It can be very exciting when an investor agrees to fund you, but you need to understand that this is just the first step on a new leg of your journey. There is still lots of stuff which needs to be accomplished before the cheque hits your bank account, and you need to be on top of things to make sure that this process gets expedited. Think of it as a project with multiple moving parts, and you need to take ownership to make sure that nothing falls between the cracks . Things can change quickly , especially when you are dealing with many investors, and you don't want to lose momentum.
Because there are multiple players (your lawyer, their lawyer, their analyst, the many complex forms ; and the multiple signatures ) the process can seem complex and this can unnerve you. It’s a good idea to set up a list of deliverables; define who is responsible for which task; create a timeline; and then share this with everyone proactively , so that everyone can track progress. The fact of the matter is that investors are busy, and there are lots of different things going on in their life. Unless you make this your personal priority , things will take forever and ever to happen.
You need to keep on pushing and pulling to make sure that things move quickly, because you may find that the ball gets dropped because no one is very clear who's supposed to be doing what. This lack of coordination can come back to hurt you.
There are lots of tools available to help you manage the closure of the deal effectively. Once you put down the tasks on paper and add a timeline to it, what you need to accomplish will become a lot clearer , and you'll be able to remain on top of things.
Most entrepreneurs are very sure that the start-up which they are going to start is going to change the world. Everyone dreams they are going to found the next unicorn, otherwise no one would ever go down this path !
I think it's important that you have a lot of optimism , because the truth is that you do need to be a little crazy in order to have the courage to found start up. However, some of this is misplaced.
This is partly because first-time entrepreneurs are usually students who've been extremely successful academically, which is why they are not used to handling failure. The naively assume that just because they've been very successful in school and college, they will continue being successful in the real world as well. However, we all know there is no correlation between academic success and real world success, but this is not something which they've learned as yet.
The other problem is all the Kool-Aid which they're used to drinking because of all the hype which surrounds the start-up ecosystem. They read all the success stories which the media highlights; they soak up all the praise which is showered on the start-up founders who have made it big; and they binge on all the Shark Tank shows.
Sadly, few people talk about the failures and hardships which entrepreneurs need to endure. Even successful entrepreneurs convey a very rosy picture of their journey, because they want to show how heroic they have been in overcoming all the obstacles they were forced to surmount. They usually downplay all the near death experiences which they've had.
Investors, on the other hand, are acutely aware of the fact that lots of start-ups fail. Most investors have invested in companies which have gone belly up, even though the start-up was very well positioned and the founder seemed to be very bright, and had all the right things going for them. Even after being able to raise funds from sceptical and cynical funders , they still end up failing - often after burning through a lot of money. This is why there's such a huge difference in the world view between the battle-scarred seasoned investor , and the first-time entrepreneur !
The way an investor looks at time when doing his due diligence on a start-up is very different from the way an entrepreneur does. For an entrepreneur , the negotiation with an investor is just one of the many hurdles which he needs to cross in order to make his start-up successful. He wants to pitch and get the money, so that he can then focus on what's important - moving on with growing his business. He is looking for an investor who will give him the cheque as quickly as possible, at his chosen valuation. He wants to expedite the due diligence process quickly, because speed is important . The longer he spends on raising funding , the less time and energy he has on building his business and delighting his customers. This is why entrepreneurs think of funding as a distraction - something which is painful, but which they should get over with as quickly as possible
How to evaluate entrepreneurs Start with being as sceptical as possible, and share your doubts and worries with the founders, so they can answer your concerns ( which I am sure they have answers for, since they have been doing this for a few years). Be as blunt and straight-forward as possible. Then, suspend disbelief, and go and meet them, and give them a chance to win you over to their side - allow yourself to fall in love with the entrepreneur! If you decide not to invest, that's fine, but you should be able to argue his case persuasively
An investor's viewpoint is obviously completely different. He is taking a big risk in deciding whether he should be giving you his money or not, because he doesn't know enough about you. For him, time is his friend. The more the time he spends on doing his due diligence, the more he'll understand about you, your team, your business , your weaknesses, and your strengths. He will be able to judge whether you're capable of compensating for those weaknesses and implement your business plans.
As an entrepreneur , you're naturally going to be very biased. Everyone entrepreneur thinks his start-up is the best in the world , and that funders should line up to give them funding, because they have such a cool idea , and are so accomplished.
However, this is not the way the investor looks at the world. You are one of the many start-ups who is pitching to him, and because he has limited funds, he needs to decide whom to give them to. It's quite possible that even though you may be an A grade founder, there is someone else who is an A plus, who he thinks is more likely to give him a better return on his investment. This is why he selects him over you.
While investors understand your anxiety about moving on with the due diligence process quickly, you must understand that it takes time to do this properly. You can't hurry this up. The investor needs to look you in the eye; to check the chemistry between you and him; assess how stable your team is and whether you work well together. This is a time consuming process, because he has other start-ups to evaluate as well.
Trying to take shortcuts in the due diligence process ends up hurting investors , and we have learned this the hard way. Also, investors work as a team, which means even if one person in the team likes you a lot, but someone else doesn't, then there's very little you can do about it. The truth is that everyone on the investor team has to agree before they will actually sign that cheque, because there's so much at stake. The sooner you accept this reality , the better for you. Yes, this can be frustrating because you have one person on the team who seems to play the good cop , and is very enthusiastic and excited about funding you, while someone else plays the bad cop , who finds 50 reasons why you're not the right person. Every time you feel, "Oh great the deal is closed; I’ve answered all their questions and doubts, and finally they should be happy," when a new set of queries comes up the next day !
Now it's not like investors are trying to harass you, but it takes them time to get up to speed about exploring your domain and your start-up. As they dig deeper, they will have more questions, and you just need to be patient.
If you are mature and learn to look at the world from their perspective it makes complete sense as to why they're doing this systematically and methodically. In fact , this is in your best interests too, because they will be able to pinpoint what's wrong with what you're doing. They can highlight what your weaknesses are, and you can use this feedback cleverly in order to do a better job. It's like getting the advice of a McKinsey consultant - for free ! Even if they end up not funding you, thoughtful insights from an expert investor will help you run your start-up better !
Yes, it's true that not all investors are well-organised; and some even seem to take a perverse delight in leaving entrepreneurs hanging for their replies. This is sad, and these investors harm the entire ecosystem, which is why you should be picky and choosy about whom you choose to raise funds from.
I agree it's not much fun when you hear a No from an investor , especially after you have spent so much time and energy on the due diligence process. Yes, it can be heartbreaking , because that means you have to start the exercise all over again with a new funder. However, you will get incrementally smarter, and it will become easier for you , because your pitch will be more polished , and you will have better answers for many of their questions. You will have learned exactly what they're looking for , and will be able to tailor your presentation accordingly.
Lots of honest entrepreneurs will agree that their start-up has become much better because they went through the trial of fire by due diligence, and if done well, everyone benefits from this process.
