Entrepreneurship, Mentors

The fallacy of providing “great mentorship” in 1 hour chunks

4 Comments

I have a good friend who has been a successful corporate executive for over 15 years. Off the charts smart and with a keen sense for the “inner issues” driving other people, he is able to figure out the root cause of most problems faster than most people I know.

He does though have a lack of time, like most other people. Having been in a large company for most of his career, he wished to live vicariously through other people and was keen to “mentor” young entrepreneurs. My advice to him was to focus on helping younger people in his company rather than entrepreneurs. He seemed to think about my tip, but chose to ignore it.

He setup 1 hour mentoring sessions with 3 entrepreneurs who he felt were working on problems that he was keen to understand more about and wanted to help them while he learned more about the market they were targeting.

Each session was fairly standard and given his corporate background, were scheduled a month in advance with consistency and a sense of purpose.

After 2 sessions, 2 entrepreneurs said they were busy and could not make the call or be in person.

He did feel he brought value to them in both the sessions and heard from the entrepreneurs that his advice was valuable. While he was in the process of scheduling the follow up, one entrepreneur told him rather bluntly that he did not have the time.

My friend took it rather well, and wanted to understand how he could make the time more valuable. Both entrepreneurs said the same thing.

There were pieces of advice that they could get from my friend, but they did not have the time to execute on his suggestions and felt that while well meaning, most of the suggestions were not precise enough.

Note that they did not say that the suggestions were not actionable enough. They said that the recommendations were not precise.

I get nearly 2 executives and mid-career professionals from larger companies and older entrepreneurs wanting to be a mentor at the Microsoft Accelerator each week.

Most we reject.

Some because they just want to add the mentor title to their LinkedIn profile and dont have enough time to provide.

Most others because they want to compress the “mentorship” in chunks of 1 hour sessions every month.

Its hard to do anything well in 1 hour chunks in infrequent periods of time. Even if its frequent the context is fairly limited.

Its even harder to provide any value in a 1 hour mentorship session.

Which is the prime reason I am not taking any new “meetings” to provide feedback and advice to new entrepreneurs who are not in our accelerator.

There’s very limited to little value that the session can actually provide is my experience.

I might feel good about it, so might the entrepreneur for about 15 minutes after the meeting. When the dust settles, though, after a day or two, they realize the multiple edge cases and scenarios that my advice or suggestions wont really work.

If you think you can provide value in 1 hour chunks as a “mentor” I’d love to hear how you are doing it and how you measure the value of your advice.

Marketing, SaaS, Tips

The least action principle applied to the “call to action”

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I met with an entrepreneur who has been looking to gain traction for his new SaaS application for payments. Having talked to a few of the top notch marketing and conversion experts in the Bay area to learn about drip marketing, which allows you to set a set of messages over time I was eager to help him figure out how to apply that to his problem.

The problem he had was that his “call to action” – what he wanted his prospects and customers to do was creating a “very high barrier” to prospects going to the next level with the website.

I find this often the case with many startups and SaaS applications in particular. The “barrier” for a prospect to become a customer is very high, so while you generate a lot of traffic and visits to your website, the number of conversions is abysmally low.

While you could offer better design, clear case studies, A/B test your pricing, there’s another technique that’s fast gaining traction among those that believe in a sales term called “lead nurturing“.

Its is the least action principle applied to prospect behavior. Before you “riff” me on this, yes, I believe physics gives the answers to most marketing problems.

The summary of this principle is

 “Nature is thrifty in all its actions”

So this principle applied to conversion marketing is to make users do the least amount of work to get to the “next logical step” in your progress to convert them to be a customer.

Instead of asking users in the first page to “Sign up”, which may well be your ultimate goal, ask them to view a video instead. Then sign up for a newsletter. Then send them 3 emails (over time, drip marketing, remember) to get them to review a case study, provide them with ROI analysis and finally ask them to sign up.

This entire set of steps can be done in days or in 2-3 minutes with a “guided” website interaction, instead of just a single call to action.

If you remember that most people want to do the least amount of work to get the maximum benefit, then you will appropriately break down your final call to action into multiple “Least User Interactions” each of which gets the user to commit some more (time, energy, etc.) to your application.

This is similar to the method FB for example applies to its interactions. You might just be a viewer of content, then your path to least action is a “like”, then you might comment, then set your status and finally upload a picture. There are more actions no doubt, but the path to least action is a like.

