Category Archives: Pitching Me

“Can I get you to Series A?”

In my last trip to NYC, I had breakfast with my buddy Steve Schlafman of Lerer Ventures. I was talking about how many of our startups were going up for series A, and how it was filling my brain and time on how to get these guys there. He replied that they had always thought that way, at which time I thought about how slow I was on that uptake, that our job as seed investors was to help groom our startups for series A!
But as we talked, I also began to think heavily about the importance of series A and it’s now becoming an investment criteria of mine, which is “can I get this startup to series A?”.
The importance of the next round of funding is pretty clear; you need cash to grow and if you can’t get it from some future funding source, it could kill you. However, in order to get your next round of funding, you better exhibit some key characteristics.
So I now look at startups with an eye towards these key characteristics, and I think heavily on whether or not they can with or without my help get to a point of exhibiting as many of those key characteristics as possible. If I decide they cannot, I think I would be less inclined for investment. But if I can see the creation of an environment where the some future investor would look favorably on this company sometime before their runway is over and invest in a series A, then I would be more inclined to invest.
Of course when I meet them at early stage, they rarely exhibit any of those key characteristics. How will I know if they ever will? Some would argue that it’s nearly impossible to predict the future and that smart people will get there no matter what. Unfortunately, I am not sure that is enough any more. Smart people can succeed or fail either way. I am out there looking at startups with an eye to tilt the odds in favor of success and not just betting broadly on the crowd of smart people.
What would make me think that they can get there?
Without diving into the well trodden areas of what makes a great startup to invest in (ie. big markets, no competitors, unique IP, etc.), I think there are some additional things to consider:
1. Is there a larger investor in the round AND who is willing to support their startups after the first round?
All angel rounds used to be OK but I do not believe that is the case any more. This has to do with runway and the inevitable bridge round that comes after. We’ve pretty much bridged everyone of our startups of the most recent vintage. This is because we have been telling startups to raise and survive for at least 18-24 months. But I am not sure this is enough any more since a ton of my startups all need more runway. Thankfully many have had a large investor who was willing to lead a bridge and/or put in a large amount in to give them more runway.
However, it is unfortunate that not all larger funds are willing to do this. I am hopeful that perhaps they will change given the changes in the startup ecosystem. So I am actively searching for seed stage funds to work more closely with who have a true willingness to bridge after the first round.
2. We used to tell startups that they need to ensure their runway was 18-24 months, but now I do not think that is enough – it may actually be 24-30 months now. The evidence is in the bridges that we’ve had to do. Sure they all got to some level of traction by 12-18 months; but it didn’t guarantee a series A. Either they needed to spend more time developing their startup, or developing their series A characteristics, or spending more time raising their round then they thought – or all of the above.
By my observations, there is a series A crunch. There are too many startups all clamoring for series A; it is impossible for everyone to get their next round done – there are many more seed stage startups being formed but the number of series A funding sources has not increased by the same amount.
However, the other issue is, how many series A characteristics are you exhibiting after you come near the end of your initial runway and are they worthy enough for a fund to invest in you?
The battle for attention is fierce; consumers and B2B customers are being deluged by tons of products and services. Traction is much harder to come by. Thus you need time to develop traction which early stage startups typically do not have. Yet another reason for the bridge, when they realize that their traction numbers aren’t good enough for the series A and they need more time to develop traction (and everything else).
The other thing is that there are few startups who can raise a typical $1M round and last 24-30 months without additional funding. This is why I think that most categories for internet startups are moving far to the right on the famous “crossing the chasm” graph and it is getting too dangerous to play as an early stager in those rounds.
3. The round must be big enough. Too often I meet entrepreneurs who only want to raise $200K-400K. Sadly I have to turn them away. There are many reasons why they only seek to raise a relatively small amount. However, if you have a great idea with all the other prerequisites (ie. big market, no competition, great IP, Stanford/MIT grads, etc.) you should go out and raise at least a $1M if you have those attributes! What’s stopping you?
In fact, if you don’t you’ll inevitably end up with not enough traction at the end of your $200K-400K and you could have a tough time raising on mediocre metrics – which means you could die even though you had a great idea to start. The fact remains that it is usually easier to raise money on the promise than afterwards on mediocre metrics.
The basic problem is, in the past, you may have been able to get to your next round with some level of confidence in the past with only that much. In today’s world with the way the ecosystem is, your chance of getting near nowhere is uncomfortably high.
4. Looking at the startup plan itself, I think deeply about it and the ecosystem surrounding it. What will it take to get this startup to exhibit a decent amount of series A characteristics? This will be both subjective and objective; we analyze the plan and do our research as well as put our best guess and intuition against it. Can this startup make it to series A in a reasonable timeframe? Can they do it only with the money they raised? Or should we expect a bridge? Or, given what we know about the VCs who play at series A stage, will this startup get to a place where someone will step up to fund them? Eerily, revenue can play a big role yet again – this is very reminiscent of what happened to investors back in 2008 during the economic downturn; investors starting putting money into revenue generating startups for their survivabiity. I believe this factor will play a major role yet again in today’s world because this lengthens their time to develop series A characteristics.
So if all these factors align positively, then I think the startup has a good chance of getting to the next step which is series A. Still, the world is changing very quickly now and I’m changing my thoughts and strategy in near real-time. In the near term, the ability to create a condition where series A is achievable in the timeframe that a startup has, has now come to forefront of my investment criteria.

