Articles by Tim Berry

On the Paradox Consistency vs. Pivot

One of the more stubborn problems in building a business is the paradox of consistency vs. the pivot.

Consider this: It’s better to have a mediocre strategy consistently applied over three or more years than a series of brilliant strategies, each applied for six months or so. But too often people get bored with consistency and drop a working strategy long before the market understands it.

And on the other hand, there’s the brick wall. Maybe it’s the futility of trying to implement a flawed strategy. Maybe it was a good strategy but depended on assumptions that changed.

And there’s the problem: is it time to pivot? Or has a good plan been poorly executed? Or has a good plan been well executed and simply needs more time?

One good way to deal with it is focusing on the assumptions. Identify the key assumptions and whether or not they’ve changed. When assumptions have changed there is no virtue whatsoever in sticking to the plan you built on top of them. Use your common sense. Were you wrong about the whole thing, or just about timing? Has something else happened, like market problems or disruptive technology, or competition, to change your basic assumptions?

As a business planner, I’ve always disliked “because that’s the plan” thinking. Plan should be fluid and flexible. Plans should be reviewed and revised. Sticking with the plan thinking explains in part why some business experts question the value of the business plan. That’s sloppy thinking, in my opinion, confusing the value of the planning with the mistake of implementing a plan without change or review, just because it’s the plan.

Do not revise your plan glibly. Remember that some of the best strategies take longer to implement. Remember also that you’re living with it every day; it is naturally going to seem old to you, and boring, and sometimes it just takes longer to develop.

But don’t stick to your plan either. That in itself isn’t a virtue.

That’s why they put people in charge, instead of formulas, algorithms, or cliches.

Power Pitches

3 Essentials for Selling Your Marketing Plan to Investors

Somebody asked me in email what investors look for in the marketing portion of a business plan and/or business pitch. What works? What’s credible? What are investors looking for?

Caveat: generalizations are dangerous. And I’m generalizing here from what I’ve seen in the three dozen or so pitches and plans I’m exposed to in a year, plus my discussions with other angel investors in my group, and investors I meet as fellow judges in business plan competitions.

I see three essentials:

1. The market-defining story

The market defining story explains the need, or want, or why-to-buy factor, defines the target customer, leads to credible market numbers, generates the marketing messages, and communicates a market to investors, so that they can visualize it, and sense it’s potential, in their own imagination. I have a commented example here. It’s a story that makes product-market fit come alive. Investors don’t want to be force fed large numbers for potential market; they want to be able to imagine the numbers for themselves.

2. Believable paths, triggers, and channels

If and only if that potential market seems to come alive, it needs credible plans to move from ideas and messages into media and concrete marketing programs with some backbone and metrics to them.

Nobody buys the hand waving at “online marketing” and “we’re going to be big in social media” anymore. For online marketing, as a common example, you should be able to talk realistically about your search engine budget, pay-per-click budget, social media experts on staff or available as contractors and budgeted into the plan, targets for page views, unique visitors, and conversions. You should be able to explain your Facebook, Twitter, and/or LinkedIn, and/or Pinterest or other social media plans in terms of numbers such as follows and followers, tweets and retweets, topics, engagements, likes, and so forth.

For physical products supposedly moving through channels, you need to show that you understand the margins through channels, the difficulty in getting through distributors with new products if that’s relevant, the process for getting accepted, and what it takes in push or pull marketing to get sell-through in channels.

For business-to-business and direct selling, be able to show that you understand the expenses involved and the sales cycle selling to large organizations.

Not all of these details need to go into the pitch with slides; but they should be in your plan, and you should be able to pull them up in an instant when asked, during a pitch, for more detail.

3. Defensibility

Investors will be thinking, as they watch your pitch or read your plan, about how easily some future competitor can jump into your marketing plans, co-opt your tag lines, jump on your topics, pre-empt your channels, and use your own marketing against you. Don’t trust trademark or copyright to defend you by themselves. A brilliant marketing plan that others can easily jump on isn’t as interesting as a good marketing plan that’s exclusive and defensible.

Conclusion: These are necessary but not sufficient conditions. Looking good on all three doesn’t guarantee anything, but looking less than good on any one of them is going to hurt your prospects to attract investors.

Industry Experts

10 Things That Make a Business Plan NOT Fundable

I really like Martin Zwilling’s post here yesterday, 10 things that make a business plan fundable. That made me think about this list, the opposite, things that make a plan not fundable. Before I start, though, I second Martin’s motion on the use of business plans:

People ask me if they really need ANY business plan, unless they are looking for an outside investor. In fact, a business plan is needed more by you than investors, as the blueprint for your company, team communication, and progress metrics. Things that make it investment-grade for outside investors will also benefit you, since you are the ultimate investor.

I liked all of Martin’s points in that post, but, since sometimes the other side of the coin is just as interesting, here’s my list of reasons why not. These are my 10 things that make business plans notfundable, in my assumed order of importance.