So when you look at your call you action, think about how you can break it down into multiple steps to get users to interact with your website without having to “commit” to marrying you before your first date.

Entrepreneurship

My latest piece on Mint: Question bank approach to learning from failures

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I devised a new system to help me make sure I can learn from my past failures in the most opportune time. I call it the learning question bank. The question bank is a curated list of failure learning condensed into one to three questions in each category that I ask myself when I am faced with a new problem which has possible associations with something I have failed at doing before. I review the questions in the bank after I meet entrepreneurs to evaluate their opportunity and see if they can learn something from my failure. I usually send them an email, post our interaction to give them my experiences via the story of my failure which brings the learning back to the forefront.

Read the entire piece at Mint.

Funding, Tips

How do I close an investor who has shown interest in my startup?

6 Comments

I had discussions with 2 entrepreneurs who have received angel investor interest thanks to Angel List. They are doing well, getting traction and starting to get interest from potential seed stage investors. The question they had for me was to learn the art of the close. Much as I dislike the word closing a deal, I think its important to achieve the important milestone of completing a round of funding.

First its important to realize that most folks (nearly 95%) of investors do not whip out a check in the first meeting. They may make their decision within the first few minutes, but after that, its the delicate dance.

There are 2 primary strategies that I use to help move the funding round to closure.

First, build the relationship beyond the first meeting. The technique I use is “drip marketing”. Every so often after meeting with them I would send them an email (either every other day or once a week for 2-3 weeks) giving them an update one some progress in the business. The first email would be about a new customer win, the next about some potential partnership or a new press mention, etc. Usually most entrepreneurs send one follow up email and if they receive no response they stop.

I would actually send 2-3 emails and keep sending them an update until they say they’d like no more updates.

The second strategy to get their help or advice on opening a door at one of their portfolio companies. This could work against you if you cant close that opportunity, but usually they appreciate the fact that you followed up. This helps them understand your ability to follow through.

The final strategy takes more time and helps you more than them. I put together an operating plan. An operating plan comprises of 7 unique and distinct plans, each of which cover an aspect of your business – sales, marketing, engineering, hiring, finance, product roadmap and partnership plans. This plan has to document your assumptions as well so you can then have them help you validate those assumptions.

Here is my original BuzzGain operating plan (incomplete) from 2009.

You might think this is a lot of work, just to get their money after they “agreed” to give you money with a verbal commitment, but trust me this works you get things moving faster than if you did not use any or all of these strategies.
Try it and let me know if it does not work.
There is a method and template to each of your 7 areas, but we’ll cover that in a separate post.
Entrepreneurship, Management

How much traction is “enough” to get seed funded? or to get into an accelerator?

14 Comments

I had an interesting conversation yesterday with an entrepreneur who had an initial product that was built over 3 months and they were looking to get “traction”. The product was aimed at prosumers (professional consumers) or small & mid-sized companies. He was looking to raise a seed round of $250K and was wondering how much “traction” will he need to show so he can get funded by a combination of individual angels and possibly a seed fund. He’s in the US, so this framework is valid for both India and US.

Here’s a framework for you to think through the traction for your startup. You need to get traction post your MVP. Your MVP should solve a real problem that a potential customer has.

Having been in 100 presentations over the last 4 weeks alone (our demo day at the Microsoft Accelerator, 50+ pitches for our new batch at the accelerator and 30+ pitches at the 500 startups demo day) I can say some patterns emerge.

This is rule of thumb alone. This is NOT a guarantee of funding. I had a chance to talk to about 50+ seed and venture investors, so I know I am in the ball park, but YMMV.

Take your best case scenario of peak # of customers at 36 months (2 rounds of funding out). If you are a B2B startup that might be 500 customers in 36 months for example or if you are a consumer product, that might be 20 million users in 36 months.

The 36 months is critical. Its 2 rounds of funding. Seed and Series A. Or series A and series B.

The “traction” that’s relevant for your current stage should be in the range of 0.1% to 0.5% of your projected 36 month customer base.

0.5% means you can command the top end of the valuation. 0.1% means you are likely to get a serious look.

To get to an accelerator such as Microsoft or 500, you will need 20% to 50% of that user base to get a serious look.

Some examples:

If you are expecting 10 Million users for your product (best case scenario) for your product in 3 years (36 months) then you better have between 10,000 to 50,000 users when you go to get seed funding. To get into an accelerator you will need to have 2000 to 25,000 users at least.

