BUSINESS PLANNING SERIESLast time, we wrote about the importance of “True Competitive Advantages” and how the lack of at least one will likely condemn your business plan to the reject pile. Today, we will look at another common fatal error – Incorrect Positioning vs. The Competition. The most common errors that we see (frequently in the same presentation) when talking about competition are, amazingly enough, total opposites:
“We have no competition”
“We combine the ‘best features’ of four competitors.”This is not just a pitch problem. It says that you don’t know WHO your customers are or WHAT they want or WHERE you stand in the marketplace. Let’s look at how this error shows itself and what it says about you and your plan: “There are no competitors.” – Either you have failed to recognize direct competition or you are ignoring alternatives such as “build it yourself.” “No one is doing this the way we do.” – Of course not. You offer a unique product, exclusive features, different pricing, revolutionary sales strategy, blah, blah and blah. However, uniqueness does not mean lack of competition. “We have no competition because this is an industry/market that has never used XXX to solve this problem.” – This sounds good but it also means that you must convince people to trust your XXX. Your competition is the status quo which puts you at a disadvantage. “We have no competition because people don’t know there is a problem.” – If potential customers are not feeling the pain, your product will be a tough sell. If you want to become an evangelist, this is the way to go! Preach your gospel if you wish, but people will hear “Time and Money Sink.” OK, those are pretty obvious. You can fix those, right? Good! Now lets look at one that is not quite so obvious:
Defining your company in terms of your competitionYour company is uniquely defined by its own strengths, ideas, values and products, not by how it compares to others. You need a strong position – one that would be clear and compelling even if competition doesn’t exist. Here’s how this error shows itself: “We combine the best features of our competitors, letting them show the way to our success.” – It’s nice that you have learned from the mistakes and successes of others, but “combining the best” is not the key. Each of your competitors has made tradeoffs to make their products the “best” for their target customers. Things that you see as “not the best” may, in fact, be the best for their market. What makes you so sure that enough people will not only agree with you but will be willing to switch to your product? The Feature Comparison Graph – This is the chart with rows listing all of the features and columns listing all of the competitors. It’s full of X’s and check marks everywhere except in your column, where it is all check marks. What baloney. (Actually, that’s not exactly what we think, but this is a G-rated blog.) “We’re just like X, only we’re Y.” So you are betting that Y so monstrously cool that customers will flock to your product. Well, Y had better be super-awesome! And it better be impossible for X to copy – or even to copy one-half of Y. Congratulations. You have just placed your fate in the hands of your competition. “We’re the same as X, only cheaper.” – Cheaper cannot be your only strategy. It might be part of your plan, but it will only last until the established competitors meet, or worse yet, beat your pricing. (Does anyone remember when people used to pay real money to buy a web browser? That lasted until Microsoft decided to give IE away for free.) A variation on this same theme: “We do 75% of the features for 50% of the price.” Less for less is NOT inspiring. OK. So how can you effectively contrast yourself against the competition, but not let them dictate your identity? Tune in next time and we’ll suggest some very effective solutions. -Steve Hogan
We get it. Pitching is hard. However, some of us get so worked up about selling their company that we forget the very essential elements to successful pitching, such as knowing your audience! Below are a few unbreakable rules when it comes to pitching.
Know your audience. At networking events, there are usually a number of investors, employees, competitors and advisors. Know who you are pitching and tailor your pitch specifically to your listeners. Trying to pitch each one with the same story can become incredibly long-winded, which brings us to our next point.
Keep it short. Never underestimate the simplicity of the elevator pitch. Stick to less than 90 seconds. By doing this, you lessen the risk of rattling off irrelevant details that are bound to put your audience to sleep! But you know what is likely to sustain their interest? A good story.
Tell a story. Sharing your company story shows that you are personally connected to the problem you are looking to solve. Not only does it show a personal connection but it also demonstrates that you are the right person for the job.
Are there other rules that you pitch by? Or even better, are there rules that you refrain from?