Start-ups often need to raise funds in order to grow, and most entrepreneurs don't understand the fundraising process. It's all very foreign to them, and they don't know how to pitch, or how to contact investors.
This is where investment bankers can be helpful - they help to connect funders with founders. Good investment bankers have cultivated relationships with investors, which they nurture over many years. They understand what investors are looking for, and can help to bridge the gap between entrepreneurs and investors . The reduce some of the friction which founders would otherwise encounter.
They coach entrepreneurs, and explain to them what investors are looking for. They help them to polish their pitch, and massage their numbers , so that they are better prepared for some of the tough queries which investors are going to ask them. They provide many dress rehearsals, so that the founder is better positioned to be able to raise funds. A good investment banker actually acts like a guide , and can play a key role in helping the entrepreneur to succeed.
Good investment bankers take a lot of time and trouble to create a good reputation for themselves. He understands what each investor is looking for, because funders come in so many shapes and sizes. He is a skilled at connecting the right entrepreneur with the right investor. Because he's built up a lot of credibility in the start-up ecosystem, his word carries weight, and he can help entrepreneurs to get warm introductions to the right people.
However, because you don't require any special qualification to become an investment banker , lots of middlemen are positioning themselves as specialists in fund raising for start-ups. Sadly , they end up taking undue advantage of raw entrepreneurs , most of whom don't know how to differentiate between good bankers and bad ones.
They are sweet talkers and slick salesmen, who promise founders they will be able to raise millions for them - after they have been paid their fat fees. They charge a consultation fee; they charge a sign-up fee; they charge a fee to vet the proposal; which means they keep on extracting money from the entrepreneur.
These investment bankers want to make lots of money, which is why they hang around at start-up conferences . They style themselves as Investment Consultants , and make lots of promises, most of which they're never able to fulfill. They get the entrepreneur's hopes up, by arranging meetings with many investors in fancy hotels, but usually these are not serious angel investors - not the ones who actually sign cheques !
Many entrepreneurs waste not only a lot of money , but plenty of precious time and energy as well . His confidence in the start-up ecosystem takes a big blow, because he's been exposed to the wrong people. He starts feeling the Indian start-up space is a sham , and there aren't any good guys at all. This is tragic, and that's why it's so important that entrepreneurs are able to differentiate between a good banker and a bad one.
Bad investment bankers also make an investor's life difficult. They mindlessly send the decks of all the companies they are raising funds for to every potential funder on their list. Not only is this spamming bad for their own credibility, it actually backfires, and ends up hurting the founder. If a deal has been shopped around for too long, it becomes stale, and serious investors will no longer be interested in evaluating it.
Good investment bankers do not take fees upfront. If anyone asks for this ( often in the guise of "processing fees"), then this should be a red flag. To make sure your interests are aligned, good bankers only make money when they are able to help you raise money, so what they should charge should be a success fee, which they get only after you have received your cheque.
A good banker will take the time and trouble to study both you and your company. He will act as your champion, and he should know as much about your company as you do, so he can be an advocate for you. You don't want someone who takes on too many clients, because he will not be able to give you the personalised hand-holding and attention you need. Good bankers are in great demand, and they are quite picky and choosy as to who they will sign on as clients. They should add value to your life, and it should be very obvious to you what this value is. Just like the chemistry between the funder and founder is so important, the chemistry between you and the investment banker you select is also critically important.
The truth is that you are very vulnerable as a first time entrepreneur. Any time anyone promises to help connect you to an investor ( especially when they call him by his first name !) , you are happy to clutch at straws. Some of these bankers are extremely slick salesmen , who are happy to help part you from your money. This is why you need to be on your guard . Please check out their reputation , and see what their track record is . Talk to entrepreneurs who they've helped to raise funds for in the past, before signing up with anyone, because making a wrong decision can prove to be extremely expensive for you.
I asked Devendra Agarwal of Dexter Capital for his comments. He is unusual, because he wears two hats at one time - not only is he a very thoughtful investment banker, he is also an entrepreneurs who is the founder of InstaOffice !
* I feel investment banking for start-ups below a certain size is very hard for good knowledgeable bankers , especially if they want to build an organization (as that entails incurring a fixed cost every month , and good people are expensive)
* Most good investment banker will charge a fixed fee to ensure that they are dealing with only serious entrepreneurs . However, good ones will not take wrong mandates just in order to earn the fee, because they don't want to jeopardise their reputation.
* Yes , their final fee should be paid once the entrepreneur has received the money , but often entrepreneurs do not pay even after having signed a contract . For all practical purposes, contracts are not enforceable in India's legal system today, and some entrepreneurs take advantage of that fact
* The investment needs of a start-up looking to raise seed vis-a-vis Series A vis-a-vis growth capital is very different
* Many time investors by-pass the banker, and even entrepreneurs feel happy about this, because it saves them the banker's fee, but this leaves the banker high and dry.
* A good investment banker adds a lot of value during the negotiation of the term sheet, and can help to expedite documentation and the closing process , as often the entrepreneur and investor get stuck on many legal points
Most entrepreneurs are first-time entrepreneurs. They have never done this before, and are very excited about starting a start up. These are usually young students who feel that being an entrepreneur is the best way of being able to change the world. They're very gung-ho , and are optimistic that they will be able to implement the great ideas which they have been working on, which is why they go looking for investors to back them
Occasionally, the first time entrepreneur is a more seasoned mature professional, who has worked for a few years in a job, and now wants to strike out on his own , because they want to be independent. They are fed up of being stifled in a corporate job, which strait- jackets them, and want to be in charge of their own destiny.
The other , much smaller group of entrepreneurs , are those who are experienced and seasoned founders, and they also fall into two categories. Some are the serial entrepreneurs, who have had one of more successful exits in the past. They enjoy the challenge of starting a company from scratch, growing it to a particular size , and then letting someone else run it , because they find management boring . They don't like getting bogged down in the minutiae of setting up systems and processes, and supervising employees. They would rather take on a new challenge , and they thrive on the adrenaline of creating something from nothing. These successful entrepreneurs find it much easier to get funding for their next venture, because they have an established track record.
To reduce the risk of your start-up failing, you need to learn from other businesses. A great tool is studying pre-existing analogs and antilogs, introduced by Randy Komisar and John Mullins in their book, Getting to Plan B. Copy what works shamelessly - you don't need to reinvent the wheel. But please do also learn from the companies which failed, so you don't repeat their mistakes.
The other group of seasoned entrepreneurs are those who have failed the first or second time, but have been able to gather up their courage, bounce back , and want to start off again. They have a much harder time , because once they have failed, this becomes a blot on their track record , especially in India, where failure still carries a huge social stigma . People are very reluctant to fund these failed founders , because they think their chance of succeeding again are very poor.
I have a slightly different perspective, and have a soft corner for these entrepreneurs. For one, they are older, which means they're more mature, and I find it easier to talk to them, since I am an old fogey too ! More importantly , because they've been through failure, they're going to be very careful this time around about not repeating the same set of mistakes which caused them to fail the first time.
