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(Editor’s note: Jason Cohen is founder of Smart Bear Software. He contributed this column to VentureBeat.)
I’ve started three companies, and now I’m an angel investor. So I’ve been on both sides of the table.
There are lots of good articles out there about pitching, and surely everyone who pitches me has read some of them. Still, a few problems appear over and over again. If you’ve ever had to sort through resumes and cover letters, you’ve seen this effect: People tend to have the same misconceptions and therefore make the same mistakes.
What follows are four problems I see all the time, each of which makes me roll my eyes and sometimes even terminate the conversation early.
Be dismissive of the competition.
Let me guess what your feature-comparison chart looks like. Probably pretty close to the illustration to the right, huh?
You have all the checkmarks, they have few. Even when your competitor has a checkmark too, your implementation is still better. There’s nothing they have that you don’t. Oh, and they’re more expensive too.
When I see this chart, all I know is: It’s a lie.
The point of “competitive analysis” isn’t to say: “I’m better than everyone else.” Rather, it’s to define your niche in the market and explain how you own that niche better than everyone else.
Need to be further humbled? Here are some things not in your little feature-comparison chart:
- Those competitors probably have more customers than you.
- Those competitors probably have more revenue than you.
- Your potential customers have possibly heard of one of these competitors but almost certainly never heard of you.
- Those competitors are already ahead of you in discovering, defining and attacking the market.
- People rarely buy on the basis of “most features.”
So what should you do instead?
- Define the segment of the market that’s being underserved. Part of this is admitting what part of the market is being well served, and who is serving it.
- Admitting where your competitors are strong earns you the credibility to point out where they are weak.
- Explain how there’s a portion of the market being missed rather than having to displace a product. Once you have your own niche you can talk about creeping into another niche.
- Explain how having fewer features or different features makes for a product that’s more exciting or versatile or more relatable or usable or viral.
- Give testimonials of people being “fed up with” the competitor and how they’ll run into your arms.
- Explain how it’s not possible for competitors to compete on your terms. Maybe the competitor’s business model uses channel sales, so by using a direct model you can compete on price. Or perhaps the competitor has $30m paid-in-capital so they must roll the dice on big market plays while you can be smaller and safer. It’s also possible the competitor maintains a “big company” image to land enterprise sales, so they cannot copy your folksy small-business cool persona. Give concrete examples.
Have five-year projections.
I don’t care what you’re projecting – seats, customers, revenue, profits, market growth – it’s all crap.
That’s right, it’s crap. You made it up, and you know it, and now you’re insulting me by expecting me to believe it.
Oh wait, you say it’s a “conservative estimate?” No, the conservative estimate is that you burn through all your cash in nine months and start taking on consulting gigs to delay a return to a “real job” in corporate America. (Not that I blame you.)
But, really, this is good news! You don’t have to invent crazy models that no one believes. You can focus on useful stuff instead.
- Show how fast you can get to cash-flow-positive. After that you’re not burning money, and that’s the hardest part of your journey, so address that first. If the rest takes longer, that’s ok.
- Explain how revenue will outstrip expenses as you get customers. That’s something you have more control over, and that makes it clear that as you grow, you have a sustainable, profitable company.
- If you must give projections, at least make a range, and make the distance between max and min widen the further out you go. And maybe stop at two years? If you can’t be profitable within 24 months, either it’s a bad business idea or you need to raise big VC instead of angel money.
- Actually say, “I would show you five-year projections, but we both know those are crap. Let’s talk about how I’m going to make this business profitable.” Just that one sentence alone sets the tone of the conversation.
Gloss over your strategy for customer acquisition.
Here’s the typical slide I see for customer acquisition strategy:
- Google AdSense
- Ads on selected relevant web sites
- Blogger outreach
- Social Media presence (blog, Twitter, Facebook)
Yes, these are ways to get customers, but here’s the problem: Every company on Earth tries these things – and most fail anyway. Therefore, this list is uninspiring – and it isn’t enough.
Anything that everyone else does is boring and unconvincing. There’s no competitive advantage. There’s nothing there that makes me more likely to think you will pull this off.
Of course it’s true that, to some extent, marketing has to be “trial and error,” or better yet “experiment and measure.” And it’s ok to say that, and it ok to list some traditional modes, but this isn’t sufficient.
After all, if all your strategy is “We’ll try stuff until something works,” I have no reason to believe something will ever work!
So here’s what you should do:
- Internalize that your route to getting customers is critical to your success. Admit that to me and yourself — this is one of those things that makes or breaks the entire venture! Spend real time in your pitch on this subject.
- Be specific. Specifics are compelling and paint a picture in my head that I can get behind. Examples:
- Not just “Blogger outreach,” but “We’ve done a few guest-posts on mommy-blogs and given the comments and traffic that seems to be a good outlet for us, so now we’ll expand in that area with more posts, ads, etc.”
- Not just “Facebook presence,” but “We’re using a Facebook application platform that’s been proven to work in such-and-such parallel business and we think we can duplicate the mechanism.”
- Not just “Community outreach,” but “The founders have lined up speaking engagements at these five local groups and we’re hoping that after collecting feedback and testimonials from that we can branch out into neighboring cities.”
- Something creative. If I haven’t heard about this marketing technique before, that’s probably a good thing. At least you’re not just doing what everyone else is, which in this day and age is already an advantage.
- A viral product. If “viralness” isn’t baked into the product itself, you’re already behind. Especially if it’s a web-app. If you can show how the app helps spread itself (i.e. invites, sharing, integrating with social media crap, only works with a friend, affiliate program), that helps me see how X customers leads to X+1 customers.
Do what you think you “should” do instead of what feels right.
There’s a ton of advice on raising money. Don’t take any of that advice just because you read it somewhere.
Yes, including this article! Yes, including this tip too. (Wait a minute…)
Seriously, be yourself. Filter all advice through your own lens. Think of this like you’re getting married — if you’re not yourself, not honest, how will you hook up with an investor that gets you, likes you, and believes in your core motivations and values?
Now go out there, tell the truth, be real, and raise some money!