Intrigue your investor

Vijay Anand muses about building “businesses that don’t make money”.

It poses a question – why are VCs insisting on a business model?  Clearly the stress here is on investing in intuitive ideas that drive user base for everyone to benefit from. The trouble is in getting investors to fund it early when revenue visibility is poor or seemingly non-existent.

So, how to get around that?

I think the trick is in seeing things that lot many others don’t. Often opportunity comes in coveralls that look like work. Get around to work on some idea that isn’t good now because the infrastructure just isn’t there, but will be good five years from now. Capture your imagination in a logical sequence, spread it across a visual format to be evaluated by investors. Go easy on them. Most VC pitches fail not because the idea was bad, but founders didn’t know how to sell it.

Be passionate. Be always-on. Recognize likely problems and figure out ways to solve them.  Does work feel like work?  Ask yourself. If the answer is yes, you failed the test of passion. Don’t go further. 

If you’ve passed it, all that is left is to intrigue an investor; make her see right through you!

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How to screw a virgin

I never give in to spam mails or TV commercials.  I zap’em all in one swoop.  I chuckle at the  ad spend that just got wasted and feel pleased with myself for being completely in charge, right on top. 

If I were a brand, my tagline will be – “Don’t sell me stuff; make me buy”!

But the whole world wants to market or sell stuff to folks like me because it is hard to get us to buy!  I recently came across a bunch of young entrepreneurs with little or no marketing budget.  Being the cheapest and with scope for a decent outreach, they had zeroed in on viral online marketing.  I told them how I loath spam mails and how much I like an unchoked inbox. I told them about my tagline too and in an instant they were staring down a pest.  But it got them thinking seriously since they badly needed orders.  Soon they were busy figuring how to sell to these eclectic if not elitist, spam zappers.

So, how to screw a virgin? 

Rape is impossible within the confines of her inbox. She calls the shots in there where she is free to open, save or zap mails.  Marketers can at best land a message and forget about it.  Ah, messages can be followed up over phone.  But calls cost and budgets rule, don’t they?

Then I read this piece by Kim snyder on getting the most out of email marketing.  Interesting spin.

[Got here because of title?  Silly you!  Fools die 🙂 ]

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Easy, guys !

Steve Brotman, a New York VC on pitching to VCs.

 “….complicated pitches make the potential investor feel stupid. Entrepreneurs sometimes err on the side of complexity. There are a million ways to be complex. Some entrepreneurs insist on showing you a detailed demonstration of the product. Others will launch into arcane science or algorithms that only an MIT doctoral candidate could understand. There is a subtle psychology here that could be plumbed, but showing someone you are smarter by confusion isn’t a productive strategy.”

It’s a good advice for founders to worry about the business of technology than be obsessed with technology itself. 

Can’t agree more because I am guilty of advising several founders to focus on selling their idea to investors at the pitch and not attempt to educate them – because what they said beat me 🙂

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In control of my destiny

Old chums meet is a lot fun.  I look forward to it especially after delivering up on weary assignments.  Last weekend I met up with a couple friends from college days and we had a go at a nearby watering hole.  We caught up on a lot of things but given our age and times, it centered mostly on our careers and life in general.

They all envy me. No office policy enslaves me, no boss to rankle me.  I decide what to do, how to do, every day.  I am at liberty to pick and choose my clients.  I operate singly and have a home office for added comfort. No long and tiring daily city travel.  A very lucky man – as they see it!

While I have some of those liberties, my hassles are more from a business angle.

Lack of institutional steam:  Clients want big names. They are not ready to suspend their disbelief that individuals are capable of driving PE deals.  My first 15 minutes are invariably spent on convincing them that even in big firms, they operate as silos.  PE firms have no problem.  In fact they are kinder because I am available 24x7x365 as opposed to big firm executives that stick to workdays.  I now even get tipped by them on deal prospects over after dinner chats.  But I lose deals as well for this apparent old fashioned one-on-one work model, that some see as lacking in glamour.

Knowledge is a curse: Before approaching any client, I do a complete top-down and bottom-up research of its business and its industry.  Then I compare with global and local peers, last few transactions done by others, inter-firm comparison, cyclical nature of industry and apprise myself of its prospects in the short, medium and long term. This knowledge often is a baggage. I give presentations of case studies why a client should do a deal only after he goes a few notches up over competition that could be easily achieved with some minor tweaks to his operations. Clients are desperate sometimes to get into a transaction that is clearly against their interests.  Wary investors seize this moment and offer pittance seeing the client’s level of desperation. A couple weeks later, I get enquiry from another investor for that price I had indicated earlier but the deal is no longer there. The client had sold out in a hurry.