Frequency of Product Usage in Startup Strategy

I just read Mark Hendrickson’s post-mortem for Plancast on Techcrunch and the section on sharing frequency hit a chord.
When I meet startups, I mentally run their product or service through this test, which is the test of frequency of product usage by their customers. Simply put, if the frequency is high, then their product idea stands a greater chance of surviving in the marketplace. If the frequency is low, then the probability of dying is much much higher.
What do I mean by frequency of product usage?
When a user uses a product tens or hundreds of times a day, this is the dream – to work on a product that is so necessary by a large customer base that they need to use it that much! An example of this would be email – too bad it was created and set free to the world because someone could have made a lot of money on that, or at least in the early days.
Once a day is not bad either. Once every few days still OK. I read the New York Times email digest and website once a day generally, so I can remember to go there. What about the other news sites? Hard for me to remember which ones I do read when I visit them so infrequently.
Once a week – hmmm – getting to that limit. Once every 2 or more weeks and I think you’re in trouble.
That’s because people forget very easily what services and products they use, especially in this crowded world of me-too products. When your memory is sketchy, it’s easy for someone else to hop in there and supplant you.
Take travel services for example. How often do people really go on vacation? Normals tend to go maybe once a year, if that. If I find your site, use it to plan a vacation, and don’t worry about going on vacation until next year, do you think I would remember to come back to you? If you’re a startup, the odds are against you that you’ll even be alive by then.
This goes for both consumers or enterprise customers – if a business customer doesn’t find a daily or constant use for your product, then how can it find some justification for buying your service?
That doesn’t mean that what you’re working on shouldn’t exist, or couldn’t become a big business. The big problem is that you’re a startup with limited resources and survivability and some lower frequency services should really be done by more established companies. You, on the other hand, need traction and revenue as fast as possible before you run out of money. This is why frequency of usage is critical at early stage; if you have a product that people only occasionally want or want at special situations, you’ll never be able to build enough customers before you die.
So you have three choices. Either you must work on something that has a high frequency of usage, enough to attract users who find you useful enough to use often enough to keep coming back; OR you must find a way to buckle down and exist long enough for enough customers to sign up and generate enough traction and revenue for you to survive as a company. There is one other possibility and that is to add some high frequency elements to your low frequency of usage service to keep interest in and around your main service, despite the fact they may actually use the main service only intermittently.
Any of these could work and convince me to invest but working only on a low frequency of usage service in today’s super crowded marketplace definitely will not.

