Having a great, defensible business idea in a scalable market is only part of the puzzle to attracting venture capital. A more important part is having a backable management team that can pull off the execution of the plan. Below are the top traits venture capitalists desire in their startup founders.
Read the rest of this post in Entrepreneur, which I guest authored this week.
For future posts, please follow me at: www.twitter.com/georgedeeb.
A place for entrepreneurs to learn and engage on various topics and lessons with the Partners at Red Rocket Ventures. The blog is an executive's strategic "playbook", with actionable "how-to" lessons on a wide range of startup and digital-related topics, including business, strategy, sales, marketing, technology, operations, human resources, finance, fund raising and more.
Friday, March 7, 2014
Thursday, March 6, 2014
What is Better for Startups? In-House Teams or Outsourcing?
Last summer, we introduced StartUp Beat readers to Ensemble’s ‘startup excubator’ model for ‘do-it-for-me’ entrepreneurs. In the last six months, we started to get calls from do-it-yourself entrepreneurs with their in-house teams saying: “What about us? We could use your help too!” This led to Ensemble launching its newest program, Presto, a one-day boot camp for do-it-yourself entrepreneurs who want credible third-party digital experts to ‘sanity check’ and optimize their own in-house plans. Entrepreneurs who are in the process of building a startup often seek mentorship, but where do professional service firms fit into the plan?
Read the rest of this post in StartUp Beat, which I guest authored this week.
For future posts, please follow me at: www.twitter.com/georgedeeb.
Read the rest of this post in StartUp Beat, which I guest authored this week.
For future posts, please follow me at: www.twitter.com/georgedeeb.
Saturday, March 1, 2014
Lesson #170: What's More Important? Your Product or Proof-of-Concept?
I have had the luxury of meeting over 500 startups at Red Rocket over the last three years. And, typically, most of them approach me at the same point in their startup development. They have just finished building their new product, whether it be a website or mobile app or whatever, and they are seeking venture capital to assist them with sales and marketing to bring in new users. It is typically then, when I ask them "do you have any current users and how quickly are you growing" to point to a proof-of-concept around your startup. Which is typically followed by, "I don't have a material user base yet, that is why I need the venture capital". Then I shrug, and have to be the "bad guy" of telling them they are not ready to raise professional venture capital. A sad and familiar story, as without this round of capital, the startup will most likely go out of business, as they lack other sources.
But, why is this the same old story? In my opinion, it is because entrepreneurs are so focused on their product, with their heads down coding away on some cool technology feature or functionality, that they don't think far enough ahead to what will keep their business funded. Yes, many product-driven disciples will say, "if you build a great product, users will come". And, they are right. But, the question is: by when?
Startups are on a very short timeline to success, typically raising a small amount of seed capital from friends and family or angel investors. And, because these investors are not typically flush with cash, the entrepreneur simply raises enough money to build and launch their product. It was in that fatal decision, in my opinion, where most startups have placed the noose around their necks without even knowing it.
Before even investing one penny in their product, they should have set a budget for their product AND their proof-of-concept marketing. Because without some dollars to seed users for your product from Google, Facebook or other targeted and affordable advertising channels, it will be very difficult to build and grow an audience large enough that will satisfy the proof-of-concept requirements of most venture capitalists.
So, what are some key lessons here:
So, everyone stop what you are doing with your products, take some time to understand what will be required of you from a proof-of-concept perspective with new investors down the road, and align all of your immediate efforts around those clearly defined goals and metrics. To help you here, check out this companion Red Rocket post on how to budget and test your proof-of-concept marketing.
For future posts, please follow me at: www.twitter.com/georgedeeb.
But, why is this the same old story? In my opinion, it is because entrepreneurs are so focused on their product, with their heads down coding away on some cool technology feature or functionality, that they don't think far enough ahead to what will keep their business funded. Yes, many product-driven disciples will say, "if you build a great product, users will come". And, they are right. But, the question is: by when?