They are much more careful about putting together the right team of people; of respecting the value which investors add by bringing in valuable funds ; and of monitoring their cash flow like a hawk. They've learned all these lessons the hard way, and these are hard wired into their brain . They are much more frugal and careful , because they know they are not likely to get another chance, and are quite desperate to prove themselves.
I am happy to back these entrepreneurs , provided they are upfront and honest; can explain what mistakes they made in their earlier start-up; what they've learned from them ; and how they're going to do things differently this time around.
The funder-founder relationship is a lot like getting married, and that's why it needs to be handled with a lot of love and care. While there’s a lot of excitement during the dating phase, the problem is that a lot of these end up in a divorce, creating a lot of mess and unhappiness for everyone concerned.
Any marriage has its ups and downs, & there is often a rocky love-hate relationship between entrepreneurs and investors. The good news is there’s lots which can be done in order to help the marriage become stronger and more stable.
Dating is a lot of fun, because you can pick and choose. You are single, and there are lots of fish in the sea ! You feel you can select whom you want, because you think you are a hot prospect, and any investor would be happy to back you ! It's only when you realize that there are lots of other prospective grooms out there, many of whom are much more attractive than you, because they've got a better pedigree or are more experienced, that you finally realise that raising funds can be really hard work.
Dating can be hard work, because you need to groom and prepare yourself. You need to be charming and persuasive, so he can see what a great catch you are ! Yes, you will get better over time as you get more experience, but you do need to do your research. Please don't jump into bed with the first person who finds you attractive enough to fund - there is no rush ! Remember that this is a long-term relationship, and getting stuck with a wrong partner can be extremely expensive. Beauty lies in the eye of the beholder, and it may take time to the find the right match , so please be patient ! It's helpful to have a wingman, who sings your praises - and your best bet is a paying customer, who is happy to be your evangelist !
The alternative is to go in for an arranged marriage, and this may sound more boring , but it's far more likely to be stable. It does take more time, but it’s often worth the effort, because a good matchmaker will make sure that you're both on the same page. The problem is that the matchmaker charges a fee - and sometimes he cannot help you find the right match despite all the promises he makes ! And even if he does find someone who is interested in getting hitched to you, you still need to be sure that the chemistry between you and the investor is right !
So, you have finally found the right person, and you go off on your honeymoon. Honeymoons are exciting, because you are in love with each other, and you are looking forward to a great time together, but do remember that honeymoons don't last too long ! The actual work of making the marriage starts afterwards when you get back home !
While the funding gets a lot of publicity , and you’re like the new bride whom everyone wants to show off proudly, you need to make sure that you fulfill your end of the bargain, because a marriage is not a one night affair. This is a relationship which needs to get stronger over time, provided you are willing to give it the love and energy it needs.
Part of the problem is that men are from Mars and women are from Venus - and this is true of founders and funders as well ! While some marriages are a delight, where both partners complement each other's strengths, others are a real mess. While there's little you can do about how your investor behaves, there’s a lot which you can do to improve the chances of the marriage being happy by focusing on what's in your control, and doing your best to keep him happy. The secret, as a marriage counsellor will tell you is simple - it's all about communication ! Be open and transparent, and share everything- the good, the bad and the indifferent, so that you create trust and intimacy.
Most investors hate the fact that entrepreneurs reach out to them only when they’re running out of money. We like to hear about your success stories too , so that we can participate at least vicariously in the fact that you're doing well !
Yes, it's true that some marriages don't work out well. The relationship suffers from neglect, and you may require counseling to make sure things don't go sour. Rather than give it up as a lost cause, remember that you selected each other , and it's worth putting in the effort to salvage the bond - after all, divorce can be a really messy affair !
And even if it does end in a divorce, remember that people do get remarried ! A second marriage is the triumph of hope over experience, and hopefully you will be a better marriage partner the second time around, because you've learned so much from your mistakes the first time around !
As the start-up grows, the founders need to add people to be able to implement their business plans. However, the motivation of employees is very different from that of the founders, and it's very hard for a start-up to hire quality employees !
Joining a start-up is a risky choice, and good quality workers have lots of options, which means it's hard for a bootstrapped start-up to attract the right people. Initially, you will tap into your personal network, but you will quickly need to cast your net further to find the right people.
Founders try to source employees using the standard recruiting platforms, but these are designed to cater to the larger companies. Using their personal network may work well for the first few employees, but it's hard to continue to find good people as they grow.
Using interns is a useful stop-gap measure, but you can't run a business using only interns ! Good interns prefer working for large companies, where they are assured of long-term stability, and have a well-defined career path. Hiring interns will also help you become better organised, as you have to train them. This means you will need to set up SOPs, and these systems and processes will help you scale up as you grow.
Yes, it's possible to use freelancers; and you can outsource work which is not critical, but this can only take you so far ! It's hard to manage freelancers remotely; and they will cost you both time and money, especially if they don't do a good job; or if you need them to change the delivered product.
One problem is that founders have very high expectations from their employees. They expect that they will be as driven and passionate as they are, but this is not going to happen - if they were that enthusiastic, they would start off on their own - why would they join someone else's start-up ?
The expectations which some employees have when they apply to work for a start-up are often not well defined. Some want to work only for a short time, as a stop-gap measure while they continue hunting for a job at a large company; while others just want to add the fact that they worked for a start-up to their resume, because they think this looks cool !
People who work well in a start-up have to be wired differently. They need to be willing to get their hands dirty; and be happy to learn new skills which were not part of their original description, as the start-up grows. They need to be able to work independently, and should be willing to work overtime all the time, without expecting to get paid extra for this !
Founders need to remember that great employees are worth their weight in gold, and they can make or break the start-up. The truth is that good employees have multiple choices - and you have to be able to make them an offer they cannot refuse. Good people don't work just for money - and this is actually your trump card ! As a start-up, you can offer them autonomy and flexibility, so they can grow while working for you.
It's very important that you take your time when hiring. You might be desperate for warm bodies to make sure that work gets done, but getting stuck with the wrong person can prove to be a very expensive error ! Firing someone is very hard, and often causes sleepless nights for the founders.
Finding the right applicants is a huge challenge , and you may have to sort through hundreds of applications from various sources before being able to select the right candidate. You may get fatigued, and end up taking a short cut, but this will come back to haunt you later.
Add a practical test in the hiring process to evaluate their skills. Ask them difficult questions to see how they respond under pressure. Try to figure out their motivation for joining you ? Is it just the salary? Or are they excited about working on the problem you are trying to solve? Will they be able to deal with the daily chaos which characterizes a start-up ? Or do they need close supervision ? Are they self-starters ? Or will they treat this as a job at which they need to work from 9 to 5 ? This will help you identify candidates who would be willing to go above and beyond what the job description on paper requires.