Dilution issues: In India, majority holdings in most enterprises are held by one or two families, sometimes over generations. It takes a lot of convincing to explain that it makes sense to cede control if it entails holding 40% stake in a Rs.100 crore ($25 MM) Company than holding 100% stake in a Rs.25 crore ($6 MM) business that took  generations to build.  Believe me, I’ve lost a lot of deals on this count alone.  Sometimes I get excited seeing their successors returning to business with advanced B-school degrees from Wharton or Harvard.  But after a couple years, they go the elders’ way instead of turning the elders around.

Valuation mismatch: “Big firms can fetch us better valuations”, clients say. I tell them “go try”. I follow up after a couple weeks, status quo. I pay another visit with hopes of getting “defogged” signal after illusions get dispelled. Some do come around.  Others settle for big firms for the same or lower valuation than I had indicated, grudgingly bearing a 4x fees than what I had quoted.

Does it read like a sales pitch?  So be it.  Who can stop me?! 🙂

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Throwing stones from glasshouses and making sense of it

Luke Johnson, chairman of Channel 4 and head of Risk Capital Partners, a private equity firm gets upright about entrepreneurs and their quirky instincts.

“A weakness of many entrepreneurs is that they have just too many ideas. They cannot stick at one thing and make it great – they get distracted and rush off to conquer other worlds. Their intelligence is the sort that dreams of endless possibilities – but follow-through is not always their strong suit….”

Well, being an entrepreneur and having associated with many others of the tribe, I can vouch for that.  I like to be a free agent, open to ideas all the time – as long as it makes money and I enjoy doing it. 

But Mr. Johnson also runs a PE firm and I was really surprised he said something like this about financial services –

“Ours has been an age of financiers, but perhaps this great period of leverage is drawing to a close. The investment bankers, hedge fund managers and – God forbid – private equity houses are no longer in the ascendant. Now the field is more open to those who actually run things.”

 Apparently, Mr. Johnson can live with a few broken glass panes, I suppose 🙂

Tackling tardiness

Fellow blogger and friend Vijay Anand, Founder of Proto.in wants firm answers.  I gave my take under comments to that post.

At times, especially when you have few choices, creepy `Yes’ is far better than swift `No’.   It depends on who is vacillating.  If it’s the seeker (say, a founder looking for funds) that is dithering, it means (s)he’s got choices.  But don’t juggle too many balls because you could end up dropping all of them.

If it’s the provider (Angels, VC, Banks), then (s)he is probably looking for better terms.  That means room for negotiation.  Pick up the slack and ask them “what more do you think we should be doing?”  Revisit the deal, give it a makeover and call on them again.  You could be in for pleasant surprises…

Some are grumpy and procrastinating by nature. Bitching people’s ways don’t get us anywhere. There’s not much that we can do about it unless we are in the business of changing DNA structures. We want to use their resources, don’t we? So exploit them to our advantage. Find the best way to do just that.

Recognize that tardiness is the format of their decision process.  Yes, No, May be are different steps that eventually would lead them to finally say yes OR no.  Be in touch with them and on top of their mind, but never interrupt their process.  That way you betray desperation and will make them dither more, in search of better bargains. Sometimes it might rattle them and they will down the shutters in a huff. You want neither.  A firm, though delayed `Yes’ is all you would settle for, don’t you…?  So focus on that goal, not why some people are assholes!

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can customer feedback alone drive innovation?

Good friend S.Swaminathan, CEO of Cequity Solutions draws attention to some takeaways from Gartner2008 CRM summit.  As Swami puts it, nothing earth shaking or new in there.  Analyst firms have always been predictable.

I’ve my comments under that post – particularly on (customer) feedback induced innovation processes – and explained why “enterprise insiders” have a larger role to play than customers in improving customer experience.  I had cited the Nokia example – its early customers have been pretty much content with the mobility feature offered by the wireless handset and had never asked for images, videos or data streams that were volunteered by the enterprise.  Had they tweaked the handsets on the basis of customer feedback, we would still be holding phones that looked more like a female sex toy (with its sprouty antenna) than the sexy multi-utility device that it is today.

Innovation has to be based on original and utilitarian insights that saturate a given or potential market need.  So the bets cannot be merely on customer (feedback) data because they have limitations.  They also suffer from weak sample sizes and visionary limitations of the customer.

A better metric I think has to come from a blend of customer and insider insight.  The enterprise insider (management, employees, suppliers, service providers besides customers) has the maximum touch points with the product/service than the customer.  While the insider looks up to the enterprise for his livelihood, the customer has wider options.  Humans do not mess with their livelihood and keep thinking about it a lot more than a customer would.  That deep and lasting connection and always-on thought process puts the insider in a position of significant advantage to draw insights.  Unfortunately insiders (other than R&D, Process or Marketing) have no canvas to jot it down, much less to get heard.