Startups are on a very short timeline to success, typically raising a small amount of seed capital from friends and family or angel investors. And, because these investors are not typically flush with cash, the entrepreneur simply raises enough money to build and launch their product. It was in that fatal decision, in my opinion, where most startups have placed the noose around their necks without even knowing it.
Before even investing one penny in their product, they should have set a budget for their product AND their proof-of-concept marketing. Because without some dollars to seed users for your product from Google, Facebook or other targeted and affordable advertising channels, it will be very difficult to build and grow an audience large enough that will satisfy the proof-of-concept requirements of most venture capitalists.
So, what are some key lessons here:
- Never lose sight of the forest through the trees. Make sure you are clear on the end goal of building a successful long term business, which may require capital down the road. And, learn the requirements of those investors, right from the start.
- From day one of your startup, set aside a proof-of-concept marketing budget with which to drive initial users to your product.
- Proof-of-concept is typically dictated by the quantity of users you have attracted, and how quickly you are growing month-over-month. So, raise enough marketing dollars to build a large enough initial user base (e.g., 100,000 app downloads), doubling in size month over month.
- And, most investors will want to learn your marketing metrics around a profitable cost of acquisition per user. So, you can't just waste your marketing budget, you have to test and tinker with it until you find the profitable relationship between marketing spend and revenues per user.
- If you don't raise this money upfront, it will be near impossible to raise it later, given the proof-of-concept requirement of the venture investors.
- If you proceed in raising enough capital for your product only, you are walking down a very slippery slope towards startup failure, before you even had a reasonable chance for success. This is the reason 9 in 10 startups fail: they didn't plan far enough ahead, because they didn't know any better.
So, everyone stop what you are doing with your products, take some time to understand what will be required of you from a proof-of-concept perspective with new investors down the road, and align all of your immediate efforts around those clearly defined goals and metrics. To help you here, check out this companion Red Rocket post on how to budget and test your proof-of-concept marketing.
For future posts, please follow me at: www.twitter.com/georgedeeb.
Lesson #169: Budget for Startup Marketing from Day One
I am not sure how many of you remember the 1989 film, Field of Dreams, starring Kevin Costner, who plays a farmer who builds a baseball field in the middle of an Iowa cornfield, after hearing a voice tell him "if you build it, he will come". And, sure enough, despite people thinking he was crazy, people did end up coming to watch a bunch of baseball legends of years gone by, reunited for a modern-day baseball game.
I often feel that startup entrepreneurs are building their own Field of Dreams, when launching their startups. But, unlike the Hollywood script, often times the sad reality is: "if you build it, they may not come", especially without any foresight to building a sales and marketing plan and budget to help get initial users engaged with your product.
Most startups are so focused on building their products (e.g., website, mobile app), that they simply raise enough seed capital to fund that development project. They often have little cash left in the bank, with which to start driving prospective customers to that product. This leads them to errantly go out, hat in hand, to the venture capital community, looking for capital with which to use for their sales and marketing efforts.
The problem is, most venture capitalists do not fund companies until there has been a sufficient proof-of-concept around that business. This typically means a large and growing base of website traffic, customer pipeline, revenues or other metric which proves there is solid demand for the product. In addition, most venture capitalists are looking to accelerate proven marketing initiatives that have been successfully tested in the past. They do not typically hand out sales and marketing dollars for entrepreneurs to experiment with.
Most entrepreneurs learn this hard fact way too late in the process of building their business, often burning out of cash before the company had a reasonable chance for success. Had they planned ahead and pre-funded the required sales and marketing efforts that would be needed down the road, before they even got started with their development efforts, they would have raised enough seed capital, to fund both the product and the proof-of-concept marketing. In this scenario, when they ultimately do seek additional growth capital from venture capitalists, the odds of closing that capital would be materially higher, with their proof-of-concept behind the company.
