The “Goldilocks” overview presentation for #startups – not too technical, not too fluffy

Many #developer founders struggle with their pitch to anyone but their customers. Too technical and they end up losing 90% of their audience, like investors or potential employees not in the engineering team. Too high-level and everyone thinks they are hand waving.

The problem is fairly acute in B2B companies overall – if your product is aimed at a very technical audience – for example finance managers, statisticians, or climatologists, then you will end up getting “into the details”, in your overview pitch.

The right level of presentation is very hard to get right. It almost seems likes a “Goldilocks presentation” – not too technical, which most people wont get and neither too fluffy – which many dismiss as “does not get the problem right”.

The simple answer is to keep it on the right side of technical. From my experience it is better to be specific and articulate than come off as condescending or “hand wavy”.

The good thing is that this also will ensure that if some folks in the audience dont get it, they are probably not the right target for you.

So, the question is what is the right level of technical? The answer wont be easy, but the best thing to do is to A/B test your positioning with the soft audiences first.

The most important part to remember is that it is not only investors who are the audience you are initially trying to get on board. 

Sometimes senior executives in your potential customer base have a problem relating to very technical presentations, as well.

If your customers dont get your pitch – again either because it is too technical or too fluffy, then I’d recommend you revisit the lucidity of your presentation.

Let me give a specific example of one startup we are helping now. They target a very new and a developer audience. Most of what they end up doing is “Educating” their audience.

When they talk to potential customers at the right level in the organization, the bells toll, but in many cases when they describe their problem statement to folks higher in the org of their target customer base, things get difficult.

Here is what I recommend:

Most people understand the BEFORE and AFTER story the best for representing technical products.

If you have to explain a trend you might want to articulate that quickly, but I’d focus a lot on sharing what the “CURRENT” problem is – which is the BEFORE situation.

For example. The pitch they were using was to show code screen shots of deployment tools and how their product was much better. That went well with some developers, but they were unable to sell that to the managers who needed to understand how it will help developers.

Most managers, when they did not understand it clearly enough, dismissed the tool as “nice to have”.

Here is a better “framing” of the problem in my mind.

1) Your developers need to understand agile methodology since they are being asked to ship products quicker and in incremental fashion instead of once every 6 months.

2) Developers like the agile methodology but your systems are built for the waterfall approach

3) If you use the tools like abc and def which were built for the waterfall methodology, the compromises they will show up in more outages, more defects and slower release cycles.

This helps put a context to the person listening to the pitch even if they are not using the tool daily.

You will still have to tailor your “standard” pitch so it appeals to the audience, but this is at the “right level”. Again, you want to keep testing, until you can get head nods quickly, within the first 1-3 minutes.

That’s when you know you have the pitch “Just right”.

The first 30 seconds of your “demo day” pitch – sell to the heart, mind and wallet

There are 2 schools of thought that most people assume are contradictory.

First that, people buy from other people – so folks buy because they like the other person and if they like the person they will buy anything (or everything from that person).

The other school of thought is that people want to buy from a trusted brand, so even if the individual goes away the business remains to support what they bought.

Actually they are both true.

People dont just buy from other people, they buy from people they like.

Which brings me to the demo day pitch. If you dont create an emotional connect with your audience quickly enough (first 30 seconds) you are likely to be perceived as wooden, robotic or impersonal.

The best entrepreneurs realize they are saleswomen and show-women first and CEO’s next. That does not mean they are “watch your pocket near them”, sales people.

One of the things I learned very early in my sales career was that you need to appeal to the “heart, mind and the wallet”. That means, you have to emotionally connect with your buyer, then appeal to their brain, by solving the problem they have and finally ensuring they are willing to part with money to solve that problem.

Hopefully if you solve a problem that they have, then parting with money is an automatic, but if you dont appeal to them emotionally (or to their heart), then they will likely try and make the decision purely on the merits of your product, company, website, etc.

That’s not necessarily a bad thing for some people, but if the emotional connect does not exist, then they will look for reasons to not want to do the deal, if it does not meet any of their criteria (or “features”).

The first thing your audience at the demo day is trying to do is answer the question – “Is this worth my time, or should I go back to looking at my smartphone and get distracted for a few minutes”?

The best way to answer the question is to appeal to them with a problem they likely have themselves or ensure they know someone with this problem.

After that they are evaluating if the problem is large enough – market.

The last thing they try to assess is if you are the right team to solve it.

Surprisingly all this happens in seconds if not minutes.

I have seen many investors decide in the first 60 seconds if they want to “Work with the person” and then do their “due diligence” over the next few weeks, months or quarters to consummate the deal.