Hiring well is just the first step. You then need to be sure you onboard the new hires properly so they settle in well. The first few days are crucial, and it helps to assign them a buddy, so they feel at home when at work. Regular feedback is also crucial , since things change so quickly, and you need to be sure everyone is on the same page.
It's not easy hiring and grooming people, but they are your most valuable assets, and you need to do this yourself - you cannot outsource this . Part of your job description is to help them to grow, and you need to be able to inspire them. You have to lead from the front by being their role model - they are watching you carefully, and will do what you do - not what you say !
It can be hard to manage morale when things are not going well, but it's best to be open and transparent. If things aren't going well, don't try to hide the truth. Employees can sense your desperation, and while they may forgive you for failing, they will not forgive you for lying to them !
If you get funded, then employees will demand a salary hike - after all, they want a slice of the pie as well. They may not understand that you need all the money you have raised to make sure the start-up does not fold, and will resent the fact that they are stuck with the same meagre salary when they joined.
Also, as you grow, some will resent the fact that the founders get all the publicity and money, while they are stuck with only a salary, as well as ESOPs , which look good only on paper !
Today, many well-funded Indian start-ups have become bloated, and their per-employee productivity metrics are poor, because they are not able to attract the right talent. Most employees have no loyalty, and are happy to move to a competitor if they get paid more. Many will moonlight and freelance on the side as well, on the sly, to augment their income.
Some founders will hire experienced executives who have worked in large companies, to head their sales and marketing effort, because they believe their experience will be valuable. Sadly, this often does not work well in life. They are used to fat salaries; giving orders, and having support staff to do their work for them - they no longer want to do this themselves, which means they often end up becoming expensive misfits, who need to be let go before they do too much harm.
Human capital is the core strength of a company today, and this is where social impact start-ups have an edge. They can attract loyal employees with the right DNA, because they are inspired by the mission of the start-up.
This post was inspired by a question asked to me by Vidhi Gupta , Co-Founder at SyncSpire, who helped me to polish it
I asked one of my entrepreneurs, Anuradha Agarwal, who is Founder at Multibhashi for her inputs, and this is what she kindly added
• There are two broad categories of candidates that I focus on:
o Freshers who knowingly avoided placements in big corporate companies because they didn't want to become just a cog in the wheel and are particularly looking for a start-up to work for because some point later in their lives they want to become entrepreneurs themselves
o Candidates with prior experience in a small or even a failed start-up; not big start-ups because these biggies are corporates in their own way
• The hiring process is short and straightforward; no multiple rounds of interviews; one critical assignment followed by one interview. The result, whether positive or negative, is clearly communicated swiftly. As a start-up we have to take decisions quickly and value our own as well as the candidate's time
• The biggest objective of the interview is to ascertain if the person is really start-up material or just someone fascinated with the term "start-up" but lacks the amount of drive, initiative, grit and hard work that it requires.
• Once hired, the whole team becomes responsible for this candidate's motivation or demotivation but above all as a leader, the founder needs to "walk the talk"; be super prompt with feedback and follow-ups, be present by the team's side for late night deadline chases and find one to one time with every team member at least bi-weekly.
• Good hiring and managing becomes an excellent channel for further hiring. Just like happy customers, happy employees refer more people to join the team :)
A mature start-up ecosystem requires that both entrepreneurs and investors work together in order to flourish. However, in India, relationships between them are tense.
Many entrepreneurs feel investors take advantage of their financial naiveté by extracting their pound of flesh. They believe that investors want to take over control of their company, and will start micromanaging them, as a result of which entrepreneurs will no longer be able to pursue their dreams .
The other common criticism is that investors are not responsive - they do not bother to reply to their emails .
Finally, they believe that all investors care about is the bottom line - that they are heartless, and are not willing to support the entrepreneur's passions and dreams.
However, every coin has two sides , and investors also feel that entrepreneurs are exceptionally naive. Falling in love with a great idea is not enough to run a business , and they need to learn to be a lot more hardnosed if they want to become successful. They also feel that founders need to be a little more respectful , and that they don't value the investor's contribution enough - they think of them as being dumb money-bags.
Unless we can get entrepreneurs and investors to trust and respect each other, this ecosystem is never going to mature . The best way of doing this is by understanding each other's perspective .
Interestingly, investors know that we cannot exist without entrepreneurs , which is why we respect them , but don't forget that we aren't forced to become angel investors - we choose this option. Start-up investing is just one of the many asset classes which are open to someone who has money - and most of these are far safer than becoming an angel investor !
Angel investors are not just coaches or well-wishers or mentors or cheer-leaders - they are willing to put their money where their mouth is ! Yes, we acknowledge that there is a lot which entrepreneurs can do by their own, but they do need to work at earning the investor's trust if they want to be funded. Just because an investor has money doesn't mean he's going to sign a cheque when an entrepreneur pitches an innovative idea !
This is why investors are very disappointed when they encounter entrepreneurs who are extremely technically savvy , but who haven't bothered to do any homework about how to run a business. They don't seem to understand how to create financial statements , or report the key metrics needed to track operational success.
These are gaps which are easy to bridge, but entrepreneurs need to remember that the buck stops with them . Yes, it's not compulsory for them to seek funding from investors , but if they decide to do so , that then it's their responsibility to make sure the investor is confident that the entrepreneur can deliver what he has promised.
Conducting customer research is essential for founders who want to better understand their customers' needs and pain points. Following the five steps outlined below, founders can identify their target customers, research their needs and preferences, gather and analyze customer feedback, and engage with customers on social media. This will help founders to collect valuable insights and data, and to use it to improve their product or service and build stronger relationships with their customers.
Here are five steps in the form of questions that founders can use to conduct customer research and better understand key pain points:
Who are your target customers?
Identifying your target customers is the first step in conducting customer research. This could include demographics, such as age, gender, and income, as well as psychographics, such as values, attitudes, and interests.
What are your customers' needs and preferences?
Once you have identified your target customers, you can research their needs and preferences. This could include conducting surveys, focus groups, or customer interviews, to gather data and insights about what customers want and need.
What are your customer's pain points and challenges?
To better understand customer needs and concerns, you need to understand their pain points and challenges. This could include conducting customer surveys or interviews, or using analytics and data, to identify the most common problems and obstacles that customers face.
How can you gather and analyze customer feedback?
To better understand customer needs and concerns, you can gather and analyze customer feedback. This could include using tools, such as SurveyMonkey or Google Forms, to create surveys that customers can fill out, or using platforms, such as Zendesk or Intercom, to collect and manage customer feedback. By regularly collecting and analyzing customer feedback, you can stay up to date on your customers' changing needs and concerns, and adjust your product or service accordingly.
How can you engage with customers on social media?
To better understand customer needs and concerns, you can engage with customers on social media. This could include responding to customer questions and comments on social media platforms, such as Twitter or Facebook, or using social media listening tools, such as Hootsuite or Brand24, to track and monitor customer conversations and sentiments. By engaging with customers on social media, you can build relationships, gather feedback, and stay up to date on their needs and concerns.
