Rate of customer validation is the best indicator of #napkinStage success

When you have an adviser or two on board, I would recommend a monthly check-in with your advisory deck to actually get advice. Since no amount of expertise and knowledge the adviser has will replace your daily “living” and “breathing” your startup, you will have to brief them on key accomplishments and a view of the “trees”. If you have chosen the right advisers, hopefully they will help you see the forest from the trees.

The biggest challenge is showing “early momentum” and traction. Most traction falls into 2 buckets – product or customers. Side note: When you are a larger company there would be many buckets that are news worthy – funding announcements, partners, awards, hiring, event attendance, etc. but, at the napkin stage, only product updates and customer updates are valuable.

In terms of product updates, changes, modifications and new features (including design updates) are worthy of putting on your monthly advisory update. The best updates I have seen as an adviser are those that are related to changes the product based on feedback from potential beta customers, especially if the feedback results in the customer willing to pay for the product.

The second set of updates are around customers. In this particular case, activity is an early indicator of traction, so I would try and focus more on trying to use as many referrals from people you meet to get introductions to other customers.

A trick that I have seen several people use effectively is to focus on getting 2 customer meetings or demos each day for the first 3-6 months during the customer validation phase.

The rate of early customer validation is the best indicator of early success is what I have found.

The rate of early customer validation is the total number of “prospects” or “Customers” you talk to in a given time period. So, the more customers you get a chance to talk to in 2 weeks, versus another competitor who talks to fewer customers in the same time period, the better are your chances of determining problem fit.

Advisory deck vs. Board deck – what’s the difference?

I am on the advisory board of 2 companies and on the board of directors of 1. One way to think of startups as going through the “forever school of learning”.

Before MVP you have 4 seasons or primary school, then after MVP, before Product Market Fit, 4 seasons of middle school, then after raise your series A or 3 quarters of consistent revenue growth, 4 seasons of high school and finally after series B and beyond, 4 years of graduate school.

As you’d expect, the challenges (or courses) get more difficult as you progress. The early challenges are largely speaking to enough customers to get feedback and nailing the specifics of the problem you are working on with product updates and later on they tend to be about metrics, strategy and managing cash.

Monthly Advisor Update

Monthly Advisor Update

Here is a template document I have used with my monthly advisor updates. Most of the startup CEO’s create this template on Google Docs. The other advisors update the doc with their comments and since we are all at different locations (and continents) it is easy to review the combined feedback.

There are 5 sections as you can see above. The section I value the most are the what they learned and what they accomplished.

Usually what I have found is that the CEO updates 3 sections – accomplishments, key metrics and areas they need help and the co founder or product person updates the remainder.

Most of the advisor meetings are about an hour a month with many shorter updates and conference calls in between.

Board meeting packages on the other hand tend to be more metrics focused. Here is a sample board deck that I have suggested be used (from IA Ventures) to my startups.

The key part of the advisory monthly update document is that it needs to give your team accountability and ensure the advisor has visibility into the progress so they can help.

Please let me know if you have a better template.

8 great ideas and entrepreneurs from the Tamil Entrepreneur Forum 2015

Yesterday I attended and participated on the panel and judged the Tamil Entrepreneur Forum 2015 event. It was a gathering of about 200 folks from the Tamil community all over the US. This was the first time we had a pitch session and Lena Kanappan introduced the format as a way to support early stage entrepreneurs.

Tamil Entrepreneur Forum

Tamil Entrepreneur Forum

There were about 30-50 companies that applied and 8 of them were chosen to present at the forum. Here are their ideas. There were 3 winners, and I’d love your perspective on who you like.

1. ElVitae: A personal branding app and service that’s focused on being the next generation version of About.me. Their goal is to help individuals build their personal brand using the mobile phone alone and help them showcase their portfolio, successes and work beyond LinkedIn and Twitter. ElVitae was “Elevate your curriculum Vitae”

2. FixNix: Already successful in India, FixNix helps smaller businesses manage their Governance and Compliance during audits. Especially useful for regulated industries such as Banking, Healthcare, etc. which have compliance requirements, they have significant customers in large banks and Indian enterprises.

3. IandMyDoc: A ZocDoc clone for primary care physicians, I and My Doc helps you book appointments, schedule visitations, manage your vitals and keep track of your electronic medical records.

4. Indian Moms Connect: An online blog, eCommerce site, Subscription service and community for Indian moms in the US (and looking to expand in India). They problem they were trying to solve is that Indian moms have a lot of questions when they have their babies – and unlike in India where their mom or in-laws provide a lot of that advice, in the US they are unable to get that support. This was an online community to help them.