So the best thing you can do for yourself and your startup is to tell a personal story that appeals to your audience, with something they can relate to.

See to their heart first, then the mind and finally their wallet.

What drives early stage valuation multiples of tech #startups?

Almost every company I have talked to in the last 2 weeks ( total of about 12 startups) has a question around valuation multiples they should expect for their company. While many are concerned about dilution and loss of control, I think the bigger worry should be the high bar of flawless execution priced into valuations.

Basically the way it works is that the higher the valuation multiple (to your revenue, forward-looking growth or execution to date), the less room you have for errors. The higher the valuation, the more flawless your execution needs to be. Else you will be either replaced as the founding CEO, or face a lower valuation in your next round (called down round, and cause cramming).

I had a chance to talk to about 20 founders who recently raised money in the last 5 weeks. All of them, except 3 have raised money in the US, and of the remaining 18-19, 7 have raised money outside the Silicon Valley.

Most investors (seed or institutional) are always looking for a “low” valuation. Few may be looking for a “fair” valuation at the early stage. Often, it is impossible to determine what the valuation of a company is or how much the multiple on their metrics should be.

The “easier” (relatively speaking) valuation multiples are determined on your revenue, if you have any, profit (still rare) or other metrics that you can sell your investors on (e.g. user growth in the case of social networks for example, when you are not yet making money).

The tougher “nice to have” valuation multiples are on the management team, market size, etc. These negotiations are always harder than those on metrics.

So what metrics matter? According to the 20 folks I spoke with, they all fell into – revenue, expected growth (what the investors believed they would be in 12, 18 or 24 months) and growth to date (execution).

Step 1: The range of the valuation multiple would be determined for most of these by an arbitrary “market size” number and many quoted “angel list” averages as a good starting point.

Step 2: Then the investors would dive into their current revenues (12 of the companies are making some money). The range for multiple of revenue ranged from 5 X (in India) to 30X (at the high end, Silicon Valley, YC company). Interesting that non of my surveyed companies had more than 30X multiple on their valuation, even though, I have heard via anecdotal evidence again, that there companies getting more.

Step 3: The startup then goes through an exercise of growth projections, and obviously, the higher the growth, the more the valuation multiple. The best way to think about this is via a rule of thumb – for every 10 additional percentage points in growth month-on-month, folks are asking for a 1.1X increase in valuation multiple. So someone growing at 20% M-o-M is asking for 2.2X increase in their multiple, above and beyond their revenue multiple.]

Step 4: Looking at past revenue growth, over the last 6-12 months (if applicable). Many founders are pointing to the past growth purely as a sign of good execution, but not an indicator of future growth numbers. Most founders I talked to believe they will grow faster with the money than without, which the investors discount, since they believe they are providing that fuel.

Step 5: Finally, most cited the use of a well rounded management team and recent competitive “whisper numbers” around startups in the same “space” as benchmark metrics for valuation multiples.

I must caution that most of this is anecdotal and not very scientific, but a good rule of thumb.

What I am telling the entrepreneurs at our accelerators is to make sure they factor in “average” valuation multiples for their projections, but execute so they can get the best.

I’d love your input if you have recently raised money. Let me know in your comments if you’d like to have a discussion (via email or on Slack is preferred).

How to A/B test your startup’s positioning statement

I had a chance to talk to 2 of our startups at the accelerator yesterday and we discussed positioning. One of the first things that we focus on is to ensure you position your company and product well. That may seem like “fluff” and “soft” to many folks, but we find that to be critical to ensure that people who you interact with – customers, partners, potential recruits, investors, etc., get it quickly and accurately.

What I have found is that depending on the background of the entrepreneur, the positioning statements tend to be very long, mostly filled with buzzwords – (no, really 99% of the people in this world dont know ARM, resin-conductors or DevOps, and most likely 90% of your target audience does not either) or overly complicated.

The positioning statement should at its simplest help explain who you are at your core.

Most folks will try to explain their positioning by using the framework below.

For (specific customer description):

Who (has the following problem):

Our product (describe the solution):

That provides (the following difference):

Unlike (your competition):

Now, for most parts this was 15 years ago. This is still a valid exercise for you to come up with your positioning, but most of this may be not as effective in our Twitter driven world.

There are 3 more manifestations I have seen for this statement:

1. Position your company / product in less than 8 worlds so that someone coming to your website can get it in less than 5 seconds

2. Positioning by successful similarity – We are XYX (an awesome product, e.g. Uber) for ABC (a very large market, e.g. school kids needing rides)

3. Retweet ready positioning – A positioning statement that is retweet worthy, so it should be less than 100 characters – so you can still provide a link to your website

The important thing to note is that your website should reflect positioning for your biggest audience – target users or customers, not potential investors or employees.

