Should you pay to pitch your startup? ✶
BetaBeat's Adrianne Jeffries:
So how much is too much? "I've always been curious as to why people think pitching should be free," Ultra Light Startups founder Graham Lawlor wrote in an email. "I think each event is unique and startups should evaluate paying to pitch as an investment, alongside their decision of which lawyer or web host to use. I like to believe startups that pitch at Ultra Light get far more than $50 worth of value in exposure and feedback (and sometimes prizes). I suspect the people who think pitching should be $0 are not running many events themselves."
I have no problem, in theory, with companies paying to present at an event. However, let's call that what it is: it's a promotional presentation. Presenting it as "pitching", i.e. as an activity directed at investors for the purpose of getting funding, is misleading at best, and downright dishonest in some cases.
Promotional presentations shouldn't be free. Pitching should. Patrick McKenzie puts it best on HN:
It's a sign that you're entering hugely, hugely seedy territory if you ever are asked to pay to receive offers of employment, scholarships, or investment. First, many out-and-out scams operate that way. Second, if the opportunity were legitimate, there is an adverse selection risk. Meritorious candidates for employment/scholarships/investment have no interest in paying to get a chance at them, so those candidates would avoid that opportunity like the plague. The decisionmaker, if they have two brain cells to rub together, knows this and charges anyway. Why would you ever take investment from someone who had a declared policy of only entertaining pitches from the bottom of the barrel? (Plus, egads, what does that say about you to follow-on investors or other parties you need to sell?)
If you read this far, you should follow me on twitter here.
Seeing opportunities, and missing them ✶
This engaging story of the early days of a startup team (which is now working on their next startup) who went to Silicon Valley with a dream and not much idea of what they were going to do, but made it work through spotting an opportunity and going with it:
In a day of work, we wrote the software in 300 lines of code and tested it. We ordered a label printer from Dymo and hooked them up to a Dell Mini 10v netbook. After that was done, we contacted an event organizer, convinced him that our system wasn't going to fail, and asked if we could print name badges for him.
The event organizer let us try out our system, and that night turned out to be amazing. People thought it was the coolest thing ever to type their name in a laptop and instantly have a name badge print out. At the end of the night, we handed out lots of cards and got lots of people to try our mobile app. It was the first time in my life that there was "buzz" around something I created.
But then, they sold the company and went back to their previous idea, which HN user SwellJoe takes issue to:
You made a product no one wanted, and in order to market it, you stumbled onto a product that lots of people wanted in a market where billions of dollars are spent each year (we spend about 10 grand a year on conferences, and we're a tiny company with a tiny marketing budget). You've now ditched the product people wanted, presumably selling it for a pittance, and went right back to a similar mobile app to the one you couldn't convince anyone to use, despite excellent marketing savvy.
If you read this far, you should follow me on twitter here.
How to raise a Series A round ✶
Elad Gil offers some structured advice for how to raise a Series A round, and how it differs from angel funding. The headlines:
- Line up all the meetings in a short period of time.
- Create an auction.
- Make the first 2-3 meetings "practice meetings" if at all possible.
- Find the right partners at the right firms to talk to.
- Use back channels to your advantage.
- Treat the pitch as a product - iterate on it until it is great.
- Know what you are optimising for (control, valuation, expertise, etc).
The best advice missing from the list? As with many tricky aspects of stating up, get advice/mentoring from someone who's familiar with the process.
Three traffic triage questions ✶
Ilya Lichtenstein on traffic triage, the activity of efficiently filtering which online marketing channels are worth investing in, and which aren't:
The trick to allocating your marketing effectively is implementing some kind of traffic source triage system. When encountering a new traffic source, you want to be able to quickly and consistently categorize it into a low, medium, or high priority group, before spending any time or money testing it.
Ilya then proposes three key questions to ask about any kind of traffic, and goes into detail about how to answer them:
- Is there enough volume?
- Is the traffic cheap enough?
- Does the traffic convert well enough?
Importantly, Ilya describes ways to answer these questions without having to invest money into the traffic source.
How to approach an angel investor ✶
Andrew Scott, founder of location-aware recommendation startup Rummble and several others before that, has written a good beginner's guide to approaching angel investors.
A key extract:
Ask an Angel up front some basic questions. Don't be shy. You need to know:
- Do they have the money?