By conducting customer research regularly, founders can stay up to date on the changing needs and concerns of their customers, and adapt their products or service accordingly.
I have a friend who manages my portfolio , and his results over the last 5 years have been quite unbelievable. He's beaten the market by such a huge margin that it's sometimes hard to believe that his returns are real, but my bank balance can vouch for the fact that they are !
I was asking him why his performance is so much better than other fund managers . He's a simple, straightforward value investor who worships Warren Buffett. He selects small cap stocks and holds onto them, but it's his ability to consistently pick winners which is quite amazing, so I was very interested in finding out what makes him tick !
The first thing he said is, "I benefited a lot by not having a mentor," - something which I thought was very counterintuitive ! He explained, "Because I didn't have a mentor, I was forced to learn for myself - and the best source of learning is from books ! I had to become a voracious reader, and read all the books on investing , written by multiple different authors , so that I could develop a style of my own."
He said that the problem with working with a hot shot fund manager when you're young and junior is that you are very impressionable , and you tend to adopt a lot of their bad habits, because you are so dazzled by them. You don't even realise that you are aping them, because you are so much in awe of them. It’s easy to get swayed by someone who's a glib talker and very charismatic even though his basic philosophy may not be sound.
Thus, you are far less likely to learn from someone who maybe a much better investor , simply because he is much more laid back and not as captivating. Because he didn't have someone who took him under his wing when he was young, he was forced to fend for himself. Therefore, he was forced to learn from books written by world class experts - which is why his fundamentals are so sound. He also emphasised the fact that the lessons books teach you are far more enduring because you're forced to engage intellectually when you are studying a book - you don't get just carried away by superficial impressions.
He says, "My mentors were all virtual , and the person I admire the most is Warren Buffett. Now lots of people say they follow Buffett's style, but they aren't able to walk their talk. I've read Warren Buffett multiple times , and the first time you read him, it's to try to understand his philosophy - how he invests; what companies he picks ; and why. However, the real lessons only come through when you read about Warren Buffet the second and the third time, because what you can really learn from him is his integrity , humility and simplicity ! What really stands out is the way he leads his personal life - he's a straightforward guy, who doesn't flaunt his wealth or his skills. I admire how he has consistently stuck to his knitting and remained honest to his basic philosophy. The most difficult part about following Buffett is not copying his investing style , but adopting his impeccably high levels of integrity and honesty."
He says - " What makes Buffett truly special in the financial service industry is his emphasis on integrity , and this is what I want to emulate! This is what makes him special - his refusal to compromise or take shortcuts. Buffett can teach you not just how to invest, but how to lead an honourable life. It's not just his personal integrity - it's also how much he values integrity in the management of the companies in whom he invests in ."
Interestingly, his favourite Warren Buffett quote is —" It takes a lifetime to build a reputation but only five minutes to destroy it."
What he has learned from Buffett is the importance of becoming a learning machine, which is why he is a voracious reader. In a way, it's a bit like the story of Eklavya and Dronacharya, and he has a burning desire to learn the best investing practices from the world's best . He doesn't have a MBA; he has not graduated from a brand-name university; and he doesn't have a rich uncle who's given him a helping hand - he has started from scratch and is completely self-made.
He's refreshingly transparent and honest , so that when he talks about the returns on his portfolio, he specifies the client's returns - net of taxes and fees - how much the client actually gets in his bank account at the end of the say. This is such a contrast from other fund managers who are happy to game the system in order to make a quick buck at the client's expense. While everyone in the financial services industry always talks about how they put their clients first, in reality it's very rare to come across someone who says what he does , and does what he says. Having someone who walks the talk is so refreshing - especially when his returns are so dramatic. It does seems like honesty does pay off in the long run , and he reinforces my faith in goodness.
For me, the most important lesson is that potentially, anyone anywhere could follow in his footsteps, because you can pick and choose your own virtual mentors by reading books !
Signing a shareholder agreement is a daunting task for the first time entrepreneur because it's full of legalese. These are foreign terms which he's never come across and he's not sure how to make sense of the jargon. What's scary is that the term sheet and shareholder agreement are usually drafted by the investors, and they are worried that all the Greek and Latin they are stuffed with are designed to protect the rights of the investors, and hand over control of their company to them.
Every entrepreneur has heard horror stories about how greedy investors are, and that they are out to take over the business, because of the disproportionate power which the agreement gives them. They are petrified that the investors will kick them out of the company which they have spent their blood, sweat and tears on building up.
Now we need to understand that an agreement is precisely that - it's a legal description of the terms you agree on. This is why the entire approach has to be one built on trust - you have to trust that the investors you're going to take money from have your best interests at heart, and want your business to grow. The reality is that investors are in the business of investing money so they can grow their capital - they are not in the business of running your business, because they have other things to do. Ideally, they would want you to run your start-up in such a fashion that they don't need to worry about what you're doing. Their dream is to find an entrepreneur who will continue growing his start-up so well that they will become progressively wealthier without having to worry.
However, the fact remains that entrepreneurs sometimes don't do a very good job of managing a growing business, because this is outside their area of competence, and investors need to monitor them to make sure their capital is being protected.
The truth is that after the cheque has been deposited; all the power is actually in the entrepreneur's hand. He is the one who manages the company on a daily basis, and makes the 101 decisions which are required to run the business. The investor has very little say - and this is as it should be - we don't want to micromanage the founder.
This is why it's so important for an investor to clearly specify what things he wants to be involved, in so that the entrepreneur doesn't run the company into the ground. Now these are pretty standard terms, and include things like the terms under which new funds can be raised. They are designed to restrict the ability of the entrepreneur to mismanage the company and drive it to the ground, causing the investor to lose all his hard-earned money - it does not affect the ability of the management to run the company's routine business.
The purpose of the agreement is to protect the interests of both the parties and create a win-win situation - one where the entrepreneur has the freedom to do what needs to be done on a daily basis to make sure the company is growing, while also giving the investor the rights to stop the entrepreneur from doing anything stupid which would cause the company to implode.
Having said all this, legal agreements have very limited value in India, because we all know how effective (or should I say ineffective) the judiciary is. If things go sour and there is a dispute, there is little effective recourse the parties have. This is why the agreement is often more of symbolic value - that the investor and the entrepreneur trust each other.
However, it's a very useful legal document as you continue to grow, and need to raise fresh funds - this SHA will form the bedrock of the relationships you have with future funders as well.
Some entrepreneurs shy away from the agreement, saying they don't understand what terms such as voting rights, protective provisions, and conditions precedent mean. This is not a good argument. No one wants you to become a lawyer, but as an entrepreneur you need to learn lots of things on the job, and one of them is making sense of a shareholder agreement, and understanding the rationale behind all the terms and clauses which a shareholder agreement has.
