I just read this great post by my good friend and colleague, Mark Achler, a Managing Director at Chicago-based Math Venture Partners. He was kind enough to let me republish it, in its entirety, for all of you Red Rocket readers. This is a must read when pitching investors. Thanks, Mark, for sharing your valuable insights here, from a VC's perspective.
______________________________
Your startup isn’t about you, and it’s not about your product, either.
Your startup is all about your customers. It’s hard to overstate how critically important this seemingly simple insight is.
I recently wrote an op-ed piece called “Entrepreneurs are Lazy,” about how entrepreneurs rarely seem to take the time to prepare before pitching to venture capitalists. In the piece, I raised the question of how these entrepreneurs can expect to deliver effective pitches without understanding how we think and make decisions.
Showing up poorly prepared at an investor’s office makes for a bad first impression, sure. But more importantly, it raises a serious red flag about the viability of your business.
Most startups fail
To explain why that is, let’s start with a simple fact: most startups fail. There are studies that range from 50 percent to over 80 percent, but whatever the exact number, I think we can agree that most fail. Because let’s face it: it’s really tough to build a business from scratch.
I also think it’s fair to say that no company ever went out of business because they had too many customers. So the fact that most startups fail seems to suggest that most entrepreneurs don’t know how to sell.
This is actually the core investment thesis of our venture capital fund, MATH Venture Partners. We love to invest in entrepreneurial teams that know how to sell. Who deep in their DNA have a profound appreciation for what it takes to acquire customers. And, who have an “unfair advantage” in customer acquisition.
Founders who have this unfair advantage possess a trait I like to call “radical empathy.” They have an ability to deeply and truly understand their customers’ needs. They see where customers are coming from, speak their languages and understand how best to reach them.
Poor preparation is a tell
In poker there is a term called a “tell.” It’s when a player tips their hand about the cards they are holding. For us VCs, the lack of preparation when they meet us is a tell. We treat it as a proxy for lacking the ability or desire to truly understand their customers. Someone who possesses radical empathy would never show up at our offices unprepared.
One of the key ways entrepreneurs reveal that they haven’t prepared is by showing up at our office to talk about product features. I invariably stop them and say, “I don’t care.” (OK, maybe I care a little.) But what I really care about is for the entrepreneur to tell me what problems their potential customers are facing, and why those customers will trust their startup to solve them. What are their selling points? What’s the sales strategy?
To paraphrase Field of Dreams, most entrepreneurs believe that if we build it they will come. But a great product without customers is a great product — not a business. Building a business is all about sales.
Understanding is more than just listening
Beware, though, that understanding your customers is not always the same thing as listening to what they say.
I used to head up innovation for Redbox. This was still in the age of Blockbuster, so we were doing extensive market research to find out what customers would look for in a reimagined movie rental service. When asked, most customers told us that the number one thing they looked for in a movie rental service was choice: of course price mattered, and convenience was helpful, but they wanted every movie ever made. They wanted international films and documentaries.
But when we started digging through 20 years of Blockbuster rental data, what we found was that the vast majority of rentals were new releases from the 30-day wall.
Radical empathy is all about diving deep and truly understanding your customers. Sometimes better than they understand themselves.
If you reach that level of understanding and build your business entirely around your customers’ needs, your business is sure to stand out from the thousands of other startups out there.
Image via MATH Venture Partners.
Mark Achler is a serial entrepreneur and a managing director of MATH Venture Partners. Follow him on Twitter @MarkAchler.