You would be foolish to believe that the first time you meet an investor that they will fall in love with you, your team, and your idea.
This just doesn’t happen, unless of course you’re some type of rockstar entrepreneur that the investor knows through press. We’re not talking about these rockstars in this short post on raising money.
We’re talking about “no name” entrepreneurs like most of us are. Guys and gals taking their first swing at the bat.
When you first meet an investor you are creating a proverbial dot on a chart, as described by Mark Suster in his famous blog post titled Invest in Lines, not Dots.
This concept described by Suster is critical for first time entrepreneurs to understand. Suster states:
The first time I meet you, you are a single data point. A dot. I have no reference point from which to judge whether you were higher on the y-axis 3 months ago or lower. Because I have no observation points from the past, I have no sense for where you will be in the future. Thus, it is very hard to make a commitment to fund you.
For this reason I tell entrepreneurs the following: Meet your potential investors early. Tell them you’re not raising money yet but that you will be in the next 6 months or so. Tell them you really like them so you want them to have an early view (which is what all investor’s want).
Suster goes on to describe how in every subsequent meeting you have with an investor that you can demonstrate how you’ve done what you said you would do creates another dot.
These dots eventually get connected to form lines that an investor can then invest in.
I love this concept.
Please go read Mark Suster’s full blog post on this strategy to raise money here and let me know what you think.
Raising money for a startup is something I really want to help demystify for first time entrepreneurs who have no idea where to get started.
I shared a few of the ingredients to the secret sauce of raising money throughout several blog post covering the topic over the last 3 months.
One ingredient I noticed that was missing was timming.
Timing is the one ingredient that you must nail if you want to succeed.
To help bring clarity to this critical fundraising topic, we need to look no further than a blog post written by the founder and CEO of Buffer, Joel Gascoigne.
What I’ve learned from talking with some very experienced and highly respected successful serial entrepreneurs is that there are only really two good times to raise funding. The first is when you have just an idea, and you’ve not even started to build. The second is when you have a product with good traction you can show to investors.
Gascoigne goes on to point out that first time entrepreneurs have a 0% chance at success at the idea stage because investors are looking for serial entrepreneurs with multiple successful exits as the deciding factor for investing in an idea.
So for first time entrepreneurs, the only option you have is to raise money when your product has good revenue or user traction depending on your business model and market.
How much? Read this post for specific numbers you must hit before you have a good chance to raise VC money.
Figuring out how much to charge for a new product or service is absolutely one of the hardest things to figure out.
Charge too much and you may miss the market.
Charge too little and you might leave money on the table.
There is no one answer to the pricing question for startups. That is why I absolutely love the insights shared by Chris Dixon in a blog post he titled Pricing to the Demand Curve.
In this post Dixon gives us a quick lesson in economics 101. He states:
the goal of pricing is to capture as much area under the demand curve as possible. In practice, the best way to do this is to find proxies for willingness-to-pay that are easy to observe and that customers will accept.
Dixon’s post is well worth the time spent understanding how the details apply to your situation.
Most entrepreneurs fall on 1 of 2 sides of the fence.
They either fall on the:
1) product/engineering side
2) sales/marketing side
This post is mainly for those that come from the product/engineering side like me…
When you start a new venture based on your experience with product, it’s easy and natural to then become obsessed with product…
However, once you reach a certain threshold of product/market fit then this obsession must be tamed and you must transition to a new obsession: sales/marketing.
One of my favorite entrepreneur bloggers David Cummings shared a great post on this topic yesterday. He states:
Overall, the biggest takeaway is that there has to be a serious shift on the entrepreneur’s part going from product / market fit focused to customer acquisition focused. Lack of customers, and the resulting revenue, is the number one reason startups fail (no revenue = no business). Assuming there’s a good market out there, building a customer acquisition machine after finding product / market fit is the difference between success and failure.
You may or may not be familiar with American football. For me, it is as much as part of my life as entrepreneurship, so let’s start with the basics.
Blocking and Tackling
Any championship football team excels at these two things. Blocking is what you need to win on offense, and tackling is what you need to win on defense. At the end of the day, these two things are the only things that matter in football.
Entrepreneurship Ideas vs. Execution
In American Football, everybody copies each other offensive and defensive scheme if it is the hot thing working around the league.
Whether it’s the Wildcat or the West Coast on offense, or the Tampa 2 or zone blitz on defense.
If it works, it will be copied.
The same goes with ideas in business. Your competition will copy your idea if you prove it works.
Execution is about blocking and tackling. Execution can’t be copied.
Execution is the fundamentals. Ideas come and go. You don’t win with ideas, you win with execution.
What is the equivalent of blocking and tackling in business: Marketing and customer service.
So there is the answer to the age old business question. What is execution? Execution is marketing and customer service.
Be good at those two things, and you have a better than average chance of winning. Be great at those two things, and you will win.
On the other hand, get those two things wrong and you have no chance at all.