Building the “Apple of [fill in the blank]”

Yesterday afternoon, I reconnected with an entrepreneur on his project. He reminded me of something we discussed a while back and it re-rang a chord. That something was the fact that when we discussed vision for his company, that he really was driving towards building “The Apple for XYZ”.
Today, we see the transcendance of Apple and the amazing things that Steve Jobs has done for the worlds of computing and mobile. He took two very slow innovating, mediocre to bad UX, nearly commoditized industries and transformed them into new engines of growth for creativity, innovation, and monetization. His rabid focus on what’s crappy for users before and creating the ultimate solution has served him and Apple well. Thus, I think for those of us in this generation, we like to ask, “what would Steve Jobs do?”
What would Steve Jobs do?
Jobs is not with us any more, but his methods are well discussed and documented. To oversimplify dramatically, he simply takes something that exists today, looks at what is frustrating and crappy about it, and makes it into the ultimate whatever from a user experience standpoint AND makes it delightful and desirable on top of that.
This is now my new favorite thing to ask startups that pitch me.
Are you creating the Apple of [fill in the blank]?
I think this is worthwhile to apply to anything that a startup works on. Startups are the perfect place to envision, create, and execute the ultimate product or solution to anything. Big organizations have so many barriers to doing that; being small and nimble gives you a lot of advantages.
In today’s startup ecosystem, I am beginning to think that now you have no choice but to create the Apple of [fill in the blank]. Why? It’s because there is SO much competition that being great isn’t good enough. You have to do better than even that to get noticed by consumers who are getting way too many things that are great and to rise above the noise of all the crap that is preventing us from discovering the right thing. If you want to win, the bar has risen so frickin’ high that you have no choice but to pull off the hardest feat possible, which is to build something that eliminates all frustration and crap in the user experience and is the ultimate solution for that product or service and, oh by the way, it needs to be something so desirable that people want it for what it is, what it can do, how it makes them feel, and elevates their personal status by having it.
So you, the entrepreneur, should be asking yourself:
Why am I not creating the Apple of [fill in the blank]?

Do Not Let History’s Mistakes Repeat Themselves

Charlie O’Donnell of First Round’s NYC team recently wrote a very important post entitled, Ignore startup history at your peril. It was so good and relevant to today that I’m adding it to my list in my post, If We Meet, I Will Ask You….
To summarize his post, he basically loves to ask startup founders why haven’t the previous entrepreneurs in his space succeeded and how did they fail. Given today’s proliferation of clones of every idea out there, or even near clones, it is hard not to be able to find competitors in the near past who have tried your idea and failed. Also, given founders posting a lot about their mistakes, and Techcrunch, et. al. documenting the closure of all these startups, it would seem relatively straightforward to dig up reasons why a lot of similar startups failed. Or, our entrepreneur networks are pretty darn small now; it would not be hard to go and simply ask around and thus find out about any startup out there.
Why would you want to do this? Well, it’s to not repeat the mistakes of the past. And if you don’t go figure out why someone else failed at what you’re working on now, the likelihood of you flailing through mistakes made by someone else is pretty high. I totally agree with Charlie wanting entrepreneurs to not only be experts in their respective spaces, but also students of the history of past startups who have tried and failed, and, by the way, also succeeded.
Many thanks to Charlie for bringing this up and I’m adding it to my list to ask entrepreneurs during pitches.

What’s the Real Problem with Your Startup?

