Month: March 2021

This past week I had two conversations with entrepreneurs that boiled down to the same thing: every successful venture starts by delighting a customer. Simple, right? Wrong. Entrepreneurs love dreaming about the future, how the world should work, and what needs to be created. Only, as the creator of the idea, it’s easy to believe things should function a certain way.

We should sell to job titles X, Y, and Z because they’ve always been the buyers.

We should avoid doing X because it’s never worked for other companies.

We should charge X to ensure Y gross margins.

We shouldn’t spend more than X to acquire customers.

We should avoid custom work and one-off services as they aren’t scalable.

None of it matters if customers don’t love the product. Put another way, don’t optimize the business model around what makes a “good business.” Instead, optimize the business model around customer delight and then figure out the rest.

Start with customer delight. Without happy customers, nothing else matters.

For as long as I can remember, I believed that the amount of capital in a startup community was driven exclusively by the quality of the local startups. Want more capital? Build better startups. Now, I believe I was wrong and more capital results in more startups.

Many years ago when we tried to raise money for Pardot, we thought we’d checked all the boxes. Great market. Great customer base. Great growth rate. Yet, capital was still incredibly hard to come by. I didn’t feel our difficulty raising capital was a function of local capital as we pitched investors from Boston to Silicon Valley. Our difficulty was because we didn’t do an amazing job convincing investors we’d build a big business. Regardless of our fundraising challenges, our community had limited capital and we looked nationally.

Fast forward to today and our community is brimming with capital and startups. Seed stage investors have raised over $100M, which is an enormous amount when the check sizes are often $250,000. Coupled with all the investors, there’s a commensurate number of pre-accelerators, accelerators, university initiatives, and scale up programs. Startups are everywhere.

Investors have to put capital to work in order to earn their fees and profits (ideally!) from their own investors. If there’s more seed stage capital now, which there is, it translates into more startups raising that type of capital — the money has to go somewhere.

But where are the new startups coming from?

A few ideas:

• Science Projects – A couple developers put something together on nights and weekends to demonstrate a prototype. Before, they’d have to have some traction to raise money. Now, it’s a less of an issue and science projects are getting funded.
• Spin Outs – A team within a startup identified an unrelated issue and started building a solution. After a few conversations, they decide to spin it out as a new startup and raise capital.
• Bridges – A young startup is making progress, but not enough to raise a big new round. Instead, investors do a bridge round in an effort to keep things going with an eye towards hitting a meaningful milestone.
• Less Tech – Before, most startups were software/Internet businesses. Now, more have a tech component but aren’t primarily tech, and are raising money from tech investors.
• Startup Programs – Accelerators and other community programs are achieving their intended function by helping startups raise money at higher rates.

Put simply, investors take more risks now. More ideas and “projects” are getting funded. More programs are prepping startups to raise money, and succeeding in their efforts. It’s a great time to be an entrepreneur and the capital is flowing.

More capital does equal more startups. The money has to go somewhere.

Last week, during two separate conversations with entrepreneurs, it was offered up that their startup’s messaging was too complicated. Tons of jargon, buzzwords, and technobabble were attempting to drive home a particular feature set and positioning. Only, it was doing the opposite.

More complexity is a failure to distill messaging down to its essence.

More complexity is a crutch for not taking the time to present what really matters.

More complexity is the easy way to avoid being uncomfortably narrow.

In school, we’re told to do assignments where you have to write 1,000 words. Volume of words is a primary driver of the output. More words is conferred as more value. In business, it’s easy to fall into that trap.

In lieu of more words, the focus needs to be more clarity. More thought over more verbosity. More crispness over more jargony.

The next time you describe your product, competitive position in the market, or value add, reduce the complexity of the verbiage. Increase the understandability. Make it clear.

There’s a never-ending debate in the entrepreneur world: build it and they will come or demonstrate authentic demand first before building it. The first approach — build it and they will come — a.k.a. the “Field of Dreams” approach is the most common. Inspiration for a new idea hits an entrepreneur and they work to bring it to life. Entrepreneurs that study the Lean Startup take a more modern approach whereby customer discovery is employed to truly uncover a meaningful pain or opportunity before building a solution. Customer discovery yields better outcomes but there are plenty of pros and cons with each approach.

Entrepreneurs should start with The Mom Test: How to talk to customers & learn if your business is a good idea when everyone is lying to you and unlearn their natural tendencies of leading the witness during customer discovery as well as being too broad with the initial idea. Entrepreneurs are naturally optimistic and eager to get to validation. Most people want to be supportive and say it’s a good idea regardless of whether they’re the ideal customer or having any expertise to back it up. Asking harder questions and seeking objective feedback takes more work, and delivers better results.

Once the basics are in place, it’s time to hunt for authentic demand. Authentic demand represents prospects that want to buy something but have no options — there’s an unfulfilled market need. The hunt for authentic demand is no different than a sales rep looking to build a pipeline, and that’s precisely how entrepreneurs should treat it. Here are a few sales tactics to use in the hunt for authentic demand:

• Cold Calling – Pick up the phone. Call the people that fit the ideal customer profile. Ask great questions. Yes, most people don’t like answering the phone but there are still plenty that do, especially in certain industries.
• Outbound Emails – Email is easy, fast, and effective. People respond to unwanted email when the message resonates and the pain is real.
• LinkedIn InMails – More expensive than email but often more effective, LinkedIn InMail works. Tailor the message. Find the authentic demand.
• Social Media – Follow the ideal buyers. Understand their view of the world. Find a connection point and make the ask.
• Networking – Talk to anyone that’ll listen — friends, family, co-workers, etc. Share the story and ask for intros.

Treat the hunt for authentic demand like a sales process. Come up with a goal — say 100 activities a day — and develop a system. Then, work the system. The more experiments and activities, the more certainty that authentic demand is real (or non existent and it’s time to move on). If there’s authentic demand, and the hunt was a success, the greater the chance of the startup succeeding.

Start with the hunt for authentic demand.