5. StoryTruck: NetFlix for Indian books and magazines. They want to go beyond just Indian books, but right now they primarily have licensed books and comics for Indian kids. They have over 1000’s of downloads and a working product with 2 book publishers on board. Their focus is on vernacular (native Indian language) content initially.

6. Sway: Mobile phone based budgeting for Millennials. This app is a new generation version of Mint, but with a lot more “fun” elements to help the millennial generation plan, manage and spend money wisely. Initial traction with several 100’s of users.

7. YumPlate: AirBbB for neighborhood food. If your neighbor is cooking something, they can post it on YumPlate and you could buy it from them. We had invested in a company called Imly before in India.

8. Zailoo: A price comparison app for car rides. The app helps you understand the cost of your Uber, Lyft or SideCar (and others) car ride from point A to B, before you get on the car. That way you can know and compare costs before your go on your ride. A month old and already featured on Product Hunt.

The founders were all pretty enthusiastic and had good early traction (most of them) to prove that their idea had merit.

Sway, Indian Moms Connect and FixNix were the 3 winners.

How can you tell if an angel investor is “real” or “fake”?

It has become quite fashionable to be an angel investor. The last 5 years has seen an increase in the number of registered angel investors on various platforms – from a mere 3000, we are at over 25K in the US alone. That begs the question – do we have more people who have become angel investors now, or are people richer, or did we always have them and we just found out about them now?

Many high net worth individuals would like to be angel investors, but just don’t have the inclination to do the heavy lifting that it requires to help entrepreneurs, source deals and find follow on investing. Most are also fairly conservative, especially if they have made money at a larger company and not been an entrepreneur before.

Here are key “leading indicator” questions that I ask before I try and syndicate deals with other angel investors, which might be useful for you to consider. YMMV.

  1. Have they invested before in a startup? The best indicator of an investor is if they have invested before. The time to make the first investment for a newly minted rich individual is close to 21 months. So, if in your discussions with a potential investor, they have never invested before, it is highly unlikely they will. Angel list is a good source, but not comprehensive. I would simply ask them this question. Or ask them for their previous investments? What companies have they invested in before?
  2. Do they come referred as an investor? The best network is still word-of-mouth. They best referrals for angel investors is typically not other investors, but entrepreneurs is what I have noticed. Even if an investor “passes” on an entrepreneur’s idea, I have found that if they have been respectful, consistent and fast in their communication, the entrepreneur will refer “relevant” deals to them.
  3. Are they accredited? When an investor has over $1 Million in investment capital (exclude the capital in their primary residence), or if they can show they have over $250K in annual income, they can be accredited. I have found the best way to determine this is ask the investor for who their financial consultant or tax consultant is. People who have that much money have a person for both or either. If they don’t, the signal I get is they are rather unsophisticated in their approach to investing.
  4. Are they involved and connected with the local startup ecosystem? Most interested angel investors are either mentors or advisers at local entrepreneur’s hot spots such as accelerators or co-working spaces. If they are not connected, it is likely they are not going to invest, since they don’t value the experience.
  5. Do they understand key terms and nuances? An experienced or willing angel investor understand convertible notes, equity rounds, key milestones and other “insider” terms well enough to not have you explain it to them. If you are educating the investor about angel investing, you are better of looking for someone else to do that, while you focus on your company.

What other questions would you use to differentiate between a “real” and “wannabe” investor?

If you are #napkinStage what is the 1 thing to focus on to get traction with investors?

I was at the Seattle Founders Institute graduation event last night with 40 others who gathered to see the 3 newly minted entrepreneurs from the program. From the over 100’s of applicants, there were 30+ who signed up for the program, and yesterday 3 folks graduated.

Seattle Founders Institute

Seattle Founders Institute

TeaBook is a monthly tea subscription. The founder has spent a lot of time in China to source and obtain unique tea’s that will be mailed to your home every day. The tea market is over $25 Billion and growing at 7% annually. They had a great story and compelling market presence. I personally felt the monthly subscription commerce business has many players, and I suspect in the next few years there will be much consolidation. The tea market itself has many competitors as well including TeaLet, teabox, Chahoney and LizzyKate. They have some early indication of traction, with some trials and some passionate customers already willing to sign up for the service.

American Giving – was focused on ending poverty in the US, with a researched philanthropy website. They founder was looking to create a indegogo style site, where philanthropists could research, back and support giving to Americans better. The potential to unlock over a $ Trillion in well researched giving would be large and they were looking to take a 15% admission fee on all giving.

