Featured

The Stages of Buying

A.I.D.A.

Awareness, Interest, Decision, Action

It would be nice for sellers if customers could decide quickly to buy or not to buy. This article explains why they can’t. Sellers who understand customers’ thought process can better prepare to encourage their prospects to move toward becoming a customer. It is imperative that companies understand the mental journey and develop strategies and messages that help customers along.Continue reading “The Stages of Buying”

Advertisement

Creating Awareness: If A Tree Falls In The Forest…

In the marketplace, if nobody hears your tree fall, then it does not make a noise, and you get no customers. To use another popular metaphor, you could build the best mouse trap in the history of the world (I almost wrote “…the best mousetrap the world has ever known) but if nobody hears about it, nobody will ever buy one. The entrepreneur’s dream of “This is so great, it will sell itself!” is a fantasy.

Awareness is one of the hardest nuts to crack for any offering. Even established companies spending millions to introduce new products that often fail to make a splash. For a company with a more modest budget, the challenge is often overwhelming. If a big, established company struggles to get people’s attention, how can a small company do it? There is usually no easy way to create awareness. Companies must be very strategic and laser-focused on their audience in order to contain Customer Acquisition Costs. The ultimate goal is to make more margin on each sale than it costs to get and serve each customer.

What Laser Focus Means

I had never heard of Ryan Kaji, a kid who stars in short YouTube videos, apparently promoting toys through excited user experiences viewed, presumably, by other kids. Ryan spent several years atop the YouTube earner list, and I only learned of him through a business-focused newsletter. I read that Ryan makes something like $30 million/year based on his videos. I am not in Ryan’s target audience, nor do I have a child in my household who is, so it makes sense that Facebook’s algorithms don’t target me to drive Ryan’s content to my feed. That would be a waste of resources.

Similarly, your precious resources must be directed at your target audience, and just like any good public speaker, you must be able to “read” your audience to see if your messages are resonating and adjust your delivery as necessary. Adjust your product or your service until it resonates with your customers, giving them an “aha” moment where they understand not only how it benefits them, but that they wish they had your offering all along, and now that they know about it, they want it now.

This doesn’t necessarily mean adding features to make all of your customers happy. It’s a common mistake to try to be “everything to everyone.” Those who try often end up being nothing to anyone, or everything to a very small audience. What Laser Focus means is concentrating efforts on the things that have the greatest impact for the greatest number of customers, and resisting the urge to add features that benefit only a few.

Awareness Comes After Fit

There is no point in generating awareness until after you have something that customers really want. Not only is it a waste of your advertising budget, but it wastes your target audience’s attention and creates resentment.

Founders Beware of “Michigan J Frog”

If you don’t remember the Warner Bros. frog from the Merrie Melodies series, you may want to check out the 1955 cartoon “One Froggy Evening” and then return for the remainder of this article. It’s worth the watch even if you don’t return. Here is a link to his wiki page: https://en.wikipedia.org/wiki/Michigan_J._Frog

Founders must be optimistic to succeed, but they must also be aware of how the rest of the world perceives their offering. One of the first rules of Marketing is Never Project Your Feelings Onto the General Marketplace. Just because your product “sings” for you like Michigan sings for Hapless Harry, that doesn’t mean that it will sing for the rest of the marketplace. It is always better to “test” the market before investing in commercializing a product or service. Had Harry attempted to show even one other person how entertaining his frog was, Harry would have learned that Michigan only would perform for one person at a time. Harry could have saved the money he spent on renting a theatre and offering free beer to attract an audience.

Even more dangerous is an offering that “sings” loudly for some people, but not for most. Your offering could be so great that it develops a small but devoted fan base. Everyone who uses it loves it, relies on it, and evangelizes it, but their proselytizing falls on deaf ears and your customer base stagnates. The entrepreneur “just knows” that if only people had a chance to use it, they would love it, too, and the offering would be wildly successful. “It’s just an awareness problem.” If the founder works hard enough pounding the pavement, the phone lines, social media, and email and gets people to try it out, the new customers will soon be members of the fan club and repeat customers.

Unfortunately, despite the superiority of the offering, there is never enough momentum for any kind of groundswell of support and, like Hapless Harry, the founder exhausts all of their resources and relationships desperately trying to share a phenomenal offering with the world. Understanding the importance of flexibility, the founder pivots here and tweaks there trying to find a product/market fit, and may even gain a bit of traction that fuels the founder’s hope enough to stick it out a while longer.

I have seen this story play out first-hand with a product that evolved over decades into a full line of industrial, commercial and consumer applications. I am in the fan club for this product line, and I have witnessed the founders’ quest to make it a success. Unfortunately, I am not optimistic that it will survive. It is a shame because there really is no substitute that matches its quality and efficacy. That’s not enough, though. Another one of the first rules of marketing is that it doesn’t matter how good your offering is if nobody is aware of it, or, in this case, too few are aware.