To help you make sense of the SHA, so you can understand more about both the entrepreneur's perspective, as well as the investor’s, the site at https://www.marsdd.com/mars-library/understanding-the-term-sheet/ is helpful. You can also generate your own term sheet at https://www.wsgr.com/WSGR/Display.aspx?SectionName=practice/termsheet.htm. Talking to other founders is helpful , and you can hire your own lawyer to draft a term sheet for you .
Reading the right book can help you immensely, because it will explain to you how the shareholder agreement ensures that everyone's interests are aligned, and I would suggest you spend time understanding Brad Feld's book, Venture Deals. This will give you a lot more confidence in your ability to make the right decision , and will help you trust the investor more , when you will realize what he's doing is in the best interests of your business.
Instead of worrying about all the things which can go wrong, try to focus on what will go right, so your partnership with your investor starts off on the right foot !
Angel investors are always looking for good entrepreneurs to invest in, and when they finally do identify a start-up which they feel meets their sweet spot, they're quite happy to fund it so they can get on with helping the founder to grow the business. However, even after offering a term sheet, there are times when the deal doesn't get consummated and entrepreneurs push back. They refuse to accept the money, because they're not comfortable with the terms which are being offered.
One of the stickiest issues is that of valuation. Typically, entrepreneurs always feel that they're being undervalued, and their biggest worry is that the investor, who has much more experience in doing these deals, will take undue advantage of their naiveté. They believe they are being offered a pittance, compared to the potential value which they're bringing to the table, and they fear they will end up getting much less than what they're really worth.
This is why founders use lots of different metrics in order to come up with a valuation for how much they think their start-up is worth. The truth is that valuing a start-up is extremely difficult to do, because it's all about valuing future potential - and as well all know, the future is uncertain. Entrepreneurs are always excessively optimistic that they will be the one start-up which succeeds against all odds, while investors know that the fact that 80% of all start-ups fails is the base rate which should never be ignored. This is why there's often a gap between how much the investor is willing to offer and the entrepreneur is willing to accept.
However, there really is no sound reason for the number which the entrepreneur comes up with - or which the investor offers either, for that matter, in all fairness! The founder obviously wants as much as possible, and he may fall prey to an anchoring bias. Thus, he may insist he is worth at least a million dollars (for some reason, Indian founders still love discussing valuations in dollars), and insist that he get at least this much. Their logic is "Our pre-money valuation should be at least $1 million, because in Silicon Valley it would have been at least $3 million."
One of the reasons he gets biased is because he only uses the successful start-ups - the ones who actually get funding as reported in the media - as his basis for comparison. However, the reality is that lots of other start-ups which were in exactly in the same space folded, even after raising funding - and some did not even manage to do that.
The biggest fear of every investor is that he may end up losing all his capital, which is why they need to be very conservative about how they deploy their funds. After all, they need a ROI so they can continue investing in other start-ups! They know that no matter how good the team may be, how good the product ; and how passionate and resourceful the founders are, the base rate for start-up failure is 80%, and there's no reason to expect that this particular start-up is going to be different from the rest !
This is why we prefer talking to entrepreneurs who are mature enough to understand the importance of negotiation - they should want to create a win-win situation. If they don't, they make it very difficult to continue the conversation on an intelligent basis. As an investor, you know that the only negotiation power you have is before you sign the cheque, and therefore you want an entrepreneur who will try to help you to win, rather than selfishly looking after his own interests.
If he's very rigid at this time, before the cheque is signed, it's unlikely that he will treat you as a valued partner after he gets the funds. If he doesn't think that the investor brings a lot more value to the table than just money, this means he will does not respect the investor's contribution, and there's really no reason why a good investor would want to continue having a conversation. Effectively, this means that these entrepreneurs then usually end up getting stuck with an investor who only looks at them as a source of money - someone who will want a ROI by exiting, rather than trying to help them grow the company.
Many entrepreneurs get disheartened when a customer refuses to buy from them. However, as a famous book advises, the sale begins after the customer says No!
Customers have multiple reasons for rejecting you, so don't take this personally. Sometimes the features your product offers may not be good enough; or you may be too expensive; or they may feel that you will not be around for long enough for them to take a risk on buying your product, because you may not be able to support it if you go belly up.
Many entrepreneurs give up when the customer says no, and they complain that they wasted many months trying to pitch and adding as many features as the customer demanded in their attempts to delight him. When they find they are not able to close the order in spite of all their efforts, they start feeling sorry for themselves and blame the system for being start-up unfriendly.
Yes, it's true that life is unfair, but just because a customer says no it doesn't mean you need to give up on him. The secret is to keep in touch, and continue showing them that you are making progress. Thus, if they wanted three additional features that you weren't able to provide, show them that you are working towards adding these to your product, so that you can meet their requirements - maybe if not now, then in the next two months. This will signal that you value their business and are working hard to win it. This will help you to earn their respect and they will be more willing to treat you like a potential business. They can see that not only are you making the effort, you're also willing to be open and transparent by sharing share what you're doing , and demonstrating the progress which you're making in order to with their business.
More importantly, it will allow you to retain your position in their share of mind, so they will consider you as a serious contender when they finally place their order. This way you're much less likely to lose the deal to a competitor! If you sulk and just give up, they will assume you're no longer interested, and will buy from someone else.
Yes, you have to be careful that you do this for serious customers only - those who have the need and the capacity to pay - don't waste your time on guys who just want to kick the tyres!
Most entrepreneurs dread the idea of subjecting themselves to due diligence by investors. They pride themselves on their autonomy and domain expertise, and don't find the concept of someone digging into what they're doing very appealing. Some feel threatened when an outsider who has very little operational skills or real life experience dares to ask them questions, and challenge what they've done so far - and dispute their projections. And they resent having to be answerable to investors just because they have deep pockets.
However, in the start-up ecosystem, as in other parts of life, the Golden Rule applies - the person who has the gold makes the rules! Entrepreneurs need to reframe their perspective and understand that the due diligence process can actually add a lot of value to them. Yes, it's true that you're likely to feel uncomfortable because you're forced to expose all your weaknesses, but you can learn a lot from an independent, intelligent outsider's perspective. Rather than think of it as a confrontational or adversarial exercise, remember that financial-savvy, experienced investors can provide you with valuable insights, which can help you fill in the gaps which would otherwise you to fail as time goes by.
A good investor will show you a brutally honest mirror. He will administer tough love, and pick holes in your business plan - and not because he's wicked or wants to pull you down. He has no interest in demonstrating his superiority - don't forget, he wants you to succeed, and this is why he is looking to invest in you! He's going to give you his hard earned money, and he wants to be sure that your business is waterproof and watertight. Even though he knows that the odds of your failing are high, he is still willing to invest in you - please treat this is a marker for the degree of confidence he has in you!
He needs to make sure that you've thought about the potential weaknesses in your business model, and that you are mature enough to acknowledge these. He needs to find out if you are coachable, and are willing to fix the gaps which will definitely crop up as you make progress. Often founders find themselves stuck in the trenches having to tackle the daily problems which confront a start-up, and they may end up losing their perspective.