Don’t lose’em. Build your Business Intelligence around customer as well as enterprise insider.  You never know whose idea will fly !!!

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Industry expectation from I-Bankers

IDC, the global IT industry tracker brings out some insights on what the industry expects from IT vendors.  The top 3 expectations are (a) very competitive pricing (2) support for industry standards (3) industry/vertical knowledge. 

I wish there were some trackers for India’s half baked business advisory firms that masquerade as investment bankers.  So I imagine what business would expect from such crass performers.  Here’s my wish list.

Ok, stuffed suits, hear me out. Be something more than just –

a) EPS calculators and BS aggregators [BS – I mean `balance sheet’ here; not the popular expansion though it fits better contextually 🙂 ] ;

b)  template runners; Dump that smug one-size-fits-all assumption.  Don’t take the mandate if you are not sure how to go about the transaction.  Don’t screw up.

c)  pushers of outrageous merger proposals; we know your slogan is “anything so long as it earns us fees”.

d) crass creators of PowerPoint slides throwing back at us not much more than what we had discussed with you;  we know you are too dumb to learn about our business.  We just use you to run some errands for us. Can’t you do that bit nicely, mate…?

e)   compliance service providers; we know how to file forms with regulators.

f)  pretenders of industry knowledge; do some research and bring back some useful insights adding value to our business.

g) fawning client-pleasers ; No we don’t want you to grovel. Make sure the transaction is not just earnings accretive, it should result in customer delight as well.

The points (a)-(f) is general industry perception (including PE fund managers) about quality of I-Bankers and their deteriorating service levels while (g) above is an insider perception from fellow I-Bankers. I’d discussed about this to some champion advisors.  They all had agreed it’s a valid point yet they have no choice in this dog eat dog world.  When I checked last, each of their last transaction had destroyed phenomenal value for both shareholders and customers.  I have blogged about other potential value destroying FCCB transactions here in detail.

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Before jumping in

Entrepreneurs suffer from an “asymmetry of information”. Those who make it in the end have a unique, in depth understanding of an opportunity – an insight. They pick up a grail from nowhere and dream up big scale.  Only they can do it; for others it’s hardly visible.

Strangely though, the winner’s moments of triumph in the end are attributed to luck or pure chance by the society.  Their years of dedication to the cause, the number of failures they met with, the pain that they endured are overlooked and the focus is suddenly only on the final dazzle.  Out comes an image of ringing the bell in NYSE on the day the stock opens for trading.  Sadly though, young people want to do `it’ and jump in. As this NYT article says, “as humans, we want to believe that creativity and innovation come in flashes of pure brilliance, with great thunderclaps and echoing ahas. Innovators and other creative types, we believe, stand apart from the crowd, wielding secrets and magical talents beyond the rest of us.”

When I find startup entrepreneurs filled with a lot of passion and little experience venturing out big time, I’ve often wondered what drives them.  A cursory glance at their venture tell me they need ten times the capital they had and at least five more people with definitive domain skills.  Yet you find one or two young upstarts, with weak bootstraps hacking away that almost always end up in whimper.  Few months later, they realize their fault and look around for reinforcements.  If they don’t get it, they blame lack of a supportive ecosystem.  You know what went wrong.  Flawed inspiration.

Run a check.  Have someone else take a look at your grand plan. Digest their feedback, make sure you’ve got what it takes, appreciate opinion and still if the idea won’t leave you alone, go straight ahead and do it.

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Having Greenspan for company

Most rules of public speaking or norms of even simple conversation urge us to stay away from jargons.  I for one don’t think I can remember all those rules, much less act them out.  When I speak, I am busy collecting my thoughts in tandem, test their adequacy so that the listener is put in context, apply emphasis where necessary and liberate them in a simple vocal exercise. Where do rules figure in this mind-mouth scamper?

Yet I think of occasions when jargons came in handy.  It helps me compact my sentences amongst people that liberally use them. Saves me and the listener lot many words, long winded explanations. Sometimes it effectively helps parrying questions that are uncomfortable to answer or are totally out of context or even irrelevant.  Few inquirers have the chivalry to admit ignorance and persist.  If they do, I throw more jargons at them. Signal their cluelessness and convey it’s just beyond them. Wear them out.  They’ll soon find something better to do.

Now I find from this article Alan Greenspan used this tactic to avoid answering questions when testifying before Congress !!! 

I am no great fan of Mr.Greenspan.  But it feels good to know I have his company 😉

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