-Nikki Griggs, Business and Marketing Associate, Tech-Rx
Most of you already know that many investors will not sign a nondisclosure agreement (NDA). Why? There are simply too many transaction costs. The most prominent transaction cost is that they are costly to maintain. Not only do you need to pay lawyers to draft the agreement, but we have to pay our lawyers to process the NDA as well. And if we signed an NDA for each company that we spoke with, we would be paying a lot of lawyer fees! On top of that, it would be nearly impossible to track with so many NDAs floating around. In spite of this, we are not saying that we are going to go around sharing your company secrets with the whole world. We are just saying that we aren’t going to sign an NDA every time one is handed to us. To see what we mean, check out this video:
Many of us at Tech-Rx have been in the industry for more years than we care to admit. Many at Tech-Rx have even started their own successful businesses! As a result, we understand and respect the need for confidentiality. We understand your concerns about sharing your secret formulas. And we know from firsthand experience that it may be uncomfortable, but please be assured that we have absolutely no interest in divulging your secrets to your competition. In fact, it is in our own best interests that you succeed!
The best business relationships are built on trust, mutual respect, teamwork, and integrity. For the sake of progress, innovation and good business practices, we uphold the terms and conditions of good ethics and trusted business practices and expect those with whom we deal to do the same. However, don’t expect us to sign an NDA.
-Nikki Griggs, Business and Marketing Associate, Tech-Rx
There are dozens of articles on venture capital, private equity and angel investing, but what about µPE™ – Tech-Rx’s Micro Private Equity model? µPE™ is a new asset class that has yet to be fully realized by the industry. However, it is truly an appealing and promising investment model that traditional investors should take notice. Below are three reasons why µPE™ should perk your ears.
1. µPE™ is lower risk.
µPE™ is lower risk than investing in a brand-new startup because there are fewer unknowns as they are later in the game. By making the investment later in the game, you benefit by knowing if the technology works, what the market response is, what the strengths and weaknesses of the current team are, what the operational effectiveness of the company is, plus knowing what has or has not worked previously.
2. µPE™ has shorter exit periods.
µPE™ targets 24 to 36 month exits, which is much shorter than typical angel and venture capital investments.
3. µPE™ is the virtuous investment.
Forget the money to be made, µPE™ breathes life back into a faltering company and is beneficial for society! It saves a technology and prevents wasted capital! It is the ethical investment.
What are your thoughts on µPE™?
Are there any rival asset classes comparable to µPE™ that you can think of?
Let us know!-Nikki Griggs Business and Marketing Associate, Tech-Rx
BUSINESS PLANNING SERIES
Last time, we wrote about the importance of True Competitive Advantages and how the lack of at least one will likely condemn your business plan to the Reject Pile. Today, we will look at another common Fatal Error – Lack of Market Validation, or —
No One Ever Said They’d Buy It!
One of the saddest mistakes we see in business plans, especially from first-time entrepreneurs and, regrettably, from some second- and third-time entrepreneurs as well, is the failure to actually validate the market for their new product. They propose to go ahead and build their product without asking anyone if they will actually pay for it. The “If we build it, they will come” model is fine if you are building a simple iPhone app that you plan (hope) to sell for $0.99 and will only take 100 hours for you to build it. It’s something else again when you are betting the kid’s college money and taking out a second mortgage to fund your efforts.
Here’s some typical answers received (and our unspoken responses) when investors ask about market validation:
“I’m my own target customer. I’m ‘scratching my own itch.’ I know what to build.” What we hear you saying: “OK, so I guess there might be a market for at least one of these.” More to the point, “scratching your own itch” is just the beginning. It’s your inspiration, NOT the strategy for a real business. “I’m the target customer” is NOT market validation.
“We didn’t bother with research. It doesn’t matter what 10 people think, there are millions of potential customers.” Our unspoken questions: “If there are millions, you mean to say that you can’t find at least 10 that will commit to buying your product? If you can’t find 10, what makes you think there are millions, or thousands, or even hundreds of potential customers?”
“My customers won’t understand mockups. I have to build it to show them first.” We hear you saying, “This product is too complex to sell, or even understand.” If you can’t describe your concept in 30 seconds or less, it’s either too complex, or you don’t understand it yourself. Let’s pretend that your customers don’t get it from mockups. By definition, your first customers will be early adopters who will probably be OK with, and anxious to get, an alpha version. If you can’t find a few who are excited about your product, perhaps your product isn’t exciting.
