What We Expect Startups to Know

Ten years of working with entrepreneurs has given us some insights into what’s necessary to increase the odds of their success. While there is no magic formula you can follow to create a successful product or company, there are some things you can do to increase your odds, or, put another way, there are some things you can ignore that almost certainly introduce risk and decrease your odds.

If we are being asked to work on or invest in an idea, we expect to see consideration of the things that increase the odds of success. We feel that an overview of risk mitigating considerations also makes for a more compelling pitch deck. Here’s what we look for:

 1. The product elevator pitch

Short description of the market need and how the product provides value.

2. The product business model canvas

We find that a “business model canvas”:http://amzn.to/o9R5TR is a great way to communicate the business model. A “business model”:http://en.wikipedia.org/wiki/Business_model isn’t a business plan — that’s not what we’re interested in seeing.

3. Basic monetization and profit drivers hypotheses

This is a simple financial model that covers the cost to acquire customers, the lifetime value of customers, the total potential size of the market, churn rates of customers, and steady state operating costs, revenue, and profit.

4. Market risk

Describing market risks and how the hypotheses about profit drivers will be validated is what we prefer to see in lieu of a traditional marketing plan. We want to know how the entrepreneur either has, or plans on, validating that the entities in the business model (particularly customers) care enough about the product to make the business model work.

5. Competitive analysis

Who else is in the same space and offers a competitive solution? How does the product being built compare to the competition? Is the product focused on differentiation or neutralization features? We like to see a “value curve”:http://www.marketingteacher.com/value-curves/ to illustrate the competitive analysis.

 6. Barriers to entry

What, if anything, is going to make effective competition difficult once the product succeeds?

7. Management risk

Who is helping overcome market risk 24/7? (We expect this is someone who doesn’t have a day job.) Who is serving as a product manager and subordinating product development to the customer development path? Who has their head in the game 24/7? Who are the other key players?

How is the business entity supporting the product structured and how will the business be governed?

8. Financial risk

Is the short-term budget adequate to get the product to market? Is there enough funding for people, hosting, support, marketing, sales, and everything else beyond building the product?

What sources of funding may help scale the business? What is the projected future need for capital? What and when is the exit for early investors?

  • Bertrand Cachet says:

    Nice article.

    To create Business Model Canvas we use the iPad application: http://www.businessmodelgeneration.com/toolbox which is really nice. As you can duplicate a Canvas, you can investigate different hypotheses for your product.

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