Problems with the founders. Investors bet on people, specific people, more than on businesses, markets, ideas, or products. They want a team with startup experience except in some very rare exceptions, like technical geniuses; and even then, they are going to want to bring in people with experience.Founders with questionable character or background or behavior don’t get funded. For example, I saw a founder tell investors, during a pitch session, that some investors screwed him and his previous partners were dishonest. And getting too aggressive too quickly is a problem.

And a founder who fudges the truth, thinking nobody will notice, has to be very good at it, or very lucky, because when this comes out investors assume that lies never exist alone. They assume a single significant lie is a tip of an iceberg. Being wrong, by the way, happens all the time; and that’s not the same as lying.

Sweat equity can be a problem. Founders making no money at all is a problem for many investors, because — while the bravado is impressive — it isn’t realistic over the long term. And of course founders making more than market-justified salaries is a problem too.
The next [whatever]. Investors immediately mistrust “the next” Facebook, Netflix, Twitter, Instagram, or whatever. While it’s true that this happens sometimes (Google was the next Yahoo, for example) it’s extremely rare, while this kind of claim is extremely common. Big disruptive successes create new markets, they don’t copy other successes in existing markets. And being a better Facebook, Netflix, or Twitter isn’t usually convincing either, because those claims ignore the critical mass problem of getting attention with something new when something is already there and huge in the same market.
Missing the problems-and-solutions story. Investors want to see the problems and solutions, for themselves, through the stories you tell about them. They really want a good story of a buyer really needing what you’re selling, and a good story means one they can evaluate themselves, and believe in. Identify a buyer and personalize the story of solving a need.
Missing the market story. Sure, investors want to see your research and numbers, but believability is more important, and markets become believable when investors see them immediately in their imagination. If the needs and solution story applies to lots and lots of people, and everybody recognizes that fact, then you’ve won the investors at that point. Filling the imagined market with research numbers is good, but numbers alone don’t convince anybody.
No imaginable exit. Investors need to believe founders want to grow and then create an exit. The founders themselves don’t need to exit, but it it looks like they’ve got a beautiful business that can live and grow forever without ever needing more money, then that’s great for them but not for their investors. Investors need to believe they’ll get a return on their investment.
Stupid profitability. Projecting absurdly high profits doesn’t mean it’s a profitable business; it means somebody doesn’t understand the business well enough to know its costs and expenses.
Tops-down projections. Lots of plans build sales by taking a small percentage of a huge market, but that’s never convincing. Build sales on assumptions like web traffic, channels, events, sales locations, or combinations on those. The bottoms-up projections, with assumptions laid out clearly, are the only way. Martin wrote yesterday: “Avoid any statements like ‘All we have to do is get 1% of the market.’” Amen to that one.
No Competition. The only businesses that have no competition are businesses that nobody wants. Even if you are as good as that implies, then you’re going to have competition after you launch.
Nothing defensible. You need a secret sauce. Usually that’s some technology of your own, sometimes it’s a market position, but there has to be something to give you some barriers to keep everybody else, especially bigger and more powerful players, from jumping in on top of you.
Empty broad claims. Supposedly “game changing” or “disruptive,” for example. Of the hundred or so business plans I’ve read so far this year, easily two third of them had one or the other of these claims. Fewer than five had an interesting shot at it. When a plan really is disruptive or game changing, investors will say so themselves. They want that too. But if they say so instead of you, that’s 100 times better.

While we talk about business plans being fundable, it’s not really the plan that gets funded. I agree with Martin when he writes:

The best plans are not usually the fanciest or the longest. They are not measured by the quantity of impressive graphics or the size of the revenue projections.

What people invest in is not the document, but its content and the people who will execute it.

Invested Interests

Control Depends More on Results Than Term Sheets

Fred Wilson of Union Ventures writes Entrepreneurs Have Control When Things Work, VCs Have Control When They Don’t on his AVC blog.

This is one of those ideas that seem completely obvious but only after I’ve heard them. Whether we’re founders or investors, we focus on terms and percentages as determining control. But in the real world, as Fred points out, strength and power are about who holds what cards, and who needs whom. He says:

An entrepreneur or hired CEO can own as little as 5-10% of a Company but they can control it like a dictator if they are doing a great job running the business and the company is making a lot of cash flow and has no need for additional capital.

An entrepreneur can control 95% of a company and all the seats on the board but they can easily lose control of the business if they company is floundering and they need more money and the only investors who would consider putting up money are the existing investors.

Exactly.

I’m not suggesting either investors or founders get glib about it and pretend the terms aren’t extremely important. You have to do your job. It’s just that, on the other hand, when you think of all those stories about investors wresting control from founders, many of those stories are true. But ask yourself: were those companies doing well?

