Up and Running:

I found this list in a very good post from Charlie O’Donnell on his blog This is going to be BIG. I don’t know him, and I didn’t know his site, but on digging I discover he has done time with Union Square Ventures, teaches entrepreneurship and practices what he preaches with a couple of startups that he runs.

But what really matters is that this is a very good list. It matches my dealings with startups and investors, on both sides of the table.

1) Strong sense of the key milestones–Entrepreneurs often ask what metrics they need to get to in order to get an investment. I often turn that question around and get them to tell me what the important milestones are.

In a nutshell: Metrics. Trackability. He adds: “Milestones are a waterfall–and having them as goals should inform product, marketing, financing, etc.” Agreed.

2) Implementation of a product strategy–More so than any other aspect of the business, the thing I see early entrepreneurs tend to drop the ball on most–myself included–is product strategy.  I’m not saying you have to know all the answers, but you should at least know what your landing pages are trying to accomplish, where they’re going wrong and what steps you’re taking to identify the solution. I like to know that, even if you haven’t figured everything out, you have a process around product–so this way I can bet that you have the tools to figure it out.

The product road map included, and this gets even more powerful when you add on the milestones in the first point. In the post he adds the practical question, “How do I know you’re not going to spend the whole financing moving the search box around when it turned out that being on mobile was more critical to your success?”

3)  A theory on customer acquisition–You may not even have your product out yet, but having a reasonable sense on how people are going to discover it–past the buzz around your launch–is necessary. Just tell me how the first 10,000 users who aren’t your friends find it–and if it’s viral, tell me why people pass it on other than “because there’s an invite friends link.”

And, within that, this very real note about what doesn’t work:

If your strategy is to reach out to all the bloggers in your industry and get them to write about you, that’s pretty much what every other startup is going to do–and anyone who has done it will tell you the results will likely be underwhelming.

So make it real, and also realistic. Don’t just do what everybody else has done.

4) A financing strategy that gets you *somewhere*–When I say *somewhere,* I really mean one of three outcomes: getting critical mass (whatever that is for you) or at a product milestone that makes your venture fundable, starting to get revenues or cash-flow positive. When someone asks you, “What does this money get you?” they really want to know that it gets you to some amount of users, coverage of certain platforms, first enterprise customers, whatever it is. Just something more mission critical than “18 months.”

Notice that it’s not necessarily all the way to the exit strategy. I find this very refreshing, looking at some real next step, and going back to the foundation of metrics and milestones, trackability.

5) Specific value creation –The easiest way to show value creation is to say that each customer is worth X dollars in revenue. Pair that with the cost of customer acquisition and net worth; there’s your business. I don’t care if these are wild-ass guesses–at least make some attempt at showing that at customer N, your business is worth X.

That’s a very nice summary of “value creation.” Units times price.

What I like about this post is that it gets away from the standards I find myself listing too often: exit strategy, differentiation, growth potential, defensibility, management team and so on. This different way of looking at it seems very useful to me.

One proven way to build a company from zero to winning angel investment is by pitching, listening and correcting. Fill gaps. Strengthen weak points. Listen to your customers.

I watched Precision Plant Systems pitch at the Bend Venture Conference last Friday for the third time in a year.

• The first time I was thoroughly unimpressed; it seemed like science–sensors of nitrogen content in leaves–disguised as a business.
• By the second time, last spring, founders had been out in the field putting technology into the hands of selected farmers, and the farmers wanted more features and better handheld technology. It had become a system, including CPU- and Web-based software, with humans walking around fields noting conditions in handheld units equipped with GPS, so the underlying software could output the results overlaid on maps of actual farmers’ fields. It was much better, but it was still hard to tell whether the business was about the software, the handheld units, the Web, the science or all of the above.
• The third time, last Friday, it was an integrated system with a clear value proposition, making it easy for humans walking in fields to record information that can be retrieved later as part of a system–including notes, sensor data and GPS data. It’s a nice compromise between all-automatic data sensors that might be ideal, and entirely old-fashioned handwritten notes. With a lot of practical touches, like an option for Spanish. And, by the way, the team now includes two people who had been involved in other local ventures competing with this one for local angel money, but were now part of this one. One was an advisor. The other, a software pro, was a featured team member.

And this time around, the listening, the additional development and the fine-tuning paid off. The company took first place at the competition, which means an estimated $120,000 angel investment, pending further due diligence. And that was against some stiff competition.

CEO Larry Plotkin told the local newspaper he was surprised to win. What surprised me, as I watched his pitch, was how much stronger the pitch looked this time around. And the pitch had improved, but then the improved story line was much more significant.

Here’s the summary from the local Bend Bulletin:

Precision Plant Systems is developing a hand-held device to help farmers measure and map the health of their crops. The device is synchronized to meters that measure soil salinity, pH and compaction, leaf greenness, nitrogen, water content and the sugar content of the actual crop. The information is transferred to a map using GPS technology, Plotkin said, providing farmers with a comprehensive overview of what’s happening in their fields, allowing them to make better decisions.

And for me, this is a great example of how the process works when it worked well. It involved the two local Chambers of Commerce, two angel investor groups and a lot of people helping along the way. And a management team prepared to listen and react to criticism. Congratulations to this company, for a victory well-earned.

Consider yourself one of the first to know about the new Bplans.com pitch site at pitch.bplans.com. That means you can be one of the first to pitch and one of the first to get posted.

No, it’s not about putting your business in front of investors, although maybe it could be partly related to that. Instead, it’s about the art of the pitch. Free publicity perhaps, too, and tips or comments. What it is about is the art of the pitch. Doing it right, doing it well and getting yourself and your business up and showing up. (And let’s pause here to note that The Art of the Pitch is a chapter in Guy Kawasaki’s The Art of the Start book. Click here for his reading of that chapter.)

