After the creation and sale of my own businesses, I realized that coming up with the next great idea, building it, and maintaining is still going to be hard no matter how many times you’ve done it. So I started turning towards enabling other entrepreneurs in the making. After examining 100+ startup opportunities in the past two years, and combining it with my own entrepreneurial experiences, I’ve distilled down some core ingredients that I think (and hope) are helpful to founders and early investors alike in keeping focused.
A minor caveat — most of my experience is in B2B, so take this with a grain of salt if you are seeking more B2C gems.
1. Founder Communication — Clear & Quick
Angels usually invest in the very early stage of a startup. It’s not always the case, but this generally holds. This entry-point period of involvement is key for founders to understand, because typically, the earlier any startup is in its lifecycle, the more ambiguity it will generally face. Commensurately, there’s always more risk, all else equal. That means angel investors will also confront a larger number of unknowns as they consider backing your business. And this can yield a variety of consequences, such as how much money a founder raises in exchange for size of stake in the company, etc. (But we’re not here to discuss the numbers for now).
Consequently, the first quality I seek in any startup pitch is less directly about the problem space, market opportunity, or proposed solution. What I care about instead, is how clearly and quickly a founder(s) can communicate all three to me. The “clear” part should be obvious. If the founder can’t explain what they intend to do, then it’s likely a red flag. But the “quick” part is something that I notice that some founders lack, and angels forget to test.
Why is “quick” important? Well, for several reasons. First, because time is limited and angels don’t have the luxury to deep dive into every potential opportunity at this stage of the pipeline. We’re doing something called “canvasing”, which is using our existing experiential knowledge and domain expertise as heuristics to make judgment calls about startups that may have potential. Second, your ability to explain something clearly AND quickly showcases your ability to use language efficiently. Is your pitch straightforward? Is it simple? Can it communicate complex topics in a digestible way? Do you know what’s the priority content to explain? Or do you ramble on without driving the main point home?
How you explain your startup to any investor is a precursor to how effectively you communicate to your users and customers.
It tells me if you could be a great marketing and sales person, because these are key traits to have when garnering initial customers that will pave the way for more when you need to scale down the road. For now, you can’t rely on scaling mechanisms, because your fledgling business is tiny and you don’t necessarily have those mechanisms at your disposal. So what I care about is your ability to scale in a contained way, meaning scale given just you and your tiny little team. And that comes down to two things: 1) your command of language and 2) your command of your content. You’d be surprised, but so much of your early customer success is really going to come down to you, the actual founder, to onboard. You’re probably not going to have a ton of existing funding to run ads or hire a sales team, etc. So what I care about is your ability to secure customers with high efficiency, as measured by conversion rate— meaning for every 10 customers you engage (and customer access is initially very limited, especially if you are doing enterprise B2B startup), how many can you get to sign an MOU (memorandum of understanding) or pilot with your product? Only later, when you reach an inflection point, do we focus on scaling effects.
If you show effective communication defined by clear and quick traits, you buy confidence in me knowing that you understand what you’re building, what problem you’re solving, who your customers are, and what market potential there is for your business. You don’t have to inundate me with numbers (yet), but I do require you to help string together a narrative of seemingly disparate concepts that define the product-market fit well.
It’s important to draw a distinction between “quick” communication versus “rushed” communication. The former is being able to chunk information into digestible pieces and then sequence them correctly to build a coherent narrative about the raison d’etre for your startup. The quickness is a result of good planning, research, and passion for the product/problem. “Rushing” however, is chaos. Speaking at 100 MPH without considering what’s important can be disastrous. And rushing only leads to confusion, under-explained assumptions, and shows me you are haphazard, as opposed to methodical. Too many folks think quickness of communication is a built-in trait. I’m here to tell you that you can be a clear and quick communicator, if you really know your stuff. Also — practice!
2. What Your Startup Does NOT Do — The Bizarro Method
This one gets missed a lot by founders seeking funding (from any investor, angels or institutional). At least for me, I want founders to explicitly tell me what they (or their startups) are NOT going do. In the past, when I have raised funds, I found it especially important to use something I call the Bizarro Method, named after one of my favorite Superman villains — Bizarro Superman.
If you’re familiar with Bizarro Superman, he is the mirror image of Superman, with one key difference: all of his qualities are on the opposite end of Superman’s skill spectrum. So if Superman has freeze breath, Bizarro has flame breath. Get it? Ok, enough about comic heroes!
While you don’t have to map everything 1-to-1, you should be able to clearly scope what your startup intends to do, and what it’s designed not to do. For instance, who is your target customer? Who is not? Why not? Or… what features will your product support? Which one or two will it explicitly avoid? Why? Another one might be: How are you going to use the funds? What are you NOT going to use funds for? Why not? My favorite is: Who is your competition? Who is NOT your competition? Why are you not considering them your competition?
The general rule I recommend is — for every key question you have an affirmative answer about, try to figure out if there is a converse and think why you don’t want to pursue a specific action, strategy, or plan. This is extremely important because it allows me, the investor, to gaze into whether you can identify priorities and draw proper scope boundaries. Moreover, it is a great exercise for any founder, because writing it down forces you to cover as many dimensions as possible about risks and opportunities.