The industry this startup tried to penetrate is well-established and the competitors have copious resources. Creating awareness is daunting in any situation, but it is even more challenging when existing competitors can easily drown out your frog’s song with a cacophony of instruments like sporting event sponsorships and stadium naming rights. That reminds me of another of the first rules of marketing: Consider the Competitive Response to Everything You Do. Competitors will try to bury you early before you have grown strong enough to fight and win, and they will fight dirty. After all, you are threatening their livelihood, so you should expect a vigorous defense. They will throw everything at you. This can be difficult for a newcomer to anticipate. Experience in the market you intend to participate in is essential. If you don’t have it, find someone who does before you invest your resources into promoting something new, even if it’s the best thing since sliced bread.

I recently provided consulting services to a founder who had developed a killer application that his target audience loved only to learn that that particular target market had insufficient budgets to afford the offering. Fortunately, my client took my suggestion to perform some basic market intelligence by calling some colleagues in the field to ask about their experience in that market. The founders had hired me to help with their pitch to investors, but after learning that their target market couldn’t support the startup’s business, the founders quickly decided to put their efforts on hold. The founders had invested cash and four months of effort, so calling a halt wasn’t trivial. In my observations, the longer a startup survives, the harder it is for the founders to call it quits even if things never take off, and the more likely it is that the founders end up like Hapless Harry.

Like a house that has been on the market too long, the longer a startup goes without gaining traction, the more wary investors will be. Investors know the business equivalent of Michigan J Frog. In this situation, if investors love the product, they will attribute the lack of traction in the market to the management. Further, most investors would prefer to invest in a strong team with a mediocre product than in a mediocre team with a strong product. If a startup’s product languishes too long, investors will blame the founders. In this case, if they love the product enough, investors may offer to purchase the company with the intention of replacing the founders. Before they do that, investors will do their own market research to try and understand why the founders never generated the success they anticipated. This is often the same market research that the founder should have done in the first place.

Founding a company is one of the toughest jobs in the world. That is why most fail, and that’s why it isn’t easy to get the experience and learn what it takes to build a successful startup. The rewards from success can certainly be worth the risk of failure, but if you don’t want to end up like Hapless Harry, set time goals and develop an exit strategy if you haven’t achieved some measure of success. Be realistic, and if you must abandon ship, do it before exhausting all of your resources.

Pitching the Right Story

Pitching a startup effectively means telling a story, but rarely in chronological order.

Get to the point. Immediately, if not sooner. And what is the point of your pitch for investors? Investors want to earn a return on their investment. Entrepreneurs have to start with this. Explain the investment return potential.

I recently reviewed a pitch deck that gave me the mistaken impression that it wanted to build a not-for-profit company. Then, near the end, the deck shows that similar companies in the same space had recently sold for billions of dollars and I realized that this startup shared those examples because they thought they could replicate that success. Why not start with this? If you have fifteen minutes to present, you don’t want your audience to struggle trying to figure out what the opportunity might look like for ten of those precious minutes.

We are accustomed to hearing stories in chronological order. It makes sense. From the first stories our parents read to us as children, we hear the beginning and move through the events as they occur until we get to the ending – or, in the case of a pitch – to the present with projections for the future.

We are comfortable communicating what we know, and we know our stories: the stories of our company; how we recognized a need; how we formulated our idea; how we came together with our fellow-founders to conceive an offering. These may be fascinating stories that would be very valuable to tell down the road, but not in a pitch deck, and definitely not at the beginning of a pitch.

The team is the most important thing. In my discussions with seasoned investors, based on their experience, they would rather invest in a mediocre offering with a great team than in a great offering with a mediocre team. If you have assembled a great team, showcase that up front right after giving a high-level view of the opportunity you are presenting.

State the Problem. Many successful ventures sprout from inside an organization when a founder notices a problem for which their organization has no solution. Think about the problem you identified and how you conceived a solution. Communicate this at a high level, sparing the details for further discussions.

State Your Solution. This part is complex because it isn’t enough just to state that you have a potential solution. You have to explain that you searched for other solutions before concluding that yours is superior. You also have to show that others need this solution as well and provide a sense of how many of them exist as potential customers. You have to have an idea of how it affects them financially and how you plan to price your offering to capture some of the value you intend to provide.

Go-To-Market Plan. If you are successful raising the capital you need to build your offering, how do you plan to take it to market? A lot of technology developers don’t have experience with this, and if you don’t know how to go to market, it is okay to state that this is something that you are going to need help with. But you should have an idea of how big the market may be and how long it will take to reach it. Even if you don’t yet know how you are going to acquire customers, you need to know, if very roughly, how long it will take to reach certain goals, the most important of which is profitability if your marketing efforts succeed.