Take your browser to pitch.bplans.com and you’ll see the “Add pitch” button you can use to upload your pitch. What follows is a page of basic information (name, address, logo, etc.) and then a second page where you can add a YouTube video URL if you want, or short texts to deal with 10 key topics.

This is all free to the users. What do you get out of it? A dedicated URL you can use to refer people to your business summary, plus the possibility of comments; this is free publicity, and publicity is assumed to be good. What do we get out of it? Bplans.com is about starting, growing and planning a business, so we get more interesting stuff on our site.

And me? I like business pitches. That goes from the 60-second so-called elevator pitch to the 10- to 20-minute business pitch with slides. To me, business pitches, when well done, are fascinating. I see a lot of them. I see them in my role as a member of the Willamette Angel Conference, and I get to see them as a judge at venture competitions, including Forbes’ and several business school contests. And I’ll be watching them on this site, too.

Like they say in the commercials: Do it today. Do it now. Click here.

A Twitter friend (Matt Riopelle) asked me to help his friend (call him Ralph) find investors for his business.

Offhand, even without knowing either of them, I’m sympathetic. After all, if you keep up with this blog, you’ll know it’s a topic I care about. And I’ve posted here about my recent experience as an angel investor (and if you’re wondering, no, I’m all tapped out at the moment), so I’m not surprised by the question.

I looked at Ralph’s website. It’s an interesting business, local to me, with new technology for an otherwise traditional and low technology business. New materials, a new take on old products. And they’re making a product I use.

So I’m interested in the problem.

(And if you wonder why I’m not being more specific, I don’t have anybody’s permission to mention the business, and seeking investment can be sensitive. Besides which, it’s also possibly illegal (depending on interpretations) to mention a business that’s looking for investment on a blog like this; could be taken as soliciting investment improperly. That’s why I’m not giving details.)

But first, some questions:

1. Are you really sure you want to go that way?

Sometimes I think we all (we entrepreneurs, that is) move too quickly to the investment alternative. Having investors is like having a spouse. No, it’s like having a spouse who is also a boss. Your business is not going to be yours ever again.

Oh? What? You want minority investors who give you a lot of money without attaching any strings? Fat chance. You mean you want somebody who has a lot of money (they have to have a lot of money, to make the transaction legal) and is also relatively naive? And really generous? Good luck with that.

Take a good look at your prospects. Do a business plan, not for outsiders, not formal and hard to do, just a business plan with realistic forecasts for sales and expenses. Then ask yourself whether you can get by without the investment. Can you borrow enough to make it work? Can you live with the burden of debt? Have you considered SBA-backed loans (they are moving again), which lessen the debt burden?

Don’t go down the investment path just because everybody says you should. Think about the rewards of making it work without the outside investors, so you own it all yourself. Food for thought: this post on Planning Startups Stories.

2. Do you have a business plan?

The good news is that you don’t have to have a plan you can show to investors tomorrow. You do, however, need to have a plan for yourself, covering strategy, markets, sales, profits, cash flow, all the key points. These factors are all related to each other and you can’t just wing it. You need to have real numbers.

And it’s not about showing the investors your plan. That may or may not come later. It’s about knowing what you need, and why, and what that’s going to produce.

3. Do you need enough money to interest investors?

Angel investors don’t usually want to deal with less than $100,000, and venture capitalists don’t want to deal with less than a couple of million dollars. Sure, there are exceptions, but those are general rules.

And you can’t just say you want it; you have to be able to show you can use that money to grow the business. You have to have a real plan, what you’re going to spend the money on, how it will increase your business.

If all you need is tens of thousands of dollars, then bootstrap. Maybe you have to get friends and family involved, but really, for less than six figures, it’s not worth it to professional investors.

4. Can you grow your business a lot, in a few years?

Investors who put money into small businesses are taking big risks and they deserve big returns. They don’t have to invest in entrepreneurs, they can lose their money just as easily in the stock market, and they can get safe interest with no risk. So you have to give them the hope of a big payoff.

That means big growth. Can you convince them your business can sell five times what it’s now selling in two years? Or ten or 20 times in five years? That’s what they need to make money worth the risk.

5. Do you have a convincing team?

Investors are going to want track records, people on your team who can run the production, marketing, sales, and administration of your business. They want people who have done that kind of thing before, sucessfully. If you don’t have them on your team, then the investors won’t be interested.

If you can answer yes to all of those questions, then you’ll likely be able to get investment (although not from me, but I can point you in the right direction).

You might call it “I pitched my business to venture capitalists and lived to tell the story.” Scott Gerber, who wrote this piece for Entrepreneur.com, called it 6 Steps to the Perfect Pitch. He didn’t get the money, but he learned a lot:

As you might have guessed, I didn’t walk out of that meeting with a $15 million check. I later realized, however, that this was one of the greatest educational experiences of my young career. I learned more about real-world fundraising in 30 minutes than many entrepreneurs learn in a lifetime. To this day, whenever I pitch investors for capital, I always remember these six hard-learned lessons:

And as you can tell from the context, he goes on to share six well-written lessons, worth reading.

If you’re at all interested in business pitches and venture capital or angel investment deals, you’ll also enjoy his lively retelling of a pitch session that didn’t work. The interruptions, the questions he answered wrongly and the disappointing result.

I consider this a nice addition to my suggestions on making the business pitch, and perfectly compatible. For the record, that includes a five-part series on Bplans.com, and this short video on making the pitch.