. Sandbox kind of starts new companies, new businesses. When I got here, one of the businesses that was kind of just taking off was Lab42. So I joined Jonathan and have been working on Lab42 with him for about a year now.

Jonathan:
I came to Sandbox Industries right out of undergrad. I graduated from Northern Illinois in 2006, with a Bachelor degree in psychology and wasn’t really sure exactly what I was going to do, but found Sandbox and just saw it was a great opportunity for startups and entrepreneurs. So I worked on a few different projects with Sandbox from 2007 until about 2010, when we kind of came up with the idea of Lab42 and conducting market research via social networks. We took that additional concept and kind of tweaked the methodology until we actually figured out something that would work and that was actually a viable business.

Mike:
Great. Can you tell us exactly what Lab42 is and how it works?

Jonathan:
Absolutely. So Lab42 is a market research company that uses social networks to field online surveys. So we have partnerships with different games and applications inside of Facebook and other social networks that allow us to offer virtual currency in exchange for completed survey responses.

Mike:
Can you talk a little bit about funding and Sandbox Industries? I know you mentioned Sandbox Industries previously. Is that where the funding comes from?

Laura:
Sure. Part of Sandbox Industries is . . . it’s kind of a three-pronged approach. We have a venture fund that invests in internal businesses and then outside businesses. Then we also try to manage the Blue Cross Blue Shield fund and possibly other types of investment vehicles. Then there is also the incubation group, and that’s where Lab42 kind of came out. So there’s a team here that kind of just sits around and brainstorms and thinks of new business ideas. Once one kind of takes off, at first you receive funding from the incubation group. Then once it becomes a more viable business product, you can go to the actual venture fund for your first round of funding and kind of take it step by step and see if you need additional funding in a few months or down the road. At least for a little while, the financing does come from Sandbox Industries.

Mike:
So let’s talk a little bit more about market research. Is that something that’s really, truly important to small business owners and entrepreneurs?

Jonathan:
Absolutely. Just in my own experience, I’ve seen so many different companies come through here with great ideas in concept. But a lot of these founders haven’t done any type of market research. So, even if the idea is great, they may not have the customers or know who the customers will be for their product. By conducting market research, they’re able to actually figure this out and kind of drill down who their target market is, and also if the concept is viable for that market. I think that it’s kind of shocking that a lot of early-stage companies don’t do their market research, and they just kind of go full steam ahead, invest money and time into a product that nobody possibly will be willing to buy.

Laura:
A lot of entrepreneurs are just very focused on their idea, and they’re really excited about it and they work really hard at it. But did you ever stop and ask someone else if they think it’s a good idea, or if they’re willing to actually buy what you’re selling?

Mike:
Tell me what differentiates you from your traditional market research firm that comes to mind, when we hear the phrase “market research”?

Laura:
Well, we’re able to offer market research pretty inexpensively, and deliver results very quickly through the social network. A lot of traditional market research firms use panels or email lists, and it’s very hard to get someone to take a survey when you send them an email to a link. Especially the young demographic, we’re just not really used to taking surveys and don’t really want to. So the unique part about our service is that we offer the virtual currency in social network. So we’re able to give an incentive that people actually want to take a survey.

Jonathan:
And it’s also embedded into their social networks too. So it’s kind of while they’re going about their daily lives on social networks, they can receive a pop-up or an option to take the survey at their convenience.

Mike:
You’ve mentioned social networking a couple of times now. So your market research is done through social networks. Can you kind of explain or give an example of how that might work?

Jonathan:
Yeah. Imagine you’re a Facebook gamer, and we’ll say that you play Bob Wars, for example. You’re playing the game and you’re looking to earn points. Well, you go to the Godfather, if you will, that’s what it’s called. You can either buy points with actual money, or you can look at the offers and you can see the survey offers available. So, at that point, you take the survey. We have a lot of unique qualification questions within our survey to make sure that we’re actually going after the right demographic. Upon completion, you receive those points and we receive the completed survey response.

Mike:
I’m from the Chicago area myself and you’re from Chicago as well. I love talking about new startups in Chicago. What would you say the environment is like here for new startups?

Laura:
Well, it’s actually really great right now. It’s really growing, and it definitely is a very exciting time to be in Chicago for entrepreneurship. I know that we try our best to be involved in a lot of the events that go on in the cit, such as Startup Weekend. Then there’s Tech Week coming up here in July, I believe, and we’re going to hopefully be a little bit a part of that.

Jonathan:
Yeah, I’d say it’s definitely thriving. Really with the onset of Groupon, it brought Chicago to a whole new level of startups and entrepreneurships and what can really become of a company in Chicago. Before, it was either you needed to go to either coast to get funding, so Boston or Silicon Valley, and that’s where the money was. But now, there are a lot more venture firms and a lot of angel firms starting up in Chicago too.

Laura:
We’ve actually seen investors that have come to Chicago or talked to us, and then said, “Yeah, we’re actually supposed to give out money in the Midwest. We need to find good startups and we need to seek them out.” So it’s exciting.
Mike: So we talked a little bit about Sandbox. Can you tell me kind of the history on Sandbox Industries?

Jonathan:
Sandbox was started back in 2005, by former CEOs of Monsanto and NutraSweet. So they’re retired individuals who were just looking to kind of make an impact in the startup world. So their first product was Morgan Street Document Systems, which is an online document management system for high net worth individuals, and that got created just by their own need. It was kind of another one of those “scratch their own itch.” They have a lot of files, a lot of documents, a lot of advisors that are looking out for all of their assets, and they needed a little place to centralize that. So that took off in 2005 and went through about 2007, 2008, before like right after the crash. That whole recession really put a damper on that project, but it really opened the eyes to what other opportunities are there out there.

So they started out with the whole just straight up incubation, and then they moved to raise their own venture fund, which is the Sandbox Venture Fund, which is what invests in the incubation companies. Then they were able to work with Blue Cross and Blue Shield to start managing their venture fund as well. So it kind of like started with incubation, but as opportunities arose and they saw different ways to help startups and help other companies, they kind of started taking those on as well.

Mike:
Any closing advice for small business owners and entrepreneurs out there who are just kicking things off right now?

Jonathan:
Don’t underestimate the sales cycle of any product. When we started, we thought people were just going to be like boom, boom, boom. I want a package now, but it’s not how it works. It takes time. They have to digest the whole concept. They have to actually have a project that needs research.

Laura:
Around here, we’re so like go, go, go. Let’s make things happen. But it’s just not like that with major companies. Sales is just harder than you think it’s going to be is what I’ve learned, and you spend a lot more money on marketing than you think you’re going to spend on it.

Mike:
Hey guys, thanks very much for being with us today. Appreciate it.

Jonathan:
Awesome.

Laura:
Thank you very much.

Jonathan:
Yeah, thank you. Have a great weekend.