If you are a B2B startup and you are expecting 5000 paying customers, in 36 months, to get seed funding you need to have 5 to 10 customers for a seed round (more is better) and at least 2-5 customers to get into a seed program.

Please let me know if you think this makes sense (Or not).

Thanks to Pankaj Jain and Dave McClure for helping review this.

Entrepreneurship, Funding, Tips

How to hustle your demo day to get maximum investor interest

Over 300 investors and startup enthusiasts were at the 500 startups demo day yesterday at the Microsoft campus in Mountain View. There is extensive coverage on all the major publications including TC, VB, Forbes, Biz Journals and TNW.

17 of the 30+ companies presenting were from outside the US, which was absolutely awesome. The 5 standout companies from my perspective were CompStak (US), Kickfolio (AUS), WalletKit (IN) and Supply Hog (US) and Gaze Metrix (IN). They represented a combination of great entrepreneurs, going after a large market, where you can make money, and with sufficient barriers given their stage of operation.

There are 3 observations that I had which might be best used by entrepreneurs who are pitching at demo day and want to hustle and help move their funding to closure quickly.

If you are a startup entrepreneur, at the demo day, its important to spend quality time (10-15 min at best is all you’ll get) with folks who you might be able to get follow on meetings in the next few weeks to help close your round. Identifying them and spending enough time with them should be your priority. The question is “Who are they” and “How do you identify them”? Its not easy for the first time entrepreneur, but you should look for seed-stage investors not big name venture investors or large funds.

First, realize that not all of the “investors” are really looking to invest. I had conversations for about 5-12 min with about 30-40 of them and over 50%  were at the event to “check out what’s going on” or “network with other investors”. Typically these were associates and vice presidents at very large funds (any VC firm with over $200 Million raised).  They are hoping to put new promising companies on their “watch list” alone. They rarely make seed stage investments, so dont bother spending too much time with them to “get their feedback”. I know it sounds nice if you say you talked to “investor X at some large and well known VC fund”, but that high wears off faster than the beer served at the event.

Second, since you will have with you a list of potential investors, coming to the demo day. I recommend you spend a few minutes making your target list and doing some research on them so you and your team can make sure you meet them at the event. The best case scenario is if you are interested in an individual and they liked what you said, so they reach out to you during the break or after the event.

The most likely scenario is that there are many others trying to get their attention, so you might miss getting a chance to get their card or setup a conversation for later. The best way to do this research is filter the possible investors attending on  AngelList. Dont just look at their investments, but filter by types of companies, the stage and industry (this you may have to do manually in a spreadsheet).

Third, dont expect to close at the event, but expect a lot of follow on interest via email, angel list and other sources. Realistically most investors (yes, even in the valley, which surprises most people) take between 1 to 3 months after meeting you at the demo day to close – which compares to between 3-6 months in India.

Entrepreneurship, Humor

The science of everything – How the arts are being “scienced”

3 Comments

Jay was a languages major at Univ of Michigan. He stated a strong dislike for physics and biology at school and never was a big math fan; claiming to be a free thinker.

Yesterday I was sitting on a mentor session he was having with an entrepreneur who was building an online eCommerce business. The entrepreneur was a engineering graduate from a top college in India.

“Dude, you are winging it”, admonished Jay when Sam, our entrepreneur was telling him about his “customer engagement” plan.

“Drip email marketing is a science, not a random set of messages you send to your installed base to see which one sticks”, he continued, “You have to test your subject line, the draw, the frequency, the images, the call to action, the sales copy, everything”.

Imagine that – scientifically measuring your copy – English sentences to see which one gives you the best returns.

Most everything is being measured and managed these days including many things that are pure art. Like the colors on your photo or the hues on your home page background.

I wonder if the more scientific it gets the more you need art and creativity to be different?

Angel investing

A field guide to being a technology angel investor

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I am going to work in a series of posts over the next few months on angel investing. This guide will be based on my conversations with about 100+ US angel investors and over 50 in India. The goal is to encourage more high net worth individuals to fund new technology companies.

I have one request of you: If you are an entrepreneur, please promote this guide (it will be free, before you ask that question) among potential angel investors and those that are on the fence. I will try and make it into a downloadable single file in 2-3 months when I finish the guide. Here’s an excerpt.