- What is the typical size of the investment they do
- What was the size of the last 3 investments and in to which companies
It's key to know these sort of things to avoid wasting time pitching someone who can't or won't invest. Another founder I know, who's building a startup that's currently pre-revenue and pre-traction, always starts by asking:
We're pre-revenue and pre-traction. Does it still make sense for us to pitch?
This makes it harder for the investor to then turn around (as european investors are wont to do) and say, after a long pitch process, "We'd like to invest, but come back when you have traction."
Have a read if you need a refresher on raising investment, or want to find out more about it.
What's the best strategy to get from having no startup to having one that provides you with income?
Is it to find the best idea you have, focus all your energy on it, and make it work at all costs? This seems to be the standard mode of operation for most new entrepreneurs. They'll wait until they have an idea that they can pursue and that seems worth pursuing, and then pour all their energies into that idea. If it works, great. If the idea happens to be a stinker, they'll probably fail. Some might be lucky enough to know that they should validate the idea before pouring a year of development effort into it, and so find out the idea is not so good before all the money is gone.
Once upon a time, it used to be that starting a company and building a new product was a big and all-consuming affair (notice I'm not even talking about cost). If you were Henry Ford and you wanted to try out your new idea about car manufacturing, there was no way to do that without pouring most of your time into that one idea. Steve Jobs and Steve Wozniak had to put their heart and soul into building Apple for it to stand a chance. Granted, Woz also worked at HP at the same time, but it took more than 1 full-time person's attention to get Apple to the point where its potential for success was validated. Even today, many such businesses are still started. Dropbox, AirBNB or Spotify are not the kind of business that you can start with only part of one person's attention. You need several people to dedicate all their time to proving the idea, if you want it to stand a chance.
But is that true of all startup ideas? Clearly not. There are many ideas which you can validate very cheaply and without pouring all your time into them over a long period of time. They may not all be great, world-changing, visionary ideas, but they are still ideas that serve a purpose, fulfill a need, and have the potential to create value for both the founders and the customers.
Is that even true of most startup ideas? Do most startup ideas require a large up-front investment in time to validate that they could be good, worthwhile ideas?
The ever-shrinking minimum viable niche market
As I've argued before, the cost of starting a startup is always decreasing, or rather, the amount of stuff you can do for a given amount of money is always increasing. Let's consider a random niche "X", and let's assume it's a niche that is real (i.e. there is actually a need that could be served and that people would pay money for). 10 years ago, the process of validating the market for X and building a product to serve it would cost a large chunk of money and take all your time for a year.
Today, addressing the same niche would take considerably less money, because of all the tools and methods available to make software development more productive. Even validating the need would take less in both cost and effort, because of all the communication tools at our disposal. Moreover, that niche is probably somewhat bigger today than it was 10 years ago, because there are simply more people on the internet.
Ten years ago, the correct choice might have been to avoid niche X and find something bigger. Today, niche X could be served with a positive return on investment relatively quickly (if you can execute).
I propose that there are countless such micro-niches becoming viable every week, niches that were previously unviable but which are now worth having a shot at if you're looking to make a regular income by building software. These ideas will not make anyone a millionaire, but they are viable to build a sustainable small business that will free the founder(s) from the shackles of corporate work, and perhaps enable them to take a more risky moon-shot on their next venture.
A better time investment model
Some time ago, Chris Yeh wrote that impatience kills startups, and I replied that patience kills human beings. From an investor's point of view, it makes perfect sense that you should dedicate yourself body and soul to a single idea. And in fact, I would argue that you should not raise investment unless you are ready to dedicate yourself to that idea for the next 3-5 years.
However, when it comes to finding an idea to work on, there is no reason to work on a single idea at a time. And, if the ideas are small enough to be implementable by very small teams in a handful of months, there's also no reason why you can't build several of those ideas at the same time (or in quick alternation throughout the year).
If you want to maximise your chances of running a successful startup, where success is defined as achieving at least the "survival" level outlined in this article, and ideally the "comfort" level, it makes a lot more sense to invest your time in many ideas at the same time, test all of them (in parallel or one after the other) and then pursue the one or ones that are most promising.
