In a world where “starting-up” is cheaper than ever – all you need is yourself, a few talented friends, and a supportive wife / husband – avoiding common mistakes is as valuable as actual capital. After a recent conversation with Mark Gerson (founder of GLG), I thought it would be valuable to highlight the top 5 statements we hear from entrepreneurs that most likely show that you are thinking about growing your business the wrong way.
1. X is on my advisory board
As a general rule, your advisory board makes little to no difference in the development of your company. The simple reason being – advice doesn’t build a business – executing, iterating and spitting blood does. Therefore, the common statement that any investor has heard over and over again – holds very little sway. As a matter of fact, I would rather an entrepreneur spend time building the business than recruiting advisors. An advisor is only a positive for the business if the following two things occur: He/she serve a very specific purpose of moving the business forward (sales, marketing etc) and such responsibility is clearly articulated in their “advisor documents”. As an entrepreneur, you always try to bring the best people close, but it is imperative not to spend time bringing on advisors for “show”, and when the resources are so thinly spread to spend every minute focusing on substance.
2. Our technology is very complex and patent pending
People don’t buy technology, they buy simple business applications. It is uninteresting to hear how complex your technology is, if a moment before you aren’t able to articulate very simply how it will change someone’s life for the better. And the most complex things are amazingly simple. Uber gets me from point A to point B faster and more conveniently. The dynamic pricing engine and algorithms directing vehicles to passengers across a city is an enabler, but it no way what interests me as a consumer, and therefore shouldn’t interest me as an investor. Every company should think about whose life they are making easier and how first, and only then take pride in the technological complexity necessary to solve that problem / pain-point.
3. We are a strategic asset for Facebook / Google
Whenever I hear someone is a strategic asset to someone else in the early stage, all I hear is that they are not building a viable and valuable business themselves. Let’s leave it up for Google and Facebook to worry about what is strategic for them, and focus on building something that is strategic for your customers. If it will be valuable for enough customers, it will start becoming strategic for Google and Facebook.
4. Our business model revolves around monetizing big data
When an entrepreneur says this, it essentially means they don’t have a business model. Google and Facebook monetize data through different forms of advertising; Palantir monetizes data through intelligence insights and reports. The amount of startups that have the capacity to execute on a product roadmap, acquire customers and grow exponentially, while “monetizing data on the side” are close to zero. The general case is that unless the data you collect is immediately valuable to someone, your business model is currently not monetizing data. And almost every business should have a business model J. There are examples (the outliers), such as Facebook, twitter or Pintrest who really did not have a business model until they reached massive scale. And it is those few businesses who have forever skewed the thinking of first-time entrepreneurs. Businesses are built on revenue, and every company should have a clear path to it (and then profitability) in its roadmap.
5. Our market size is $20 Billion dollars and we have no direct competition
There are no markets without competition, and there are very few addressable markets that are immediately billions of dollars large. For starters – if there isn’t competition, your market isn’t interesting. And if you still think there isn’t competition, you are just not defining competition properly. Competition is anyone vying for the same dollars / piece of the pie that your business is vying for. Plain and simple. I don’t care how you as a company define yourself, the question is – who will you be battling in next year’s budget decisions.
Regarding market size – markets are actually divided into many micro-markets which you as a startup will be trying to tap. The fact that the big data market is $50Bn a year means nothing about your market as a company. The real questions you should be asking yourself when thinking about market size are the same questions you should be asking about your competition – whose dollars are you going to get, how many dollars are up for grabs now, will there be more or less dollars in the same bucket next year, and do you have to share them with someone before they end up in your pocket. When an entrepreneur tells me their addressable market is $20Bn, what I am actually hearing is that they don’t understand their market and how people are behaving in it. And what is most interesting when listening to an entrepreneur in the early stages is exactly that – his / her understand of the market they are competing in.