From 2008 to 2013 there has been a 713% increase in angel investors1 who have funded technology startups the world over. Dramatically lower costs of starting companies, thanks to cloud computing and well formed distribution channels such as app stores has created a boom in entrepreneurs forming new digital ventures. This boom in supply coincided with significantly lower returns from several other asset classes worldwide including a steep drop in public markets, debt returns and also lower housing and real estate prices, which enabled these investors to seek better returns, offered by technology angel investing.

There are multiple reasons we are seeing an increase in angel investors including the anticipation of higher returns, the desire for fostering entrepreneurship among the youth, the need to give back in a more meaningful way to the community and the joy of mentoring. Many angel investors are also seeking a way to leverage their expertise, experience and connections built over the years into a meaningful venture. Whatever the reasons, the net result is that we now have a large set of experienced individuals interested in helping fund and grow innovative companies.

This guide is for potential and new investors, ones on the fence and those who are experienced at the art and math of investing at the early stages. The audience for this guide includes high net worth individuals and experienced entrepreneurs who are keen to help the next generation of entrepreneurs. This guide can help those who, after years of experience working at a large company are now looking to branch out and learn about new markets, new companies and technologies by nurturing and investing in game changing entrepreneurs and their ideas.

Funding

A new innovation: Angel investors seeking exits by getting a portion of startup’s revenue

8 Comments

The last week we had over 25 folks who run accelerators, incubators and coworking spaces in India at the Microsoft accelerator. A few of them were individual angel investors as well.

Anyone who has invested in Indian technology startups knows that getting exits is hard. In fact in most of our discussions with entrepreneurs nearly 60% of them have the intention to never sell their company or “exit” but to build a standalone business which generates cash and employment. Given that number, it is not hard to imagine that most angel investors are vary of investing in startups given how many of them end up as “lifestyle businesses”.

Most angel investors, though need exits and returns on their investment. This is so they can redeploy the capital and the gains in other investments.

I have seen many creative ways that angel investors have tried to get exits from their investment in India. Unlike the US, nearly 40% of Indian angel investors (according to Rehan Yar Khan of IAN) usually exit at the series A or series B stage. At this stage either the new investors or the company buys their shares out.

I heard for the first time though, about a new technique adopted by an angel investor. This investor had a preset IRR (Internal rate of return) which they agreed to with the entrepreneur and required that the entrepreneur return the investment with the gain when they start to make a certain amount of revenue.

It seems more like a debt investment than an equity investment, but it seemed to work.

I have seen many investors who put money in non technology companies who put together deals like this one, but its rare for technology companies.

I wonder, how many entrepreneurs are okay with accepting these terms as part of their investment. I suspect that if entrepreneurs get more comfortable with convertible debt to equity instruments with some form of exit criteria tied to revenues, this will become a more viable vehicle for technology startups.

Other

3 trends that we noticed from over 500 Indian startups that we reviewed

12 Comments

Over the last few weeks we reviewed over 500 startups and talked (phone, skype, etc.) with over 100 startup founders. This was our shortlisting process to get to 15 companies that will make it to our Spring 2013 batch at the Accelerator.

First, we reviewed a lot of travel startups. Especially the problem of helping travelers with trip planning. A list of things to do, places to see, restaurants to eat, etc. With all the data available from multiple sites including Yelp, Facebook friends recommendations, and other online sources there seems to be enough data to form a more informed trip plan. Unfortunately we picked none of them. Its too hard to see what will differentiate one company from another. Some claim it is their User experience, others their recommendation algorithm and still others their human-powered technology planning.

Second we reviewed many more gaming applications than we did in the previous batch. Zynga’s performance notwithstanding, many folks are jumping on the in-app purchases and social gaming concept. Most start with a web social game though, not mobile. That’s fair, since the number of mobile smartphone early adopters in India is still far and few between. Again, we passed on all of them since the teams did not seem complete and hiring design talent is amazingly hard in India.

Third we reviewed many SaaS applications in the help desk and customer support area. There were 3 teams with excellent experience & background in the space and all had some initial customer traction. Many were gunning for BMC Remedy, but my sense was although the market is fairly large, nothing set one team apart from another. They all pretty much had the same feature set as ZenDesk or FreshDesk.

Bonus trend – we saw many education “ERP” applications. School management, test preparation academy management, College alumni management etc.

The personal blog of Mukund Mohan