After I wrote my post Talk About the Problem, Not Just the Solution, I’ve had a series of pitches all characterized by the same thing: a singular focus on how wonderful the product is.
Unfortunately, I’ve got news for you all you MIT/Stanford/super-genius engineers and hot shot designers:
Product development is a commodity.
In today’s day and age, you can build just about anything. There are very few things out there being worked on that really require rocket scientists. But most of them don’t. Most products and services have plenty of models to copy from. Or if you don’t have something to copy, we have all these well defined processes to find solutions such as customer development by Steve Blank, as documented in his classes and in his book The Four Steps to the Epiphany, or Eric Ries’s Lean Startup principles.
So if that’s true, building product is not the problem. In fact, anything that is under your direct control is not a problem for your startup. And that’s why I’m not interested in seeing your product just yet; I want to hear about how you’re going to solve all those problems that you have no control over.
Every startup has approximately 1-3 things that will make or break their business at early stage and very, very rarely is one of them the ability to build the product (by the way, if it is and if it’s something that doesn’t require rocket scientists, you’ve got bigger problems than you can imagine, if you can’t even get your product built).
For example, I’ve recently met some local startups. They all showed nice product design but the real problem lay in how the heck where they going to scale customer acquisition, if there customer was every local merchant down the block, in every city, in every state in the US?
Now that’s worth talking about! Because if you can give me a convincing scenario where you may have a novel solution to this problem where so many have failed, your startup actually has a chance. But if you don’t have a great answer to that problem, your beautiful product is not going to magically leap into the hands of local merchants, and certainly not fast enough to get you enough revenue to survive as a company.
Usually it’s pretty straightforward to figure out what those 1-3 key problems are. If we can get past those, then we should take a look at what you’re building. Assuming you’re doing all the right things, I’m guessing that whatever you build is probably going to be good enough to start, or to get there after you launch.
But until we get past those 1-3 key problems, I’m probably going to keep interrupting you, derailing your pitch, until we do. Or if we can’t get past those key problems, I think you need to go back and figure those out or else it is unlikely that I will invest.

What I Really Mean By “Souring on Internet-Only Startups”

People who know me have heard me say in the last several months that I’ve “soured on internet deals.” Unfortunately, this has been misinterpreted as “Dave has stopped doing internet deals completely.” But this is untrue.
Internet is in my blood. I’ve been working on internet businesses since 1995 – that’s nearly 16 years of thinking, designing, launching, breathing, living internet. I can’t escape it and don’t want to.
I *will* do internet-only startup deals. But the problem is that the current environment makes it difficult for me to justify investing in internet-only startups. This is because:

  1. Competition for internet-only startups is created too easily. Too often I meet an entrepreneur who already has competitors; how do I know that he will be the one who wins?
  2. Competition stifles growth potential which can be deadly to an early stage startup who is watching their bank account grow less by the day while revenue and customer growth is slowed by the other similar startups attempting to sign up the same customers.
  3. Competition creates confusion in the customer base as much of the company’s differentiation is very incremental or small. To a customer who is inundated with so many similar services, how do they tell who to buy services from? This limits the growth of startups which again can be deadly at early stage.
  4. Extending on 3, not enough startups are working hard enough to differentiate exponentially versus incrementally. In today’s crowded marketplace, it is not enough to be just a little better; you have to be exponentially better.
  5. New angel investors entering the market are inexperienced but also they have no choice but to invest in what is out there today. This fuels the existence and survival of competition in the marketplace when these startups should have been pushed harder to develop exponential differentiation instead of simply incremental.
  6. Valuations are inching upward, while the quality of the startups is dropping relative to the conditions of the marketplace. When valuations rise above what I think the risk potential of a startup’s idea, it’s time I know that I should not play in the internet-only space. Now we are seeing notes without caps, which is the beginning of the end for why angels should be putting up early risk capital and getting little in return later when the note converts into a large up round with a venture capitalist.
  7. Hiring is a nightmare across the board. Lack of resources limits a startup’s ability to scale. I have seen many startups who want to do more but simply cannot hire fast enough to do more.
  8. SEO and viral don’t work any more. I’ve seen too high a dependence on trying to drive traffic in these ways, but too many people are SEO-ing in the same way, and consumers have way too much stuff to be viral about.