3. Action Orientation & Movement of Ideas in Practice
Anyone can draw up a plan. When I was at Harvard Business School (I know… eye roll). I had this professor who taught “Entrepreneurship”. Gosh, he had some of the most beautifully drawn up pitch templates and examples. In theory, they looked excellent! Nothing wrong with that.
Look, I’m not saying you can’t get funding by doing things on paper. Plenty of great businesses were founded that way. Dropbox, for instance, used paper mockups to demonstrate how their users would register, upload, manage, and retrieve content. I’m not harping on the format. I’m focusing on the activity. Even if you can’t immediately code a prototype for your software, you can use other methods to show, rather than tell. You can use PowerPoint or paper cut outs for all I care. What’s important is that you give investors and early customers a convincing visual demonstration of how your product/solution works.
What I want to see is movement of ideas. For example, if you’re building a bicycle, I want to see the wheels spin, the handle bars turn, and the peddles rotate, even if it’s not a physical bike, but a video of a bike. If you’re building a voice bot, I don’t have to see it working on a mobile phone in person (although that would be better), but at least I’d like to see a mockup of some representative use cases for the user-and-bot interaction, and some data workflow diagrams that show me what happens when exceptions occur.
Investors, especially angels, are well aware that given the early stage of your startup, you may not have all the resources in place yet to build your prototype. So you’d be surprised to find how open-minded, tolerant, and imaginative many angels can be! At least for me, as an angel investor, the effort you put into pushing your idea towards reality is a big positive sign. It shows me you are going to do what you can with what you have. And that you’re not making excuses. And so much of investing is betting on the founder (or founding team) that never quits, is highly resourceful, and brave enough to go as far as they can given existing constraints.
4. What Didn’t Work?
Another thing I like to ask founders is — what have you learned from your customers?
This one will often throw founders for a loop. I don’t ask it intentionally to give them a trick question.
The reason it confuses some founders is because they’ll respond with: “We don’t have any customers yet, because we need funding to [insert activity].”
That’s fair, but only to a certain extent. The thing I’m looking for here is have you talked to potential users? If you’re doing B2C, it shouldn’t require anything other than effort to go ask questions. Spread your idea wide and far to start getting early feedback and testing. Even if it’s purely an idea, it’s an even better plan to hypothetically test it with targeted customers. Granted if you’re in B2B, it may be harder to reach or access those commercial customers, but there are still ways to get proxy experiments going (e.g. in your network, even if you can’t reach the big dog making the purchasing decision, you should be able to vet your idea with someone within a targeted company).
I’m trying to answer three more questions when I ask about “what you learned from your customers?”:
- Are you thick skinned?
- Are you resourceful?
- Are you able to adapt/pivot/refine your ideas based on feedback?
I’ve talked about the first point, in a different post, via my experience as a founder myself as well as another post about ideation. But the short of it is… talking to people carries almost no risk (unless you are being downright annoying or disrespectful) and most people are actually helpful. Most people want to be part of a potential success story. And most people want to have their voices and opinions heard. So why haven’t you taken advantage of this human nature to get feedback on your product or service?
Related to being thick-skinned is being resourceful. Whether you can find a way to vet your idea, tells me how well you manage your own social and financial capital, no matter how limited they may be. Today, more than ever, there are tools that can help us broadcast our ideas. Social media, blogs, YouTube, crowd-funding, etc. are all at our disposal. There’s always SOME way to get SOME feedback. I want to know you tried. Because if you’re resourceful and you cared about your startup or idea enough, you’d have put in the effort. If you can’t be bothered to even try, I probably am a bit worried about parking my cash with you in exchange for shares of phantom equity.
Lastly, if you did get feedback, I want to hear about what didn’t work and what did work — and in that order. The things that worked are likely going to be intuitive for me to understand. What’s interesting is understanding your discovery process for mistakes. So tell me how your idea or product evolved over time. What erroneous assumptions did you uncover in your business model? What features did users hate? Why? How did you fix or plan to fix that feature? What should your product have supported, but didn’t? What is considered a core element of value creation that you overlooked? Did you change your product pricing? What drove the decision?
I’m looking for a pattern of iterative improvement, even in your early prototype. That tells me several things about a founder’s mental toughness when confronted with challenges, as well as about their mental flexibility to accommodate changes in their vision/product to fit the market demands. Finally, telling me what didn’t work and your plans to improve things shows me you’re listening to your customers.
You’d be surprised how many times I’ve encountered founders who told me, “Well, like Steve Jobs said… a lot of customers don’t know what they want, so I tell them what they want, but they just don’t know it yet.”
Love the confidence! But time for a reality check.
It might be true — that you know better than your customers; that you’re a visionary peering beyond the horizon. But the thing is… I’m an investor. I take calculated bets. And no disrespect, but I would not bet that there’s going to be a taste-making Steve Jobs around many corners. So it’s nothing personal when I say that I’m not going to trust a founder on his or her word that they have it “all figured out” but that the customer is the dumb dumb who has yet to be enlightened! At the minimum, I’d love to see where you and the user disagree?
Trust your customers. Even if they are of the lowest common denominator, I want you to investigate and see if customer education is truly a blocker? Or if you just have a crappy product/idea. Show me that you are humble and responsive. I’ll more easily open my wallet if I believe the person I work with can navigate ambiguity and adapt to new information. Tenacity is important, but you can be tenacious to the big goal while changing your execution strategy!
Thanks for reading!