A well-structured due diligence exercise can help you whip your accounting and governance in shape. Now these are not the things which most entrepreneurs worry about routinely, because there are too many other daily fires which they need to put out. However, unless you address these, you're never going to be able to grow your company successfully.
A well-informed investor can educate you about your competition, and you can learn how they view the other players in your domain. He can give you helpful insights, because he has a 30,000 view. Now you may feel that it's not fair that investors who don't need to get their hands dirty should be preaching to you from their comfortable ivory tower seats, but you need to learn to take the entire due diligence exercise in the right spirit. Yes, the investor may not have as much expertise in your field as you do, but don't forget that he has helped other start-ups to grow, and this experience can be invaluable in preventing you from imploding! He can also help you to polish and improve your business model, and help you explore new markets you may not have thought of.
Think of the investor as being a consultant from McKinsey, who is going to look into the bowels of your start-up, so he can help you fix problems at an early stage, and help you make your foundation much stronger, so you don't have to deal with organisational and cultural debt later on. And the best thing is you're getting this opinion for free, so make the most of it!
Many entrepreneurs resent investors who want to release funds in tranches, based on the milestones they achieve. They think of these as unfair hurdles, and believe that this reflects an investor's lack of trust in the founder. They believe that if a funder has faith in the entrepreneur, he should go ahead and write the cheque for the entire amount upfront, so that they have at least 12 to 18 months of runway, and don't have to waste time and energy in trying to prove that they deserve the second tranche.
However, I think a milestone-based disbursement of funds in tranches is actually very valuable, because it provides a reality check about six months after the initial funding. Are you on track? Have you been able to achieve the goals you said you were? This staged funding makes you much more answerable and accountable.
The good thing about having an investor looking over your shoulder is that he can provide an objective 30,000 foot view, and explain to you what you're doing right, and where you're going wrong. Just like entrepreneurs want investors to trust them, why can't the entrepreneur also trust that the investor will be willing to release funds if they perform as promised? And even if he doesn't achieve 100% success in meeting the milestones, most investors are understanding and will not be unreasonable. After all, six months is more than enough for a founder to be able to get the investor to trust him. And if he's not been able to do that, then this reflects poorly on him, rather than on the investor.
Yes, founders are worried that the investor may change his mind after 6 months, and renege on his commitment. However, this kind of milestone-based release of tranches actually makes sure interests are aligned. After all, investors want our entrepreneurs to succeed, and we will not pull the plug unless there is good cause to do so!
Yes, there are other ways of achieving the same end - for example, by putting the second tranche in an escrow account. And it's also possible that in the future, we'll have blockchain-based smart contracts where the funds get released automatically once the milestones have been reached.
The best early-stage founders, we know, have an incredible pulse on their customers and often a personal connection with the first set of 100 customers! A direct connection with customers helps them empathise with their problems and focus on delivering a solution that delivers an outcome rather than simply output for their customers!
There is no substitute for ‘User Feedback’ towards developing a great product.
Talking to users can be an incredibly valuable and insightful experience, but it's important to approach it in the right way. Often, user feedback need not be verbal. For instance, the founders of AirTable would sit down with users to see what they were actually using the product for! This is especially powerful when you are building a horizontal product to unlock new use cases!
A founder I know uses a note-taking app to remind him of scheduling 5 user interviews every week and maintains copious notes. Fundamentally, the best startups are those in which the founders retain a direct connection with their users.
It is your responsibility if you are the CEO, CTO, or CMO. It is part of your work to interact with customers! One of the best ways to learn how to do this is by reading "The Mom Test" by Rob Fitzpatrick. In this book, Fitzpatrick provides a framework for how to talk to users in a way that elicits valuable, honest feedback without leading them or steering the conversation in a particular direction. He calls this approach the "Mom Test," because it's designed to be like the way you would talk to your mom about a new idea or project you're working on.
Here are some key takeaways from "The Mom Test" that can help you effectively talk to users:
By following these tips and applying the principles, you can effectively talk to users and gather valuable feedback that will help you improve your product or service.
Here are some practical pointers to help you get the most out of your user interviews:
Ask open-ended questions that will encourage the interviewee to share their thoughts and experiences. For example, you might ask: "Tell me how you do X today. What is the hardest thing about doing X? Why is it hard? How often do you have to do X? Why is it important for your company to do X?"
Use follow-up questions to dig deeper into the interviewee's responses. For example, you might ask: "What do you mean by that? Can you tell me more about that? Why is that important to you?"
Avoid asking yes/no questions, as they won't give you much information. Instead, focus on asking open-ended questions that will encourage the interviewee to share their thoughts and experiences.
Avoid asking questions that focus on your product or its features. Instead, focus on the problems that your product is designed to solve. For example, instead of asking "Which features would make our product better?", you might ask "What do you do to solve this problem for yourself?" This will help you gather valuable insights that you can use to improve your product or business.
What are some of the ways you use to elicit founder feedback, we would love to know!
As the economy struggles, B2B SaaS companies may face challenges due to customers tightening their budgets. In this difficult environment, it's important to focus on building strong relationships and offering value to ensure long-term success. By implementing smart strategies, your company can weather the storm and come out on top.
Are you struggling to win over prospects in a downturn? Try implementing these 14 steps in your sales strategy to turn things around and start closing deals. From refining your messaging to building stronger relationships, this playbook has everything you need to succeed.
Understand your customers' needs and concerns
In an economic downturn, prospects may be more cautious and risk-averse. It is important to understand their needs and concerns, and to show that you can address these. To understand your customers' needs and concerns, try asking targeted questions and actively listening to their responses. For example, ask them about their pain points and what they are looking for in a solution. By taking the time to understand their perspective, you can tailor your approach to better meet their needs.
Communicate the value of your product or service
In an economic downturn, prospects may be more focused on cost and value. It is important to clearly communicate the value of your product or service, and to show how it can help them save money or increase revenues. To communicate the value of your product or service, highlight its unique benefits and how it solves specific problems for your customers. For example, "Our software automates tedious tasks, saving your team time and allowing them to focus on more important work."
Offer proof of performance
In an economic downturn, prospects may be more skeptical and cautious. It is important to provide proof of performance, such as customer testimonials, case studies, or independent research, to demonstrate that your product or service works as advertised. To offer proof of performance, try sharing tangible examples of how your product or service has delivered results for other customers. For example, "Our software helped XYZ company increase sales by 20% in just three months." This provides concrete evidence of your effectiveness.
Be transparent and honest
In an economic downturn, prospects may be more skeptical and wary of being deceived. It is important to be transparent and honest in your communications and interactions with prospects, and to avoid making false or exaggerated claims. Be transparent and honest with customers by clearly communicating the benefits and limitations of your product. For example, if your software has certain limitations, make sure to disclose them upfront so customers know what to expect. This will help build trust and establish long-term relationships.