MeltingSpot, has a 2 sided marketplace for helping consumers looking to meet “folks they like” near them. Think of “Tinder meets FourSquare”. They Melting Spot could be a bar, or a restaurant, who wants to “sponsor” a spot where people only interested in “animals” would be able to meet others. There are many dating sites and apps, and many social networks, but their focus was on helping folks in their local region. They would make money by charging bars to sponsor a “melting spot” – initial suggested retail price was $30/month.

All 3 entrepreneurs had great stories and did an excellent job showcasing the market (which was large) and spoke to their personal backgrounds as well. None of them had a working website or prototype (some mockups), but they had financial projections. They were all non developer or technical founders, looking for their CTO, but had the sales and marketing background and expertise.

All of them were looking to raise some money – from early seed (>$100K) to seed ($2 Million – teabook).

As an investor, the biggest challenge I faced was I was not sure how many more pivots were going to happen before they get Product Market fit. I suspect a lot more, because none of them had product shipping yet.

Which leads me believe that Kickstarter or Indegogo is the best way to show social proof, customer validation and early traction.

If you have an idea and you want to progress on the journey towards investment, the launch page with social proof, early orders on your crowd funding campaign, product prototype and having a well rounded team are a must have for #napkinStage companies. Those would be the things to focus on, more than distribution channels,

Leveraging your advisors for understanding the market dynamics before your customer development

One of the most effective ways to get smart advice early is to get a trusted advisor. Most companies I know get up to 3 advisors on board with different competencies, skills and expertise. Typically you’d like one advisor who has entrepreneurial background for customer and investor introductions, one for go to market expertise and one for technology excellence.

Once you have selected and recruited your advisors, I’d highly recommend a scheduled cadence to meet and consult your advisors (early on, once a month is good). Typically, most startups will (if all goes according to plan, which it never does, but nonetheless) need a new set of advisors every 18-24 months. Most advisors are paid in equity. Your advisor’s main role is to give you confidence, but many help with their strategic thinking or insights as well.

In this post I am going to talk about market dynamics using an example to help share a concept that I think you need to get advice from an external person for.

Let’s say you are trying to build a mobile application that replaces Siri or Google Now. This has been attempted before by many folks, so it is not a new idea, but I am taking a crack at shaping and outlining the landscape for discussion.

This will be a “smart assistant” that allows consumers to get personalized recommendations for many of their daily questions based on observed patterns on their phone – including usage of other applications.

Mobile Market Dynamics

Mobile Market Dynamics

In this particular case, there are 5 major “interested parties” – the consumer, who wants personalized recommendations, and needs the service, the app developers who have the data, the app store and platform which control the experience, the phone manufacturer, who makes the phone and the mobile carrier who provides the service.

Even though the first pass suggests that you should build the consumer service, focus on acquiring users and then get the app developers on board, it turns out unless you have the data (either from the platform or from the 3rd party app developers) you don’t have a valuable service.

Distribution might be easier for your product via the mobile carrier (if they choose to bundle it with the phones on their network) or even from the phone manufacturer, but unless you have many users, the carriers and the manufacturers don’t want to take a risk.

Consumers find that without their favorite applications (services) integrated into the platform, the assistant is of not much help.

So you realize it has to be the platform (Android, IoS, Windows phone, etc.) or the 3rd party app provider.

Since most consumers are using their favorite apps – such as Yelp, Uber, etc. the data is proprietary to that 3rd party app providers, who have little incentive to give you their “crown jewels”.

The best way to get the 3rd party app developers is to find a way to give them value, so they get consumers more engaged with their app, or acquire new users or monetize better.

While you still have to get consumers after you get the 3rd party app developers on board, that’s the “next problem” – the sequencing matters. Getting app developers quickly and the key (right ones, not anyone that will listen) ones is critical.

This is a good example of a market dynamic that typically you can get from an “insider”. Many of the seasoned investors will help you understand and navigate this landscape as well.

I would highly recommend you talk to potential advisors and help outline the problem statement so they can give you their perspective before you sign them up as an advisor. That way, you are able to gauge their expertise and understanding of strategy as well.

What do you think about this landscape? How would you analyze this better or differently?

Some awesome quotes from Pete Sampras’s letter to his younger self

Peter Sampras wrote a letter to his younger self. Great read.

Pete Sampras

Pete Sampras

“There will be times when you wake up in the middle of the night before a match craving crazy things like hamburgers and pizza. It’s because your body is missing something.”

“One day, everyone will be a nutrition freak. Be ahead of that curve.”

“Play hard, do it on your own terms and stay true to yourself. Do that, and you can’t go wrong.”

“It’s the people in your life — people like Tim — that will shape you. Appreciate them.”