This is the best info that we have found on startup traction and communicating it properly to investors. (Hint: It’s all about the messaging!)
At Tech-Rx, we see many executive summaries from startups and companies looking for funding. Most of them are okay, but few are truly great. The great ones seem to all have similar key points and these key points are……
No one will read your stuff. No one seems to care about your brilliant idea. Why, oh why? …
I never cease to be amazed at the wisdom and insight shown by these under-20-year-old Entrepreneurs….
BUSINESS PLANNING SERIES
Previously, we wrote about one of the most common – but almost always fatal – errors that we see in business plans – Incorrect Positioning vs. The Competition. Today we hope to give you some ideas about how to better present your company in a way that truly stands out.
Repeat this 10 times: “We MUST dramatically, effectively and persuasively contrast our company against its competition.”
Not very catchy, I admit, but true nonetheless.
The point is that you MUST ACTUALLY SHOW investors that your new product is so unique, so compelling and so relevant to your target market that you will displace and even eradicate your competition. (I guarantee you that your competitors will fight back. Plan for it.)
Here’s what we want to hear you say and what you need to truly believe —
We’ve carved out a niche. One specific enough that no one is currently targeting. Company G or F or Y might be in this space but they are not hitting this niche because of X and it is hard for them to move into this niche because of Y. In fact, G, F and Y are potential partners or possible acquirers (it’s never too early to be thinking about an exit) because your idea is similar but out of their reach.
We’ve identified a market too small for the established companies but big enough for a compelling business. (Big Enough ≧ $100 Million) Because the big players are too inefficient at building [whatever you build that is so special], they choose to ignore this market. If you believe that you can build a solid business in this market and can show good growth AND profits, might you not be an obvious acquisition target.
Our technology is so different that we’re changing the conversation. Although your solution may be technically complex, it must be easy to use and just as important, easy to describe. For example: how Netflix changed the way people watch movies at home. (Two times, by the way.)
Our target customers have historically solved this themselves or just lived with it. New technology makes your product possible.
New technology and modern thinking make this the right time. (iPhone = Right Time; Newton = Wrong Time.)
This industry has never seen a solution like this. It was previously impossible to address the market this way BECAUSE –
- It takes an incredible team. (We talked about this before – Dream Team – but it never hurts to make the point again.)
- New hardware/technology now makes this possible. (But be prepared to talk about why YOU are the best company to implement this new stuff.)
- New attitudes enable new workflows. (Google docs, Facebook, etc. now universally used by non-Geeks.)
- This now-commoditized industry makes the slightest edge a big deal. (Be prepared to talk about how you will stay ahead of competition. Remember, “Anything worth being copied will be copied,”)
- This industry is just now showing signs of embracing new technology. (Remember, “Anything worth being copied…..”)
- We have three lead customers signed up as alpha testers. (When you enable customer success, they will become your best evangelists.)
So now you can effectively contrast yourself against the competition without letting them define your identity. In fact, you may have just morphed your competitors into potential acquirers! Very cool! Investors love that.
Tune in next time and we’ll talk about another Fatal Error – No Real Path to the Customer aka If You Build It, They Won’t Come Without Your Help.
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
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!
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
The Moral – – The only True Competitive Advantage is that which cannot be copied and cannot be bought.
Next time we will talk about True Competitve Advantages that you may not realize you have.– Steve Hogan