List Feasible Exits. I’ve said this before, but it bears repeating. Don’t pitch a startup suggesting that you plan to go public. Very few companies go public, and it’s a big red flag for investors that indicates that you really don’t know what you are doing. Research other companies that are similar to what you are trying to build, if not in product, then in size or business space. Find out if they were acquired, and if so, how long it took them to get from startup to acquisition. If possible, learn the selling price and calculate a multiplier of the investment capital for a rough idea of what you are facing and what your investors might expect to see if you succeed.

Be Realistic and Honest. Your investors want you to be experts in your technology. They don’t expect you to know everything about how business works, but they want to work with people who are receptive to advice about how business works. Investors also won’t expect you to know everything about how the capital raising process works, but they will expect you to have done a bit of homework on your market so you can speak intelligently about what you expect to accomplish with your technology, especially your timeline for building your business, which feeds directly into their exit/liquidation timing goals.

Don’t Get Discouraged, But Take a “No” as a Learning Experience. Sometimes people have great ideas that they pitch really well, and surprisingly, nobody bites. Helen Hunt and Paul Reiser recently reprised their hit comedy “Mad About You” for twelve episodes. The original series had 162 episodes, and the creators of the new season thought they would have their pick of streaming service providers. Everybody that watched the screenings laughed and loved it and then, no offers. None. Until Spectrum Originals picked it up. Not the bidding war they were hoping for, but better than nothing. Peter Jackson went to every studio pitching Lord of the Rings and got turned down by everyone until the absolute last meeting he had available with New Line Cinema who asked why he was cramming three books into two movies. Stephen Schwartzman pitched Blackstone to hundreds of investors until his meeting with Prudential gave him a commitment and advice to go to Japan to pitch his idea there.

Most likely, these builders/founders/creators improved their pitches with each presentation. These are very experienced, polished, professionals with great reputations and they still had trouble getting people to buy-in to their plans. This isn’t an easy path, but make it easier by giving your audience the information that they need to make a decision. If you’re lucky, you’ll get the funding you need to start your business and the hard work will shift from getting funding to executing your plan and delivering results. It’s a great ride if you succeed, and it should be a great learning experience even if you don’t.

Almost Everything A Startup Does is Marketing

Marketing Isn’t Everything, But…

I feel like it is important to point out before getting into the meat of this article that I’m not suggesting that everything is Marketing or related to Marketing. And just to be clear, Advertising and Marketing are not the same thing, although this is a very common misconception.

The purpose of this article is to provide some insights to tech entrepreneurs, most of whom are not Marketing professionals, to show that they are engaging in Marketing practices whether they realize it or not. Understanding this can help founders prepare for the competitions they are entering. Continue reading “Almost Everything A Startup Does is Marketing”

How to Price a Unique Offering

You have developed a new product, and you want to go to market. You know that you should price above your variable cost of production as a bare minimum, and hopefully your accounting systems are developed enough to determine that. Beyond that, how much higher can you go? How much higher should you go?Continue reading “How to Price a Unique Offering”

Why Do I Need an Exit Strategy?

We touch on this apparent irony in the article “How Much Capital Should I Raise?” The short answer is that investors value liquidity. What is liquidity? It’s the ability to convert an investment to cash so that it can be used for other things: invest in something else; pay for college; buy a house; buy a boat; or go on vacation..

If you don’t have an exit strategy, an investor has less certainty about when they might get their principal back let alone any returns on their investment. You may be very certain that your company is going to be so successful that it would be crazy for anyone to ever want to exit their investment and that you expect that all investors should be thrilled to stay forever, basking in the riches that are coming their way.Continue reading “Why Do I Need an Exit Strategy?”

Tech and Investors – The Language Barrier

Some founders that we call serial entrepreneurs can raise money over and over even if their startups fail big and publicly. How do they do this?

Investors in startups understand that they are putting their money at risk, but they hope that there are enough big wins to offset the losses of startups that don’t make it. Even so, these investors usually are very careful to identify and qualify the risks associated with every investment. That is why a VC typically receives thousands of pitches a year only to invest in a dozen or so.Continue reading “Tech and Investors – The Language Barrier”

How Much Capital Should I Raise?

My plan calls for $3 million before I break even. Should I raise $4 million. That’s a 25% cushion. Seems pretty safe, right? Maybe not. General Electric started many businesses over the last hundred years, and had a rule of thumb for this. “Assume that the new business will cost three times what you expect and that it will take three times as long to get to profitability.”

How much should you raise?
Raise for The Stage You’re In – In Other Words, Take Baby StepsContinue reading “How Much Capital Should I Raise?”