Provide customer support and service
In an economic downturn, prospects may be more concerned about getting value for their money. It is important to provide excellent customer support and service, and to show that you are responsive and attentive to their needs. To provide great customer support and service, B2B SaaS companies can offer personalized assistance and timely resolution of any issues. For example, a customer support team could provide one-on-one guidance through a difficult process or quickly troubleshoot a technical problem.
Build trust and credibility
Your prospects have seen multiple startups funded in the bull run shut shop. Any vendor abruptly shutting down is disastrous. Your prospects may be more cautious and selective. It is important to build trust and credibility with prospects, and to show that you are reliable and trustworthy. To build trust and credibility with customers, a B2B SaaS company can implement strategies such as sharing customer success stories and providing transparent pricing and contract terms. For example, a SaaS company can feature a case study on their website highlighting how a specific customer achieved success using their product.
Offer flexible payment options
Your prospects may be more constrained by cash flow and budgets. It is important to offer flexible payment options, such as monthly or quarterly payments, to make it easier for them to afford your product or service. Offering flexible payment options to customers can help B2B SaaS companies stay competitive in a tough market. Examples of flexible payment options include allowing customers to pay in installments, offering discounts for upfront payment, and providing a pay-as-you-go model.
Provide value-added services and bonuses
During a downturn, cost-cutting & efficiency are top of mine for customers, and your prospects may be looking for extra value and incentives. As a B2B SaaS company, offering value-added services and bonuses can help retain customers and attract new ones. Examples include free training sessions, discounted rates on future purchases, and personalized support. By providing these extras, you can differentiate your business and demonstrate the value of your services.
Use content marketing and social media
In an economic downturn, prospects may be more likely to research and compare products and services online. It is important to use content marketing and social media to showcase your expertise and provide valuable information to prospects. How? Share industry insights and thought leadership on social media, offer educational content, such as ebooks and webinars, to attract leads, and engage with potential customers on social media to build relationships and trust.
Leverage your network and connections
When time & money are of utmost importance, prospects may be more interested in referrals and recommendations. It is important to leverage your network and connections to get introductions and referrals from trusted sources. Startups can do so by
- Identifying potential customers or partners within their network and reaching out to them directly to discuss potential collaboration or sales opportunities.
- Asking for introductions or referrals from trusted connections within their network who may be able to introduce them to potential customers or partners.
- Collaborating with other companies within their network on joint ventures or partnerships that can help to increase their visibility and reach new customers.
Invest in lead generation and nurturing
When nobody is buying, prospects may be more difficult to reach and engage. It is important to invest in lead generation and nurturing, such as through email marketing, to capture and qualify leads, and to build relationships with prospects over time. This can be the right time for:
- Investing in marketing automation software to manage and streamline the lead generation and nurturing process, including email campaigns and customer segmentation.
- Building relationships with potential customers by engaging with them on social media and attending industry events and conferences
So that you are on top of their mind when they want to make a buying decision the moment the economy turns
Use retargeting and remarketing
When purses are tightening, prospects may be more likely to compare and shop around. It is important to use retargeting and remarketing to reach prospects who have visited your website or engaged with your content, and to remind them of your product or service. Here are two examples of how a B2B SaaS company could use retargeting and remarketing:
A B2B SaaS company could use retargeting to show ads for its product or services to users who have visited its website but have not yet made a purchase. For example, if a user visits the company's pricing page but does not complete a purchase, the company could show them ads for its product or a discount offer to encourage them to complete the purchase.
A B2B SaaS company could use remarketing to show ads for its product or services to users who have previously made a purchase or engaged with the company in some other way. For example, if a user has previously attended a webinar hosted by the company, the company could show them ads for related products or services that they might be interested in. This can help to upsell to existing customers and build brand loyalty.
Test and optimize your marketing efforts
Your prospects may be more responsive to certain messages and offers. It is important to test and optimize your marketing efforts, such as through A/B testing and data analysis, to determine what works best and to improve your conversion rates. By testing different marketing tactics, such as email campaigns, paid advertising, or social media posts, B2B SaaS companies can determine which tactics are most effective at generating leads and converting them into customers. Optimizing marketing efforts also involves analyzing the results of these tests and using the insights gained to refine and improve the marketing strategy. This can help B2B SaaS companies identify and focus on the tactics that are most effective at generating leads and sales, and eliminate or adjust those that are not performing as well.
Track and measure your results
In a downturn, your prospects may be more demanding and selective. It is important to track and measure your results, and to show that your marketing efforts are generating leads and conversions. This will help you to demonstrate the value of your marketing efforts to prospects and investors and to make informed decisions about how to allocate your marketing budget.
Overall, by following this 14-step approach, you can prove trust to prospects and win deals in an economic downturn. By understanding your customer's needs, communicating the value of your product or service, and providing proof of performance, you can build trust and credibility with prospects, and increase the likelihood of winning their business. By using a combination of marketing techniques and strategies, you can reach and engage with prospects, and convert them into customers. By tracking and measuring your results, you can demonstrate the value of your marketing efforts and make informed decisions about how to allocate your marketing budget.
We ran the Malpani Ventures MVP 2.0 program to fund pre-seed B2B SAAS companies and received ~100 applications. Our team invited only nine (10%) founders for the next discussion, and we shared individual feedback on their pitch decks with all startups!
To help early-stage founders pitch better, we are open-sourcing some of our filtering criteria used in the cohort:
Lack of focus on founder-market fit
Most startups presented a single slide on founders focusing on their education or previous work experience. This is no better than a simple LinkedIn profile or resume.
As early-stage investors, we want to understand why are you best-placed to solve a particular problem: Do you have any unfair advantages in going into this market? Can you tap into an existing network in a unique manner?
Limited explanation of the MVP
What is your current hypothesis? How have you tested this?
While at the pre-seed stage, it is difficult to demonstrate paying customers, very few pitch decks provided us with leading indicators of why the startup will work. Pith decks can include
Nailing the ‘Why now?
While most founders spend a lot of time explaining a large TAM, very few explain the underlying shift they are catering to – technology change, human behaviour change, legal or macro change. Mind you capturing a large TAM is best possible if you riding a rising tide!
This also helps explain the next point for a founder
Lack of an honest assessment of the underlying market:
Very few applications answered the following questions from a customer’s perspective: Is it an urgent problem for potential customers? Is it an important one? And do they have a budget?
This time around we received a lot of pitches that focused on creating marketplaces/ platforms or influencers or creators! While the TAM seemingly appears large in the influencer market, more than 95% of the value is usually captured by the top 5% of creators. Very few creators will ever pay and the real market is not as fragmented for a platform to build a marketplace!
Check out Spotify's earning trends:
To sum up, your pitch deck should focus on
Finally, passing up of deal by an investor is just another opinion for founders to consider. Understand the investor’s POV, seek your facts, and build your business your way!