Too many entrepreneurs think they are living in a world much like Field of Dreams. Not all startups are going to attract initial users on their own. Not all startups are going to light a viral fire, like Groupon or Pinterest did. They are the rare exception. For most startups, driving initial awareness and users is very difficult, and can get expensive as you are testing ad buys on Google, Yahoo, Bing, Facebook, Twitter, LinkedIn or elsewhere, looking to find your "magic bullet" with a profitable customer acquisition cost to scale with.
Yes, I agree with many people, that if you focus on building a great product, the customers will surely follow. But, the question is, by when will they come, and do you have enough cash runway to bridge your path to profitability? In most cases, you will not. So, before you even get started, make sure you raise enough money to cover the required sales and marketing efforts to allow you to acheive your proof-of-concept, and hopefully, make you a much more attractive venture capital candidate down the road, for the next phase of your growth.
For future posts, please follow me at: www.twitter.com/georgedeeb.
I often feel that startup entrepreneurs are building their own Field of Dreams, when launching their startups. But, unlike the Hollywood script, often times the sad reality is: "if you build it, they may not come", especially without any foresight to building a sales and marketing plan and budget to help get initial users engaged with your product.
Most startups are so focused on building their products (e.g., website, mobile app), that they simply raise enough seed capital to fund that development project. They often have little cash left in the bank, with which to start driving prospective customers to that product. This leads them to errantly go out, hat in hand, to the venture capital community, looking for capital with which to use for their sales and marketing efforts.
The problem is, most venture capitalists do not fund companies until there has been a sufficient proof-of-concept around that business. This typically means a large and growing base of website traffic, customer pipeline, revenues or other metric which proves there is solid demand for the product. In addition, most venture capitalists are looking to accelerate proven marketing initiatives that have been successfully tested in the past. They do not typically hand out sales and marketing dollars for entrepreneurs to experiment with.
Most entrepreneurs learn this hard fact way too late in the process of building their business, often burning out of cash before the company had a reasonable chance for success. Had they planned ahead and pre-funded the required sales and marketing efforts that would be needed down the road, before they even got started with their development efforts, they would have raised enough seed capital, to fund both the product and the proof-of-concept marketing. In this scenario, when they ultimately do seek additional growth capital from venture capitalists, the odds of closing that capital would be materially higher, with their proof-of-concept behind the company.
Too many entrepreneurs think they are living in a world much like Field of Dreams. Not all startups are going to attract initial users on their own. Not all startups are going to light a viral fire, like Groupon or Pinterest did. They are the rare exception. For most startups, driving initial awareness and users is very difficult, and can get expensive as you are testing ad buys on Google, Yahoo, Bing, Facebook, Twitter, LinkedIn or elsewhere, looking to find your "magic bullet" with a profitable customer acquisition cost to scale with.
Yes, I agree with many people, that if you focus on building a great product, the customers will surely follow. But, the question is, by when will they come, and do you have enough cash runway to bridge your path to profitability? In most cases, you will not. So, before you even get started, make sure you raise enough money to cover the required sales and marketing efforts to allow you to acheive your proof-of-concept, and hopefully, make you a much more attractive venture capital candidate down the road, for the next phase of your growth.
For future posts, please follow me at: www.twitter.com/georgedeeb.
Lesson #168: Start Thinking Globally Now -- 3.5BN People Are Waiting!!
In 2013, Cisco forecasted how large the world's Internet-using population would be by the year 2017. The data was quite staggering. The global online user population is forecasted to grow from 2.3 billion people in 2012 (32% of the world's 7.2 billion population) to 3.5 billion people by 2017 (48% of the world's 7.6 billion population). The Asia-Pacific region is forecasted to continue to be the largest overall market, and the Middle East-Africa region is forecasted to continue to be the fastest growing market.
And, although the global user base is forecasted to grow an impressive 52% during this four-year period, the amount a data consumed by these users is forecasted to grow 175%, with the mass proliferation of internet video and a growing number of mobile devices. So, make sure you are building your technologies on the best platforms in each region (e.g., mobile phones are the primary consumption device in Africa).