However, that does not mean I won’t invest in internet-only startups. It just means that they have to pass harder conditions. These are conditions like:

  1. Little or no competition.
  2. Understand what it takes to compete in today’s world and have some sort of advantage. Arguably, in 2011 now, people are competing now with competitive advantages in design/user experience and customer acquisition. This may also mean that you must raise a ton of money to: a) outlast your competitors, who will die because they couldn’t; b) out-market everyone else by spending money to buy customers since free methods aren’t as effective (ie. SEO) or too difficult (ie. viral). The world moves fast; potentially in a few short months, these factors could change.
  3. The idea must be *totally* unique. That means if I search around Google or iTunes app store, I won’t even find near competitors of yours. If it is improvement over a previous product, the improvement must be exponential, not incremental.
  4. Disruption of an old world industry is always attractive.
  5. Some kind of technical advantage is also always attractive.
  6. I must have an affinity, interest, and/or expertise in the area. If I’m going to spend time on your startup for a long time, it might as well be something that I think is cool.
  7. They must have a world dominating vision and show unwavering determination to take over the world. We must both agree that their vision is a world domination vision. I want the entrepreneur to aim for a lofty goal that is game changing, and not just some tiny goal.
  8. Another lofty goal: I want to them to figure out how to make $100MM revenue per year…or more.
  9. Ideally, I see valuation at exit for the company in excess of $100MM. Otherwise, it will be hard to make money for my overall portfolio and not just on this one deal, given that many others in my portfolio will fail.
  10. The entrepreneur must exhibit great entrepreneurial qualities, be tenacious, adaptable and not quit, because yes it is freakin’ hard to win in today’s internet-only startup world and I don’t want them to give up but instead it energizes them and ramps their creativity further.

I may, therefore, say no to investing in internet-only startups a lot more, maybe even 99.99% of the time now as I adjust my bar so high for an internet-only startup to pass. But I am simply reacting and strategizing to the realities and demands of today’s marketplace, AND the fact that I invest to make money, versus other non-money making reasons.

Who knows where the world will be in another year or two? Perhaps my bar will shift again. But if you have an internet-only startup which satisfies my new super-hard critieria, I would love to meet you.

The $100,000,000 Question

I’ve got a new favorite question to ask entrepreneurs during their pitches. The question is:
“How do you get to $100,000,000 in revenue per year?”
After they go through their entire pitch, I zing them with this question. I hear their plans, their projections, and what they want from me; then I take all that they just said and ask them if they were to take everything they were doing, how can they get to $100MM/year?
More than anything else, this is an interesting thought exercise.
Let’s say nothing substantially changes from their plans, which is highly unlikely given what we know about startups, but just for now let’s hold it all somewhat constant. We take that and generate some revenue assumptions per customer. Then we take $100MM and divide it by that number to figure out how many customers we need in a year.
This is where the interesting part begins.
Sometimes we’ll look at the number of customers per year and melt at the impossibility (ie. “We need every person on the internet to be on our service to get to $100MM/year”). Then we have to adjust something. It may even point to potential inevitable pivots.
Or we may adjust that number to some realistic number of customers per year (ie. “Well, we can’t the number of users that visit Facebook every year, so let’s say that it’s some percentage of that, and then we’ll take a percentage of that which we can monetize.”) Then we adjust upward the amount of money we need to generate per customer. We take a look at that number and see if that is achievable.
We continue to adjust a bunch of variables and see if somewhere there is some believable outcome from our fiddling.
With one entrepreneur I recently met, he had never done this thought exercise before. And the result actually surprised us; we came up with a number that didn’t look insurmountable at all! Wow!
Most of the time, though, we come up with some maximum potential revenue number that is less than $100MM. Sometimes it’s not bad, like above $10MM but less than $100MM. Sometimes, we just are struggling, trying to get to even $5-$10MM.
I think more entrepreneurs should go through this thought exercise with their projects. I believe that this is essential to creating a fundable startup and eventually a world dominating business. While there are many investors who are OK with someone working on experimental or feature level projects, or those that aim for smaller outcomes, I just don’t have the right resources to support a whole bunch of them, knowing that a ton of them will fail for me as an investor (by failure here, I mean that it will not give me a substantial return on my money; certainly success of the startup can mean a ton of other outcomes, like even a talent acquisition). So I must work with those startups which can get to some large size, like targeting $100MM/year in revenue.
So adding another item to my post, If We Meet, I Will Ask You…, I will begin asking each entrepreneur to go through the thought exercise with me on how they can take their projects and build a $100MM/year business.
If you go through the thought exercise, you maycome up with some seemingly impossible looking outcomes which can be discouraging. But sometimes, you may even surprise yourself in that it may even be in the realm of the achievable.