Some people may accuse you of not committing to your ideas, and that's exactly what you're doing and what you should be doing. Given that ideas can be tested, explored, and sometimes built out into profitable businesses without committing to them to the exclusion of other ideas, committing to a single idea is irrational unless it's the kind of idea that simply requires full-time commitment. And if it is that kind of idea, it's inherently more risky - perhaps you should cut your teeth on a less risky idea.
If you are multi-skilled enough to be able to implement all startup aspects by yourself, you can then become an "army of one" entrepreneur, building multiple profitable products in parallel, turning the "several people work full time on a startup" equation on its head - and getting wealthy in the process.
If you read this far, you should follow me on twitter here.
Merchant accounts, or Paypal ✶
Here's a detailed article by Rob Walling, that, as well as giving a light overview of the way he thinks about acquiring and developing businesses, also makes a strong case for using Paypal's Website Payments Pro (a merchant account equivalent) instead of applying for a merchant account via Authorize.net or others.
I have never applied for a merchant account via a payment gateway, so I can't comment on that. However, before jumping onto Paypal and embracing its horror stories of frozen accounts and held funds, it's also worth considering another option: getting your merchant account from a traditional bank, and picking a payment gateway separately.
The benefits of going via a traditional bank is that they tend to be much more responsive. You typically get an account manager with a name and a phone number and there is no "wait X weeks and we won't tell you that your account was denied" type of process. Banks are serious about opening accounts. And, if you know how to open a merchant account, it's not that hard (though it can take a while, so start early). This is what I've done for my last two businesses, and I've had no trouble with it.
Sometimes, the old way is better. But, if you're just testing an idea and you don't know whether it's worth the hassle of opening a merchant account for it, Paypal is probably more than adequate.
If you read this far, you should follow me on twitter here.
Focus on one thing ✶
Jason Cohen and Noah Kagan arrive at the insight:
[Noah] said: "A startup can focus on only one metric. So you have to decide what that is and ignore everything else."
Jason proceeds to apply this idea to WP Engine, his current startup, via an insightful socratic discussion between himself and Noah.
It's a very worthwhile article, worth your time. One of the conclusions:
Little incremental things can come later, when you have the extra time. Today, it's just big needle-moving things.
Does that mean no A/B testing, no tweaking of AdWords copy, no landing page optimization? For Noah, yes that's exactly what that means. I'm not as disciplined, so for me it's not so spartan. We've all heard stories about little tweaks resulting in 15% lift in revenue. Fine.
But remember you're deciding between spending hours iterating to a 15% lift, versus spending all your energy, time, emails, social media, creativity, new features, marketing efforts, ads, measurement, trying to get a 2x or 3x change in the Most Important Number, that's an order of magnitude better. And you can still do the 15% thing!
Is that always true in all contexts? Well, I don't think it necessarily is. For those things which aren't going to move the needle, there's always consultants and other subcontractors. If the ROI is there and it can happen with minimal input, it might make sense to do it nevertheless, so long as it doesn't cost you attention.
As the amount of cash in the company increases (through sales), it makes sense to start looking at those peripheral items and seeing if you can get someone else to do them for a price that works.
If you read this far, you should follow me on twitter here.
First, second, third, fourth parts. Now fifth part:
#5: Follow-up meetings
Has this scenario ever happened to you? You have a great sales meeting, the client is excited, they want to work with you, you agree that you will send them a proposal or contract, and everyone shakes hands and goes away happy. Then you send the proposal. Then you wait. Then you follow up. And you follow up some more. And more. And... nothing. This client, who seemed to be in the bag, just seems to have their mind somewhere else.
Maybe you do eventually get through to them. You have a great phone call. They're still excited! They want to work together. They'll review the contract and get back to you.
And... nothing.
What you need is a follow-up meeting. And the best way to make it happen is right at the first sales meeting. While the prospective client is excited and wants to work with you, they're unlikely to say no to scheduling a phone call the following week. And if they do, chances are the sale was nowhere near in the bag, despite all the good feelings around the room, so at least you know about it, instead of walking away deluded.
Another benefit of scheduling that follow-up call is that you set a schedule for the client to actually look at your proposal. Instead of it being a loose, vague item that doesn't sit anywhere on their schedule, they now have a day to aim for before which the contract should be reviewed.
So, the tip is: try never to walk out of a sales meeting without a follow-up meeting or phone call scheduled.
If you read this far, you should follow me on twitter here.