“I’m no good at sales and marketing. I have to build a product so good that it sells itself.” Our immediate thought: “This guy does not understand business.” We don’t doubt that you can build what you say you can build. (If you can’t, that’s an entirely different problem.) The high risk is not that you can’t build it; it’s that you be able to find actual customers who will cough up cash for what you have built. The earlier you can reduce this uncertainty, the more likely we are to invest. No sense in putting this off.
“My friend / co-worker / brother / teacher thinks it’s a GREAT idea.” We hear: “His mommy thinks he is smart and handsome too!” It does not matter what non-entrepreneurs think of your product. Actually, it doesn’t matter what real entrepreneurs think either. They are not experts on your problem, probably have outdated ideas and might not like certain technologies or methodologies (e.g. Mac vs. Windows, Linux vs. Windows, Open Source vs. Proprietary, etc.), probably due to bad experiences. Of course, none of these “expert opinions” matter, because you have done your homework and actually have real-world people who are saying that they want your product and are willing to pay for it, right?
Conclusion: The only thing that matters is that people are willing to give you money. It doesn’t matter what “experts” say. When 10 people say that they will give you money if you build this thing, that’s the only validation that matters!
The next time, we’ll look at Fatal Error #3 – Incorrect Positioning vs. Competition. I hope this is helpful. We want every entrepreneur to be successful!
Learn from the experience of Bob Graziano, CEO of Ford Australia, and just say what you mean. Earlier this year, Graziano was under fire for using meaningless jargon to announce that 1200 jobs were planned to be axed. Forget that the downside was negatively perceived, the use of meaningless words to announce this decision was portrayed as scheming. The use of jargon typically creates a completely abstract façade to mask what is really trying to be communicated.
Below you will find seven words and phrases (and our reaction when we hear them) that are like nails on a chalkboard to investors, journalists and everyone else that listens to countless pitches a day. Save yourself an eye roll and stay away from these words and phrases in your next pitch.
As in…Our company is poised to become a leader in the software development space. (Gee, I sure hope so, but we’ll be the judge of that. Just tell us what you do!)
2. Next-generation technology
As in…Our next-generation technology is the solution to today’s problems. (Well, that’s a lot better than last-generation or even current-generation technology.)
As in…By leveraging our dual-platform, your work is seamless. (How about “Using our…?”)
As in…Our cutting edge-technology is the next Google. (Probably, in fact, most-likely not. However, we might be interested if you just cut to the chase.)
5. Move the needle forward
As in…We are moving the needle forward. (Better than moving it backwards.)
6. Drinking the kool-aid
As in…We aren’t drinking the kool-aid here. (How about “We disagree?”)
7. Paradigm shift
As in…We are essentially shifting paradigms. (And we are “essentially” tired of listening to words and phrases with no meaning.)
By refraining from using words such as these, your message will come across more authentic.
Are you guilty of using jargon? What other words did we miss on our list?