Industry Experts, Invested Interests

Investors Don’t Know What They Want

Take a step back and be objective, and U.S. angel investors are hardly a diverse group. Not demographically diverse (sadly, we’re mostly older white men) but in opinions, preferences, and what we want in a deal, for sure.

I strongly recommend a quick tour of the ‘what investors want‘ collection of videos on this site. You’ll find 22 very short videos taken from interviews of some very thoughtful, successful, and influential investors. It’s a bit like an angel investor role call.

What reminded me of diversity was how I was struck yesterday by one of these in which one of the angel investors values certainty very highly. It’s s very short snippet, but the active quote is …

They can have a great idea. They can have a lot of support behind them, but are they certain about what they’re saying? That certainty is a critical component of what credibility is.

That’s a direct quote from a seasoned, intelligent, and articulate investor included in this series. And it reminds me that I don’t like people who project certainty forward into the future. I respect people who respect uncertainty. Give me conviction, comfort with risk, the ability to move forward … but add to that flexibility to recognize uncertainty is a given and to move quickly to react to changes.

If you’re an entrepreneur looking for funding I seriously recommend you take the half an hour or so and listen to every one of these 22 snippets. Few of them are even a minute long, all of them are substantial.

Pivotal Moments

7 Ways to Cure Post-Pitch Depression

It’s one of the most frequent questions: What if I can’t get funded for my deal? What next? Do I keep trying forever, drowning in the myth of persistence? Who can I complain to? Where do I get my appeals hearing?

Here are my seven favorite cures for post-pitch depression.

Scale down and focus: So don’t be the next Facebook, at least not immediately. Go back into your plan and find the core components that drive the rest. Narrow the market, narrow the business offering, and shorten the time from zero to revenue. Reduce the risk on the big questions of viability and market. Lower your valuation. Create smaller milestones for the short term.
Partner up. The most common hurdle is the credibility of experience. Investors don’t want to fund anybody’s virgin startup. If you’ve never worked with a startup, then find a partner or two who have. They don’t insist that you’ve already launched and exited successfully, but they do insist that you’ve been through a startup. Maybe you weren’t the founder, but you were there early and stayed long enough to get the idea. And experience with startup failure is way better than no startup experience. There is a catch-22 problem in startup funding: you can’t get experience if you can’t get funded, but you can’t get funded if you don’t have experience. Deal with it.
Sell Something. Nothing validates a new business like actual sales. Checks written and signed say way more than big market numbers. If you don’t have the product to sell yet, cook up a deal for pre-sales. Offer huge discounts. Put it on kickstarter if you can. Find somebody to write you a written promise of sales and contracts as soon as you’re ready.
Bootstrap it. Re-read my #1 above, on scaling down and focusing. Many a food cart ended up as a fancy restaurant. Start with the part of it most likely to fund itself. Watch your costs. Keep your day jobs a while longer. Prove it to yourself and the rest of the world by starting a subset and making it work.
Attitude adjustment: Consider my illustration above. There are more good startups than good investors. Lots of good businesses aren’t good investments. They might not need investment to grow, might not have obvious exits, and — quite common — offer great ROI for founders but not for investors.
Get a clue: Yes, this point directly contradicts #5. Paradox is part of business. While some good businesses aren’t good investments, it’s also true, and probably more often, that if nobody wants a piece of your great new startup then it isn’t all that great. Reconsider. Maybe it’s time to walk away.
Don’t blame the investors: There’s a lot of wasted emotion on this point, not to mention conspiracy theories, class warfare, whining, and what-not. Investors aren’t good or bad, they are just looking for a good return on their money. They write checks. They get to make choices.

If you keep getting rejected, change something. Fix what’s wrong with your deal or just do it yourself. If you give somebody value, for something they need or want enough to pay money for it, then there’s a business there. Eventually. And if you aren’t giving value and people won’t pay for it, then keep your day job.

Power Pitches

True Story: We Didn’t Buy The Victim Pitch

Most of us know not to complain about the previous employer during a job interview. Fair or not, it just doesn’t work, right? The new job never want to hire somebody with that kind of chip on a shoulder.

More so with investor pitches.

I was at one once, as an investor member of a local angel investment group, when this happened. The pitch had been intriguing, the product/market fit looked attractive, and the guy in charge seemed to know his stuff. The pitch went well. The general feeling in the room was positive. We wanted to hear more.

But one of the post-pitch questions set him off. Why had it taken so long to get from A to B? He launched into a Job-like story of unscrupulous partners, unethical investors, and ineffective lawyers. When he was done, maybe two minutes later, the room settled into quiet.

There were no more questions. And there was no more interest.

The moral of the story is obvious: maybe you are a victim, maybe they did screw you, but if that’s the case, then get over it. Never take that up as a banner. Suffer that in silence and maybe your potential investors will discover that in due diligence. Let them find out. Don’t tell them.

(Image: istockphoto.com)

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Thoughts on startups by investors that fund them & entrepreneurs that run them

Tim Berry