These days, its cute to announce that you are launching a startup. It’s almost like a 12 year old girl and her little brother starting a lemonade stand to guilt trip their neighbors into giving them 50 cents on a hot summer day.
Ohhh, how cute… Another startup launching a photo sharing app, a check-in app, a group chatting app, a daily deal app…
No matter what your startup is, there is somebody out there doing the same thing right now.
More people are starting businesses today than in any other moment in modern history.
What you need to differentiate yourself is a Big Hairy Audacious Goal that no one else could imagine, and none of your competitors could ever achieve.
If you haven’t studied the idea of setting a Big Hairy Audacious Goal, then you should read this quick summary on Wikipedia.
In short, I propose that startups going after an idea in a crowded market use the idea of a Big Hairy Audacious Goal to discover their Unique Selling Proposition.
In order to do this, your Big Hairy Audacious Goal cannot be something generic like getting to 100 million users. Who cares….
It must be something that is not only big, but something that uniquely defines why the existence of your startup will change the world as we know it.
Once you combine your Unique Selling Proposition with your Big Hairy Audacious Goal, then come up with a step by step process to go after it.
Set a goal to change the world, create a plan to do it, then do it.
I am sure everyone has heard that they have to find their niche before. It’s no secret why I named my startup Nichevertising.
If you find your niche, then do a great job marketing to your niche, you win.
Super angel investor/micro VC/startup incubator extraordinaire Dave McClure has a great post titled Niche to Win that explains why.
…you can compete with a much less mature product but much more focused customers, more specific problems, more targeted marketing (that probably costs less to acquire customers ready to purchase), and thus a more differentiated offering.
The above quote is a preamble for him suggesting you must start small if you want to go big.
McClure then states:
You need to narrow your field, find a very targeted customer, and work on a simple, crappy, focused solution for your customer.
So just Niche to Win, baby.
This is a fantastic reinforcement article from McClure. Please visit his blog to read his full post.
It has become extremely sexy (and annoying) for entrepreneurs to throw out the buzzwords from the Lean Startup movement when talking to other entrepreneurs and investors about their venture.
For one, 80% of the people who use these words have never read any of the foundation books that cover the topic. For two, 99% of people don’t know what the hell Lean Startup really means.
The most abused term in the Lean Startup buzzword briefcase is Pivot.
I found a great blog post from the Godfather of the Lean Startup movement Steve Blank named Vision versus Hallucination – Founders and Pivots that provides awesome insight into Pivot abuse.
A pivot is a substantive change to one or more of components to your business model. You’re using “Pivot” as an excuse to skip the hard stuff – keeping focused on your initial vision and business model and integrating what you’ve heard if and only if you think it’s a substantive improvement to your current business model. There is no possible way you can garner enough information to pivot based on one customers feedback or even 20. You need to make sure it’s a better direction than the one you are already heading in.
So next time you even think about using the word PIVOT in a conversation about your business. STOP. Go read then reread this post from my man Steve Blank then reconsider whether or not you are really doing a pivot.
I hate to break the news to you, but you’re not the only person who wakes up with great business ideas everyday.
You are not the only person who goes for a run, jog, or walk and has an epiphany during each workout.
You are not the only person who recognizes problems while in a restaurant, retail shop, or grocery store and then comes up with a great business ideas to solve that problem.
Sorry, you are not one in a million. You are probably 1 in 5.
Idea guys/gals are everywhere.
That is why in the words of David Heinemeier Hansson, There’s no room for The Idea Guy at a startup. PERIOD!!!
Startups need people able and willing of doing the actual work. They need programmers, designers, and eventually folks to do marketing, support, and more. What they don’t need, though, is someone who’s just going to be The Idea Guy.
Bottom line, is that if you want to start a business or join a startup, you must have a functional skill beyond just having the idea or ideas.
This is a short piffy post from Hansson that I found to be a fun and timely read. Check it out on the 37Signals blog here.
One of the quotes I have posted on my wall next to my desk is “Smart growth beats fast growth.”
Not sure where I first heard that, but today I read a blog post from Ben Yoskovitz on his Instigator Blog that reminded me why this mantra is so important.
Yoskovitz’s post is titled Are You Really As Far Along As You Think?
In it, he makes the case for taking one or two steps back until you as an entrepreneur nail the empathy and stickiness phases of launching your venture.
Regarding stickiness he states:
A founder that’s focused on user acquisition through virality, but can’t quite get the traction they want, should probably go back to the Stickiness stage and make sure that the core users are actually happy and engaged.
Regarding empathy he states:
Early stage entrepreneurs also jump the gun moving into Stickiness–building an MVP before they’ve really validated that it’s worth building. I always tell these entrepreneurs to go back to the Empathy stage and talk to more customers.
You will gain much insight from the step by step process Yoskovitz is talking about in this post. You don’t want to skip this one. It’s well worth it to spend some time thinking about these stages with respect to the venture you are launching.