-Nikki Griggs, Business and Marketing Associate, Tech-Rx
A True Competitive Advantage can’t be copied and can’t be bought.Asymmetrical Knowledge aka “Insider Information” – Not the kind we hear about on Wall Street, which is illegal, but rather intelligence about the market need that you know that is unknown to others. For example, you may have worked for a very large company that has made the conscious decision to ignore a market that they feel its too small for them to devote resources to, but that you believe, with solid justification, can be built into a $100 million a year company. (I am sure that I do not need to caution you to behave ethically and legally in the use of this information.) In business, having knowledge that is uniquely-available to you is a True Competitive Advantage. An Obsessive-Compulsive Attitude about The One Thing – I’m not talking about washing your hands every 3 minutes or straightening the chairs around the conference table whenever you enter the room. I mean figuring out what you can do better than everyone else, something that matters, and obsessing on ALWAYS doing that One Thing better than ANYONE, including your closest competitor, YOURSELF. For example, Google became the behemoth it is today by focusing on Search – being faster, better, more accurate and relevant than anyone else, and then making it faster and better and more accurate and more relevant again and again and again. By the time their competitors came close to copying their stuff, they were already on to the next iteration. Most of their competitors – who started out before them – are long gone (can you say Alta Vista? Lycos? Excite? Do you even recall who they were?). Google’s search page was NEVER the prettiest. It still looks about the same as in 1998. In fact, it was years before Google returned anything beyond a text-based response. They waited until they could return a page with graphics just as fast as their text-based earlier versions. Faster, better, more accurate, more relevant, rinse, repeat. An OCA is a True Competitive Advantage. Personal Authority – Become known as the Industry Expert – the Go-To Person for anyone interested in your area of expertise which, of course, is the basis for your company (see above, Asymmetrical Knowledge). Attend meetings and conferences related to your intended business area. Make noise i.e. ask questions and start discussions. Take controversial positions. One “trick” I have used effectively works like this: Attend a relatively large conference with a panel discussion covering something relevant to you business; during the Q&A, pick one of the panelists and ask a question that contradicts his position – if he says “it’s white,” you say “my experience shows that many times it is black.” (Does not matter if you are right – just matters that your position is conceivable.); A little active banter back-and-forth (courteous, of course); thank them for their answer and ask them (in front of the audience) for some time “after this session.” Two things will happen: 1) Your target will commit to giving you a few moments of his time during which you will have the opportunity to learn and, with any luck, form a lasting relationship; and 2) Others in the audience who were afraid to ask a question or to take the same position as you will seek you out for your expertise i.e seek to bask in your Personal Authority. Your reputation as an expert will flourish. A Dream Team – Has your team done something like this before? Have they served the target market and hence understand the pitfalls in addition to the needs? If they haven’t, then are their other credentials strong? The team is a prime focus for investors – find a way to present each team member in the best possible (but factual) light. You want your investors to understand that your team is up to the task and understands exactly what needs to happen and when. One caveat – avoid being seen as over-confident “know-it-alls.” Existing Customers – An absolutely True Competitive Advantage. Having paying customers, even if it is for a pre-beta version, is priceless! Especially if these are significant customers in your target market. This validates your business plan and relieves investor anxiety. The less-nervous the investor, the more-likely they are to invest. I hope this is helpful. In our next entry in this series, we will talk about Fatal Error #2 “No one ever said they’d buy it.” Please feel free to add your $0.02 to this discussion. (See “Personal Authority,” above.) – Steve Hogan
Staying current with the newest trends and latest news is crucial to developing and maintaining innovation within your company. For this reason and for your own personal development, we recommend making time in your day for daily reading. Some people can suffice with 30 minutes while others can allocate a couple hours. It is important to be efficient with whatever time block you are willing to allot for daily reading.
With a whopping 181 million blogs, daily reading can become a daunting task! In addition to the usuals such as is GigaOm, Wired, TechCrunch, Technorati, PandoDaily and not to mention Guy Kawasaki’s blog “How to change the world.” How is it possible to filter all the noise?
Below are five blogs we read which provide the best and most succinct content. And without further ado, our top five blogs.
With the authors being management consultants, this blog is a gold mine for case studies. Through examples of business successes and failures, entrepreneurs can learn from other’s mistakes.
Ever heard of Angel List? Well you can thank these guys for that! The authors of this blog are avid startup advisors, former entrepreneurs and current investors. Needless to say they know what they are talking about. Venture Hacks offers how-to guides on the basics. They are a great destination for guest posts by influential entrepreneurs and VCs.
Pando Daily is the site-of-record for everything Silicon Valley. As one of the leading stars of the tech blogging space, it’s a mandatory daily read.
And a few of the lesser known angel blogs:
This is yet another a daily stop for angel investors. The blog covers a wide variety of topics and often links to other blog posts. All in all, Angel Blog is an excellent resource.
And saving the best for last: LinkedIn Today. One of your best bets is LinkedIn Today. Take the time to customize your LinkedIn Today and it will provide some of the best content around that is relevant to you.
What do you think of our list? Are there any blogs that you think we should add?
-Nikki Griggs, Business and Marketing Associate