Talk About the Problem, Not Just the Solution

When I meet with entrepreneurs, the conversation often goes like this:
We start by talking about the startup idea or problem they are trying to solve.  We spend about a minute on that and then we dive into a product demo.  He starts showing me the product, all the cool widgets, flash effects and interactivity and then I raise my hand and call a (hopefully polite) halt.  I pull him back to the problem definition and often have to drag him back to talking about it because he often wants to go back to showing me how cool the website or product he built is.
Here is the problem with this.  I have not bought into the problem statement yet, but the entrepreneur assumes I have.  And it very much seems like he wants to sell me on the beauty of the execution alone, which I may agree looks really elegant and well done.  However, creating a startup is not just about building the product, it’s about why we’re doing it in the first place. If I don’t agree with that yet, then it doesn’t matter how we execute or what we’re building.
To me, building the product is the most straightforward (out of a potentially chaotic customer discovery process) part of a startup; building the right problem statement is much more important and difficult.  After all, how do you know that you’re building the product to solve the right problem?
By right problem, I mean all those things that are so important to contributing to the success of the startup: big enough market, do users have a big enough want or need, can you monetize, are there competitiors or none, etc. etc.  If, in that first few minutes of problem definition, I don’t believe your problem statement is worth building for, then it’s pointless to keep showing me how great your product is executed.
After I call a halt to the product demo and I explain why, often the entrepreneur looks at me incredulously and tells me you’re the first investor to want to stop looking at the product.  This is frightening to me; are there a crew of investors out there who care more about how cool the product is than why they are building the product in the first place?
My favorite pitches tend to follow a form which I learned in high school about writing compositions.  

With the introductory paragraph, you start broad and then work down to your problem statement which generally is the last sentence in the introduction.  Then the next 3 or 4 paragraphs offer proof of your problem statement.  The last paragraph is the concluding paragraph, which summarizes the key points in defense of your problem statement and usually tries to end with a broader concept.
In a pitch, this starts with a lot of time talking about the problem statement, why we’re doing this and why it’s a great idea to be working on this venture. Once we establish this, we can talk about what they’ve accomplished from a product standpoint.  After we go through that, we go back to the company and widen the discussion to what they’re going to do in the future, and talking about where this company can go from here (and hopefully see the opportunity to grow huge).
These entrepreneurs’ pitches look more like this:

We start broad for about a minute and then we narrow quickly into a deep dive into the product itself.  At the end of the discussion, assuming I haven’t stopped them first, they just ask me how much money I want to contribute and that’s that.
No discussion about the future, no talk about company vision, no assurance that there is a real big opportunity here; just a cool product and someone who wants money to develop it further.
Here’s are the issues:
1. Talking about vision and potential future of the company is important.  It gives you a defining vehicle in which to drive the company forward.  It provides direction internally, and external understanding about what your company is all about.  If you don’t have this, you could be really stuck at some point if your current product isn’t getting traction and you won’t have some sort of map to follow; you’ll be forced to define one on the fly and you might not be able to.
2. If you never talk about the vision, I will never know if you will ever get one.  I have found some people don’t ever get the vision. They can’t ever get their heads out of what they’re doing at that moment. They somehow are missing the strategic gene, and only have the tactical – so they are great sergeants but not generals. But it’s the generals that will build the Googles, not sergeants who can’t advance beyond their rank. That doesn’t mean that sergeants aren’t important; it’s just a problem if they are trying to build a startup which requires someone to think like a general to know if they are working on the right problem.
3. If we never talk about the vision, then I won’t know if you’re aiming for the right opportunity. If all I see is an incremental improvement on what’s out there, or something small like a feature (how ever nifty it is), it’s just not going to get me excited because I need to bet on the next big thing not just another little thing.
4. Here’s another way to look at it. The world contains a whole bunch of problems that you could work on, and a whole bunch of solutions:

So you lightly define a problem, and then you start building and coding because that’s what you’re good at and you want to get cranking. So you crank.
Now, starting with this solution, you’re aiming for some problem:

But your problem definition isn’t complete. It’s nebulous. The problem with this is, if you had a great problem definition, you might actually be spending time on the wrong solution. If you started with a great problem definition, you might actually end up with a better solution than the one you worked on now:

This is because the set of possible solutions can be enormous and unless you define the problem well, you might be wasting time building something which may not be the optimal solution from the right problem! So why not show me that you understand and have defined the problem fully, and then show me that you’re working towards an optimal solution to this problem, versus me feeling unsure that you’re working for the optimal solution to some problem which I’m not sure yet whether you should be working on!
So are we headed for a small business, or the next Google? Talking about your product in detail is nice and important, but I want to hear about why you’re building it in the first place as much as how much you want to demo what you’ve built.

[UPDATED] If We Meet, I Will Ask You…

After blogging about a variety of topics, I find that they form the core nucleus of the things I care about before investing in a startup. Yes, I also care about the usual stuff like smart entrepreneurs, great idea, etc. But I think there are things that I’ve been focusing on assuming we get past the basic stuff.
So if I meet with you, you can expect discussions on:
1. What’s your world domination plan (and more on why it’s important to have one)? How can you avoid just becoming another small business which is not a reason for not existing, but does bring danger to us investors?
2. I’m most likely going to try to talk you out of being an entrepreneur.
3. Most startups I meet are working on me-too products, even if they don’t think so. How can you not be about just developing a me-too product?
4. Are you planning on lasting two years? If you aren’t and you need time and money to pivot, you won’t be able to raise money in this climate because second chances are impossible to come by.
5. How are you going to make money? Please, no more projects that are just going to gain lots of users…
6. If I were to envision the The Ultimate Product (and Part 1.5), would what you’re building be that product, or on the path to that product?
7. How are you going to gain customers – distribution is by far the number one problem facing internet startups today (see me-too post and my combining startup investing and distribution post).
8. [UPDATED: 2/4/11] How will you get to $100,000,000 in revenue per year?
9. [UPDATED: 6/14/11] Study past startups and competitors and learn from their mistakes and successes. Tell me how and why you’re not going to let history’s mistakes repeat themselves.
My hope is that not only you will have great answers to all these questions, but you will also internalize and truly believe in those answers yourself, and that your answers aren’t just lip service. Hope to see you soon at a cafe near you!

The Ultimate Product Part 1.5

OK I should build IKEA furniture more often. Spending the last 2 hours building a new dresser from IKEA meant that my mind kept drifting back to The Ultimate Product and why it makes me feel uncomfortable when the Ultimate Product doesn’t match what the entrepreneur is actually building.
I think it means the probability is high that they will need to pivot at some point because they are off target from the Ultimate Product. While pivots are a fact of life for entrepreneurs, the problem for me is at early stage where I invest.
Most entrepreneurs only plan to last for a year on their current fund raise to my chagrin. If only they had planned to last 2 years, it would mean that they have time and money to pivot. But they will die before they can because they will run out of money and begging for more isn’t going to work in today’s funding climate.
So if they are, in my mind, off target from their initial mission and the resulting Ultimate Product, the chance of pivot is very high and they will be out of funds by the time they realize that what they are building isn’t going to be widely accepted by consumers and can’t pivot. Thus, if they don’t plan on lasting two years, it makes me not too confident that they will last long enough to get somewhere stable and growing. As an investor, this doesn’t make me want to invest…!
Do I believe this is a certainty, that if they aren’t quite on target to what I think is the Ultimate Product that they will surely pivot? Of course not. I recognize that I could be wrong, and that a better product than the imagined Ultimate Product could arise which also satisfied the consumer/market need. I think this is all a probability game and I’m just trying to increase the odds of success. This is definitely something the entrepreneur needs to weigh as well, especially if they are off target from the known Ultimate Product.