Raising Capital? These 7 Mistakes Will Hold You Back as an Entrepreneur
Quick insights on successful startup pitch decks
Few years back, I launched a startup in the IoT space (Internet of Things). I remember being really proud of this epic investor deck I put together. So last week I went and found it.
Man, was it ugly!
I’m sitting there, scrolling through the PDF. With every swipe up the touchpad, my eyes widening in shock. I could feel the weight of my chin pulling my head down beneath the desk as if to hide.
It’s not like the powerpoint had a bad design. It was just forced. The content on the slides communicated so much about the context of the business. But at an early stage, there wasn’t much of a business to communicate.
A lot of things were still very speculative. But even so, things can be laid out in an effective business model to increase your startup’s chances of success.
I cringed, I laughed, and I decided to share my learned insights with you.
1) “You’re too product-centric.”
No matter how evolved your pitch deck gets, it’ll probably highlight your solution too much. Many entrepreneurs start with a solution without having faced or deeply analyzed an issue first.
They go into the garage and build. They put their heads down and their hearts into their tech. They get so emotionally invested that they kill their ability to “kill their darlings.” When they finally come out of the darkness, they present a solution to a world that doesn’t even want it.
Get market validation at every stage of your startup lifecycle. That means even when you merely have an idea. Knowing what your potential customers think before you sink into building will save you a ton of time, money, and headache.
2) “You don’t understand your customer.”
That was my response to the question, “who do you plan to sell this to?” And that response was the reason my idea would both fail and cause grief.
As entrepreneurs, we face the fear of too narrowly focusing on a single customer, thereby missing out on a larger market. But this is wrong.
Identifying the profile of your customer will help you find others like her — hundreds of thousands of others like her. Plus, why are you thinking of scaling before you’ve yet to prove a market fit for your product? Similarly, you probably can’t scale because you haven’t achieved product-market fit.
It all starts with the customer. Build a profile. You can use actual people around you as examples to determine demographic, geographic, and psychographic criteria. Then build a list of people that fit the profile so you can start engaging with them about your company and its competition.
3) “You don’t have a competitive advantage.”
These days, startup entrepreneurs get coached early enough to refrain from saying they don’t have any competition in their pitch decks. Investors respond to such claims with something like, “I don’t believe you’re the only one doing this, and the other startups might be better funded.”
But that doesn’t take away the challenge of doing a competitive analysis.
Sometimes insecurities are revealed through ignorance. When you don’t know how something is going to work out, you avoid it altogether because the uncertainty is daunting. Competitive slides are usually weak as a result of this fear in action.
We entrepreneurs want to shine a good light on our startups. At some point we overlooked how it’s honesty that shines the best light, not embellishments like “we’re the only ones.”
Ask your customers.
- If customer turn-over is high, you have a problem.
- If customers are not on-boarding as fast as you hoped, you have a problem.
- If customers would be OK with not using your solution, you have a problem.
Diagnose those three issues and you’ll learn a ton about who’s outcompeting you and how you can capture more market share.
4) “Your go-to-market strategy is ineffective.”
Investors told me this because they wanted to know how I was going to capture the specific customer I targeted. For SaaS business models,
Reid Hoffman’s blitz scaling plays the culprit.
“Blitzscaling is what you do when you need to grow really, really quickly. It’s the science and art of rapidly building out a company to serve a large and usually global market, with the goal of becoming the first mover at scale.” — HBR
Entrepreneurs look at Uber and say, “they’ve never made a profit but keep raising billions of dollars.” So they become compelled to reinvest their capital into user growth, and then go acquire investors and buyers while on the upside.
It’s a great position to be in when you have an efficient sales and marketing process. Once you know your customer’s interests, you can determine where to reach them and how to speak their language. When you’ve determined the proper channels to execute your sales funnel, you can create financial objectives to target.
5) “You don’t know your financials”
A funny thing happens when entrepreneurs get to the financials slide in their pitch deck.
The story, if there was a smooth narrative, just stops. Even the entrepreneur’s delivery gets clunky. Maybe that’s why it’s always the last slide in the deck.
Financials are usually speculative at an early stage, especially if you don’t have users or customers. It’s hard to determine what your metrics are, such as growth, margin and retention.
But you can still use growth, margin, and retention if they are your metrics. Are they? Does it really help to know monthly recurring revenue (MRR) if you don’t provide a monthly subscription to customers?
The key in the financials is to communicate the performance (objectives) of your sales, marketing, and operations. Understanding your business model will help you determine what key performance metrics to both target and assert to investors.
“Assert” is the key word because if you know your shit, then make sure the investors know also (without being a closed-off jerk).
6) “You don’t have domain expertise”
There are startup entrepreneurs who rely solely on their own passion and grit until they build something out of nothing. They’ve only done one or two things that are important for their startups to succeed.
They might know how to build the product, but haven’t raised capital before or haven’t done sales and marketing.
They might know the patent process, but don’t understand how to manage a board room or legal affairs.
Unseasoned entrepreneurs are fairly easy to spot, especially if the investor knows the startup’s technology and target market. The claims entrepreneurs make can’t be substantiated by their team’s experience or expertise.
If you legitimately don’t have expertise in the space you’re building a startup, find startup advisors or co-founders who do. Take the same approach with investors.
Investors buy into your company, and in many ways take a bigger risk with their purchase than your customers do.
7) “You don’t have an exit strategy.”
This one gets under the skin of a lot of entrepreneurs.
But it’s a legitimate issue. The only reason you should be engaging with investors is if you’re looking to give them a return in value (think of them as customers in a way).
Otherwise you’re asking for money you’re not prepared to repay. My friend, Jeremy, put the challenge this way to me:
“The bottom line is that most entrepreneurs are focused on the short term: growing the business, hiring people, getting customers. They aren’t focused on the long run to maximize the sale.”
- Jeremy Glaser, Co-Chair, Venture Capital at Mintz
Here’s an oversimplified look at how to plan for an exit:
- Build a list of potential acquirers based on common customers and problems
- Show marketing objectives that target those profile of customers
- Develop partnerships with those potential acquirers
- Create integration goals, considering “earn-outs” and “golden handcuffs”
- Go through a tough M&A process and try to take all cash