Invested Interests

Investors Reject Plans With No Clear Business Model

For survival, the objective of every business should be to bring in revenues which exceed their costs. Even non-profits have to do this to cover overhead costs, unless they rely totally on donations. Yet I continue to see business plans, or even talk to founders, and can’t find the specifics of the business model anywhere.

As Guy Kawasaki says in his book “The Art of the Start,” if you can’t describe your business model in ten words or less, you don’t have a business model. Avoid whatever business jargon is currently hip, like strategic, mission-critical, world-class, synergistic, first-mover, or scalable. Try something like, “the product costs $X, and we sell it for $Y.”

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Power Pitches

What do Investors Want? Maybe What the World Needs?

Try this: take a step back from your phone, your FaceBook, and your daily routine, clear your mind, and think about the large-scale institutions that need change. What markets to disrupt?

It’s going on three years since Fred Wilson of AVC did this excellent Google talk on disruption. What markets really need disruption? He said consumer finance, energy, education, and health care.

I’ve read more than 100 business plans in the last 8 weeks, and considerably more than half of them promised either “disruptive” or “game changing.” One or two of them might me.

I’d say there’s been movement in consumer finance over the last three years, and maybe in energy, but not much at all in education and health care. A lot of sound and fury, perhaps, but signifying nothing. Lots of online courses, especially for adult education. Lots of universities offer online courses, led by the likes of Harvard, M.I.T, and Stanford, including a lot of online institutions and new ideas like Kahn Academy and udemy. But not of this does much to change the basic model of one teacher and two or three dozen students in a classroom.

To me it seems like nobody’s dealt well with the problem of keeping younger kids engaged and learning by some other means than the traditional model. Or the validation and certification that comes from diplomas and lots of hours sitting in seats. Do you agree?

And then there’ s politics. In the U.S., at least, politics doesn’t work. Wherever you stand on the political spectrum, I bet you agree that our system is totally obsolete on fund raising, advertising, issues discussion, partisan politics, and the actual voting mechanisms themselves. Do you agree with the need for disruption there too — the business of politics, if not the core of politics and political parties. And the business of political discussion, and issues?

What is still true today, as it has been for a couple of generations, is that truly disrupting a market can mean a huge business win. For startups and whoever invests in those startups.

Tim Berry , Founder, Palo Alto Software
May 15th, 2012 1

Power Pitches

TED Talk 2007: David S. Rose on Pitching to VCs

It’s pretty amazing that the video is from five years ago and has been viewed something like 500,000 times.

Even though in the years since, I’ve done a lot more pitch coaching with a lot higher production value, it turns out that there is not much I would change in the content all these years later. Good luck with your fundraising.

Invested Interests

7 Reasons for Entrepreneurs to ‘First Know Thyself’

7 Reasons for Entrepreneurs to ‘First Know Thyself’If you are going to be a real entrepreneur, it’s important that you know yourself well. After all, you won’t have a direct manager charged with giving you feedback, and your team probably will be afraid to tell you what they really think. Entrepreneurs need to recognize their own strengths and limitations.

In any case, your skills, talent, knowledge, personality, and strengths are your best assets as an entrepreneur. I’ve extracted many of the following points about knowing yourself from a book aimed at women professionals, called “Career GPS”, by Ella L. J. Edmondson Bell, Ph. D., but I see them applying equally well to every entrepreneur, man or woman. Let’s see what you think: Read more

Power Pitches

Can You Find Investors for a Family-Based Team?

I had in interesting discussion at the University of Texas Venture Labs Investment Competition last week. One of the teams there included husband and wife and wife’s father, with a very interesting business plan that I hope succeeds. They asked me to what extent family ties affect angel investor or venture capital interest.

Why me? Presumably because my wife and I own our business and our daughter is CEO and her husband COO. We did raise venture capital for the business, but not until we didn’t need it. At the time we had more than $5 million in annual sales, no debt, and positive cash flow.

Unfortunately, most investors look askance at a startup with family members working together. For example, I was once in a group of investors that automatically ruled out the best plan in the group because it was lead by two brothers. I objected, but I was a minority of one, in a group of two dozen.

So should a family-led startup stop looking for investment? No. They should research their target investors carefully to rule out prejudice based on family business. That’s not just a special case. In fact, every startup that needs investment should be pitching only to investors who have basic compatibility of goals, industry experience, and ways of working together.

This is always good advice: Choose an investor like you would choose a spouse.

And for sibling teams, or spouses, or two generations, prepare some extra due diligence information to address investors’ legitimate doubts. Ask yourself how will you answer questions about decision processes and decision hierarchy. Do you cross conversations between family lines and business lines? Do you have a family business code of conduct? Can you show an organization chart with clearly defined areas of responsibility for the various family members? Can you talk about how this works in practice.

You can also point out that there are also worries about lines crossing when friends create businesses together. And you can remind them of outstanding successful sibling or husband-wife teams like Heidi and Peter Roizen, Doug and Gary Carlston, and Michael and Xochi Birch.

What investors want, in my experience, is a good investment with a good risk-return relationship and a reasonable shot at high growth, scalability, defensibility and successful exit. When family members have what it takes to make that happen, you have the advantages of loyalty, compatibility, and hard work.

Tim Berry , Founder, Palo Alto Software
May 8th, 2012 0

Invested Interests

Test Your Business Model Against These 10 Elements

Business modelYou can’t succeed in business without an operational model that delivers value to customers at a reasonable price, with an underlying cost that allows you to make a profit. There are no “overrides” – for example, businesses don’t thrive just because they offer the latest technology, or because everyone wants to be “green, or because their goal is to reduce world hunger.

I expect that should seem intuitive to all entrepreneurs, but every investor I know has many stories about startup funding requests with major business model elements missing. The most common failures are: solutions looking for a problem, lack of a defined market, and giving away the product. Read more

Fail Tales

Copywrong: Brilliant, Disruptive, Illegal Business Plans

Entrepreneurs tend to focus on opportunity rather than risk, and rightly so.  As Steve Blank has written, at its core, a startup is an organization formed to search for a repeatable and scalable business model.  In the lexicon of the lean startup movement, once “product-market fit” has been achieved, the focus shifts to scale and execution as the startup matures into a growth company.

In a sense, risk and opportunity are two sides of the same coin to early stage startups.  The huge risk that eclipses all others is that the product or service being offered simply won’t succeed — there is no product-market fit, at least at numbers that would make for a financially viable business — in which case (assuming competent execution) the perceived opportunity, viewed broadly, wasn’t really there to begin with. Read more

Antone Johnson , Founding Principal, Bottom Line Law Group
May 3rd, 2012 2