Let's put this research into perspective. Today, according to Wikipedia, there are 254 million online users in the United States (representing 81% of the 314 million overall population in the U.S.). That means over the next four years, Cisco's forecast of 1.2 billion new internet users across the globe, is like quintupling the size of the current U.S. online user population. That is a lot of people coming online, most of which is coming from overseas!
So, why does this matter to a bunch of startup entrepreneurs? If one of the goals of a startup is to target as large of a market as possible, it suggests there may be "bigger fish to fry" outside of the United States, where most U.S. startups first launch their efforts. Even if we use China as one example, already today, China's 568 million internet users is more than double the 254 million online users in the United States. That means if you launched a product that appealed to the both the Chinese and the U.S. markets, you would have 2.2x the reach and revenue potential day one if you started with China.
As an example, just look at the success Berlin-based Rocket Internet has had with a global startup focus in the e-commerce space. This startup incubator/venture investor has launched over 100 global companies in the last six years, which now employ over 20,000 people in over 50 countries and generate several billion dollars in revenue. Now, that is a case study worth studying (further detailed on the Red Rocket Blog).
Don't let overseas companies globally copy your good startup ideas at home, to then build up a leading market position in these lucrative international markets before you get there. Think globally as soon as you have acheived your proof-of-concept at home, and consider partnering with key players with local expertise in the big international markets, if necessary, to accelerate your own stand-alone efforts in those countries.
The goal of this article is to drive home the point that the Internet is a global medium, with over 90% of the world's internet-using population, forecasted by 2017, to be located outside of the United States. That means with a U.S.-only focus, you will only be appealing to 10% of the world's online population. The sooner you start thinking globally, in terms of your development and marketing efforts, the faster your globally-generated revenues will follow, and the faster you will control your own international destiny.
For future posts, please follow me at: www.twitter.com/georgedeeb.
And, although the global user base is forecasted to grow an impressive 52% during this four-year period, the amount a data consumed by these users is forecasted to grow 175%, with the mass proliferation of internet video and a growing number of mobile devices. So, make sure you are building your technologies on the best platforms in each region (e.g., mobile phones are the primary consumption device in Africa).
Let's put this research into perspective. Today, according to Wikipedia, there are 254 million online users in the United States (representing 81% of the 314 million overall population in the U.S.). That means over the next four years, Cisco's forecast of 1.2 billion new internet users across the globe, is like quintupling the size of the current U.S. online user population. That is a lot of people coming online, most of which is coming from overseas!
So, why does this matter to a bunch of startup entrepreneurs? If one of the goals of a startup is to target as large of a market as possible, it suggests there may be "bigger fish to fry" outside of the United States, where most U.S. startups first launch their efforts. Even if we use China as one example, already today, China's 568 million internet users is more than double the 254 million online users in the United States. That means if you launched a product that appealed to the both the Chinese and the U.S. markets, you would have 2.2x the reach and revenue potential day one if you started with China.
As an example, just look at the success Berlin-based Rocket Internet has had with a global startup focus in the e-commerce space. This startup incubator/venture investor has launched over 100 global companies in the last six years, which now employ over 20,000 people in over 50 countries and generate several billion dollars in revenue. Now, that is a case study worth studying (further detailed on the Red Rocket Blog).
Don't let overseas companies globally copy your good startup ideas at home, to then build up a leading market position in these lucrative international markets before you get there. Think globally as soon as you have acheived your proof-of-concept at home, and consider partnering with key players with local expertise in the big international markets, if necessary, to accelerate your own stand-alone efforts in those countries.
The goal of this article is to drive home the point that the Internet is a global medium, with over 90% of the world's internet-using population, forecasted by 2017, to be located outside of the United States. That means with a U.S.-only focus, you will only be appealing to 10% of the world's online population. The sooner you start thinking globally, in terms of your development and marketing efforts, the faster your globally-generated revenues will follow, and the faster you will control your own international destiny.
For future posts, please follow me at: www.twitter.com/georgedeeb.
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