How to Start a Startup — W10 Part 1

Sales and Marketing. Perfecting the pitch

Here are a few takeaways from Stanford/Y Combinator CS183b — How to Start a Startup — Week 10 lecture.

Lecture 19 Sales and Marketing Tyler Bosmeny, Founder and CEO, Clever

How to Talk to Investors Michael Seibel, Partner, Y Combinator, Qasar Younis, Dalton Caldwell, Partners, Y Combinator

Sales and Marketing

• A founders passion for the product he is building, his knowledge of the industry and the problem that he is solving put him in a unique position to be really, really good at sales.
• When you get your prospect on the phone if you remember nothing else, remember to shut up.
• Resist your temptation to talk about every feature and talk about why your product is the greatest thing in the world instead listen a lot and really understand their problem.
• Follow Up — You really need to have kind this super human and unreasonable willingness to follow up and drive things to closure.
• Your goal should be to get people to a yes or no as quickly as you can. A thousand maybes will kill you.
• If a company says, “I will use your product but I just need one more feature.” ask them to sign an agreement and put in the agreement that you are going to build this feature or tell them you are going to wait to see if you hear the same demand from more customers.
• Avoid the free trial trap. As a startup you need revenue, you need validation, you need users and you need commitment. Free trials get you none of those things.
• If a customer asks for a free trial, say, “We don’t do free trials. We do annual agreements and for the first 30 or 60 days, if for any reason you’re not happy, you can opt out.” this will give them the comfort they might need to take a chance on a startup.
• It’s really surprising how many smart people will want to do ten rounds of document review over the most minor points because of pride.

How to Talk to Investors

30 second pitch

The 30 second pitch is simple. It is three sentences and answers three questions

What does your company do?

• Answer this in a simple and straightforward way that requires no further questioning assuming that I literally know nothing about anything.
• Apply the mom test. If in one sentence you cannot tell your mom what you do, then rework the sentence. Start there and make it super simple.
  Use basic language.

How big is the market?

• Research what general industry your product is in and figure out how big the market is.
• These numbers can be looked up on Google. Don’t skip this question.

How much traction do you have?

• Ideally you talk about growth, the number of sales, the amount of revenue and the number of users.
• If you can’t speak about traction because you’re prelaunch, you need to convince the investor that you’re moving extremely quickly.

2 min pitch

This is for people who are more interested in your company, people who you might want to raise money from or people you want to hire. Convince them by including 4 additional components.

Unique insight

• VC’s want to know “What’s your secret sauce or your competitive advantage? Tell them something that they don’t know, something that even the biggest players in the market you’re trying to enter don’t understand or don’t do well.
• Nail this aha moment in two sentences by crystallizing all the reasons why you are going kill the competition or the really intelligent thought that got this business started in the first place and keep it simple.

How do you make money?

• Many founders run away from this question. Say what everyone else in your industry does and move on, no one is going to hold it against you if you switch your monetization model. Be concise instead of throwing out every single way your company can make money.

Team

If your team has done something particularly impressive or made investors money call that out e.g. “We were the founders of PayPal.” Else shut up.
In the absence of a track record the investors want to hear —

• How many founders. Hopefully between two and four.
• How many them are technical? Engineers versus business people. Hopefully it’s fifty/ fifty.
• How long have you guys known each other? Ideally should know each other either personally or professional for at least six months.
• How you met?
• Are all the founders working full time? Helpful to know that all are committed to this startup.

The Big Ask

• If the conversation involves fundraising then you have to know what you’re talking about — how much money you’re raising? what the minimum check size is? whether you are raising on convertible note or a safe? what the cap of that safe is?
• If you don’t know these things, investors are going to think that these guys aren't serious or haven’t done their homework so don’t be casual use the right jargon.

When to fundraise?

• Investors like to invest based on traction. It is always better to raise money when you have more traction than less.
• If investors are asking to give you money or you’re getting the word out, either through the press or through friends that might be a good time to start fundraising.
• Always have a plan ready so that you can launch and grow without needing to raise money.
• Never put the investor in the ultimate position of power. Exhibit confidence.
• If you need money early, always plan on needing less money.
• Always be able to show that you've got a fully committed team that is working fast. That is how you gain an advantage when you can’t show traction.

How to set up investor meetings?

• First get a warm introduction preferably from another entrepreneur or a previous investor of yours.
• The credibility of the person who is introducing you to an investor has a big part on whether the investor will take that meeting.
• When you’re fundraising it’s a sprint not a marathon. So think in parallel; you want to schedule all of your meetings during the same week.
• One team member should be fundraising full time. It shouldn't take over the whole company because it’s very, very distracting.
• Know your numbers. If you’re very vague, evasive or don’t feel comfortable telling an investor what your numbers are don’t even have a meeting. It means you’re not ready yet.

After the meeting

• Follow up. Anything other than a check or wired funds is a no
• Put some pressure on your investors through deal heat — demand to be in your round. It is the easiest way and important way to drive a price.
• Do diligence on investors. Surprising how many entrepreneurs skip this. When you can spend so much time doing checks on a potential hire how can you sell part of your company to some you don’t know well enough?
• Know when to stop. Some founders get so good at fundraising, they want to do it all the time because it’s easier than building the company.
• Fundraising does not equal success, it is a goal. Now go build!

*Photo by: Martin Fisch