Venture Geek

Over the last several years I have interacted with lots of startups in one way or another. Since I started doing Pitch Labs I have worked with a couple dozen companies specifically on how they present their young business to investors. There are several common themes that I plan to write about here, but one that came up yet again at a Pitch Lab yesterday is about framing.

Entrepreneurs in very early-stage companies are, more often than not, very product-focused. And that makes sense because they tend to spend most of their days building their product. But, when it comes to getting investment (or running a company for that matter) it’s important to be market-focused. Another way to say that is people won’t invest in a product, they will invest in a business. The product is a means to an end, and that end is generating profit (or at least getting to sustainability and positive cash flows). It’s so easy for entrepreneurs, especially first-time entrepreneurs (and especially first-time entrepreneurs who come more from engineering or other product-centric backgrounds) to lose sight of things like cost of customer acquisition and revenue per customer and instead focus on features, features, features.

Don’t get me wrong — as someone who used to build web applications for a living I can very much appreciate that features matter, and that the product is still a key ingredient to most businesses. But I find myself having to give the advice that the product is a means to an end often enough that it seemed a natural blog topic.

Yesterday the entrepreneurs who did the Pitch Lab came in wanting to know how they could cut down the amount of time of their pitch — turns out they were spending nearly 30 minutes going through painstaking detail of the various features they had put their blood, sweat, and tears into building. I suggested that they should go through the exercise of putting together a presentation that never mentioned the features of their product, focusing solely on the business drivers — to over-compensate for their product-centrism by eliminating it from from the pitch, then going back after and adding it back in. That would probably be a good exercise for any new company — step away from your product and think about your company from a pure business perspective to force yourself into that mindset. A few questions to help think about this:

• How do I acquire customers/users AND how much does that cost?
• What conversion rate will I have from initial interaction to a full-blown customer/user (or what kind of click-through rate/transaction rate, depending on your business)?
• What average revenue per customer can I expect to see over some reasonable time period?
• What churn rates will I see of customers leaving?

For each of those questions you will make assumptions — and everyone knows they are that, but the thought exercise of coming up with assumptions and being able to back them up is very valuable. It’s also very useful for each of these (and similar) questions to be able to answer: “Why am I better at this than the next company?”