I am also not a fan of using multiple positioning statements by audience – so you should avoid telling investors you are a disruptive solution for ABC market, and tell potential employees you are X for Y.

It never adds up and wont scale.

Instead, I’d recommend you start with first making a list of segments of your customers. Preferably you are able to segment a small niche customer segment to start.

Then write down the list of problems your customers have. For example. a) the existing products are too hard to use b) the existing solution is too expensive c) the existing solution is to do something manual d) potential customers are unable to be successful since no solution exists to help them with this pain, etc.

Then you have to document the features of your product that correspond to solving the problems you listed above in the problem statement. For example: a) Our export to excel feature allows customers to get the data via API’s b) our API based mechanism lowers cost of delivery. etc. This is also sometimes the “how you do it”.

Then you have to record the differentiation associated with the features. How do you do something different to enable that feature(s). For example: our algorithm for ranking generates a proprietary score for each customer segment.

The next step (which you may not need for the positioning, but will later on) is to document the benefits of the feature / differentiation. Benefits are fairly easy to document based on cost savings, revenue generation, etc. and are based on the feature list. For example, if you have X feature and Y differentiation, that results in a reduced cost compared to existing competitive solutions for customers,.

This should suffice for you to start A/B testing. Now, use these in your web copy, presentations and when you are describing your company to others at events, meetups, etc.

Keep a log of the first 100 people (or some good enough sample size) of people you to talk to, and get a sense for which statements resonate.

Test different positioning statements until you get to the minimal set that gets people exited enough to ask you to tell them more.

Until that point, keep testing.

Predicting news: The top 25 headlines after the launch of the Apple watch #AppleWatchPossibleHeadlines

Predicting the news is rather hard.  There are many things you dont even know about or can anticipate, but not with all news related to Apple. Given the over 12,000 blog posts devoted to Apple over the last year from The Verge, Mac Rumors, 9to5 Mac, EnGadget, Business Insider and many others, it is easy to put together a list of potential headlines that you can anticipate with  some level of confidence.

For every angle of the news of the Apple watch there are 2 possible outcomes, the good outcome, the bad outcome. It is more likely that the average outcome is what happens, but with Apple fans it is not at all hard to be confident that every average outcome is re purposed as a feature and not a bug. Case in point: The iPhone 4 dropped calls and users were blamed for “holding it wrong“.

So lets do a thought experiment and put the various possible headlines.

  1. Apple confirms over 1 million watches sold as pre-orders exceed expectations (MacRumors)
  2. Here are the only 5 Apple stores still left where you can get appointments for your Apple Watch (Business Insider)
  3. Apple analyst says his checks indicate that demand for the Apple Watch is off the charts (VentureBeat)
  4. Hands on with 15 different Apple watches and straps (Video) – The Verge
  5. Which Apple watch should you buy (we have tried them all) – Mashable
  6. Apple watch tear down reveals 78% margins and $102 is the BOM cost – iFixit
  7. Apple watch reservations are being auctioned on eBay for $25 to $50 – Tech Crunch
  8. The genius move by Apple to force reservations and create artificial demand – Jon Gurber
  9. Apple has sold more watches in 1 week than Android Wear for the entire year – enGadget
  10. Apple has significant supply chain problems, which is creating artificial demand for reservations – ReCode
  11. Here is the list of top 100 celebrities who have bought the Apple Watch (with photos) – Business Insider
  12. What happens when I strapped my Apple watch on my cat and left it for a day – Apple insider
  13. Apple watch straps cause rashes on your wrist – Mac forums are full of people complaining about it – Mashable
  14. The 50 unintended uses of Apple watch that I never expected – Apple fanboy
  15. How we jailbroke the Apple watch to work with Android KitKat – Android Central
  16. The expected lift from Apple watch to Q3 revenues for the company- Benedict Evans
  17. Apple watch disrupts the iPad and Telecom carriers voice plans – Asymco
  18. Apple watch gets poor reviews from early users causing oversupply – Business Journals
  19. Apple watch oversold and the reviews pouring in are overwhelmingly positive – San Jose Mercury News
  20. New blog showing celebrities sporting their Apple Watch goes viral – Huffington post
  21. Watch demand in China over strips supply as Apple reroutes orders from Europe – ZdNet
  22. Notifications are overdone say users as many turn off apps on the watch – ComputerWorld
  23. How many people bought the $10K Apple watch on Wall Street – We have the answer – Business Insider
  24. 10 things you never knew you could do with your Apple watch – MacRumors
  25. Apple stock hits an all time high as watch users drive sales – CNBC

For each and every one of these headlines the opposite can also be true. Which means we don’t quite know if it will do well or not, but if you are a editor at one of these publications, I’d totally steal these headlines and start writing copy to beat the others.

#AppleWatchPossibleHeadline

Who should you raise money for your #startup from if you had a choice?

I got a question from a friend Abhinav Sahai, as a follow up to my post “Does who you raise money from limit or grow the size of your ambition?”

What are the parameters that one should look at when choosing ‘who’ to raise money from? 

I am going to give you the easy answer first to the question. This is based on my observation that most entrepreneurs find it extremely hard to raise money for any number of reasons – positioning, not being in the network, not having sufficient traction, etc.

The answer is “Whoever is willing to give it to you”.

For over 80% of entrepreneurs that answer should be sufficient, unfortunately.

Lets assume though that you are in a position to receive interest from multiple investors and you have to make a choice. Or you are going about your fund raise in a strategic fashion and are looking to target specific investors who you’d like to bring on board at your startup.

The overarching theme to address this question is to bring folks who provide “Smart Capital“.

Most investors will give you money. That’s why they are an investor.

What you need in addition to the capital is what you should be looking to get from investors if you have the choice.

1. In some cases that might be connections and networks – to other investors, to potential customers, partners or future employees.

2. In other cases it might be expertise and insights – how to address questions that you will face while you scale and grow your startup.

3. In still other cases it  might be credibility and advice – being associated with top folks in your industry gives you a leg up over others.

4. In still other cases you might just want someone you can trust and sound ideas off. Knowing that your startup journey is going to be long and lonely means you need folks to help keep your morale up or to help you gain perspective.

They may be more things you might need in addition to capital, but most will fall into these 3-4 buckets.

Typically most folks will tell you that they can bring their expertise and connections. 

If you can be strategic about your fund raising (meaning you have good runway, or have great traction), then I’d highly recommend you look at your fundraising as a project that the CEO undertakes herself.

It will take about 3-6 months (elapsed time) from start to finish, so you should be willing to be patient, and consistently follow up as with any strategic project.

So the question then becomes how do you gauge if someone has expertise or connections?

The simple test is to ask them questions you face daily and look for depth of the answers, the breadth of their knowledge and the ability for them to customize their learning to your needs. That will give you a sense for their expertise.

The depth and breadth of their network is also easy to test – ask them to introduce you to 2-3 people you have been trying to meet to help validate your plan.

Above all I’d highly recommend you reference check. Talk to others in their network who they have invested with or other entrepreneurs they have invested in to get a sense for the investor.

The most critical question you can ask is how they respond to tough situations. 

100% of all startups go to hell and back before they are a success or a failure. When you have supportive investors to help you along the hard journey, it will be a lot less stressful.

Facebook more than Google is the new Microsoft #fastfollower

I was catching up with all the F8 news over this weekend and something struck me as odd. Facebook is the new “fast follower“. They are pursuing the multiple app strategy, not the single app strategy.

It is almost as if they dont have new ideas, but keep picking up the best ideas from every other team and executing it better because of their inherent strengths.

They borrowed the hashtags from Twitter.

They stole stickers from folks like Line and Kakaotalk.

They picked up the send money via messenger from Google wallet.

They also picked up sending messages to small businesses directly from users from the Square app.

I can see their acquisition strategy being similar as well – buying the new age “consumer suite” instead of the Microsoft “office suite” – with WhatsApp for messaging, Instagram for Photos and likely buy Meerkat sometime soon, when they hit mainstream. I still believe they will buy SnapChat sometime in the near future.

The other part of the strategy that makes it interesting is how Microsoft and Facebook realize that they are both competing with Google (Android) and Apple (ioS) in terms of real estate on the mobile phone.

Android just recently announced Work and Home profiles which will allow the user to have 24 – 30 apps which occupy the “home screen”.

Microsoft with the acquisitions of Accompli, Sunrise and LiveLoop now owns email, calendar, productivity and is only missing work productivity – which it did own – via Skype and Skype for Business, by others.

Facebook, with Instagram, Whatsapp and its own apps dominates the “home” fun and communication screen. What it is missing is private sharing (Snapchat etc.) and possibly video (Meerkat).

I can also see Facebook partnering with someone or buying a Music app and a dating app as well.

That’s primarily because most Smartphone users (over 65%) dont download any apps and use the ones that are default on their phone.

The ones that Microsoft and Facebook are missing on iOS and Android are maps (most people use Apple or Google maps) and browser (most folks use Chrome or Safari).

I wont be surprised at all if Facebook partners with ESPN and Weather channel to create “Social Sports” and “Social Weather” apps as well.