On differentiation

Storytelling goes a long way in fundraising for your company.  One of the biggest components of this is differentiating your product / your company from others.

Differentiation is very difficult — there are so many entrepreneurs who are doing something similar to you and also so many alternatives that achieve the same results as your product / solution.  Even if no one has the exact same product as you, surely if you’re solving a problem, there is someone else providing a different means to the same end result.  And if there isn’t…are you really solving a problem?  So, differentiating your company well is tough.

So it’s important to think deeply about this.  Take the time to really hammer out a clear story on why your product / company is differentiated.  Here are a few areas entrepreneurs ought to think about differentiation:

1) Focus on results not features

The top way I see entrepreneurs differentiating their products is via features.  “Our UX is easier to use than the competition.  ABC product is so clunky.”   Or, “we have DEF feature but company XYZ doesn’t”.

Most of the time, features really don’t matter. Ultimately, consumers and businesses use products as a means to an end — they want to achieve X faster or cheaper or something.  It may be that your user interface makes it easier or faster to accomplish X.  But, people don’t care about what buttons your product has.  They care about that end result.  Focus your story around that.

Case in point: In the late 90s, Google was something like the 7th or 8th major search engine to emerge.  Their feature set was different from Yahoo’s — it was just one search box with nothing else on the screen.  Although UI was simple, that’s not why consumers switched their searches to Google.  That’s just a feature.  Consumers switched because they could get search results a LOT faster – orders of magnitude faster!  Consumers didn’t have to leave the computer to get a snack while waiting for their search results to load over their dial up modem connection!

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Originally posted by archiemcphee

2) Your results should be 10x better than competitors or alternatives not incremental

This brings me to my next point.  When entrepreneurs do focus on presenting results, I find that they often tend to be incremental improvements.  In an investor’s eyes, incremental improvements are not interesting.  This is because incremental results are often not enough to get a consumer or a business to drop everything and make it a priority to switch from what they are already using to your product / solution.

In the case of Google, their results were not just a little bit better but an order of magnitude better.  E.g. Altavista seemed slightly faster than Yahoo (at least to me), but when Google came along, it was a no-brainer to use Google all the time.

Now, sometimes, you may need reframe your story here.  It’s not always possible for all your numbers to be an order of magnitude better.  You may need to pick a different result to differentiate on.  For example, let’s say you develop a new kind of airplane with less 2% less drag.  This, in itself, may be a small number.  But it could have an order of magnitude of effect on your gas costs for the plane or whatnot.  It’s important to think about what axis you want to compete on.

3) You may need to differentiate your company on something other than your product

This brings me to my next point.  Sometimes, it’s just not possible to compete at all on any numbers being an order of magnitude better.  Not all great products are an order of magnitude better.  And, that’s ok.  But, it means that you need to differentiate on something else.

You will also need to do this if you’re in an industry where people can’t look under the hood and believe that your results are actually better en mass.  For example: lead generation.  There are so many lead generation startups (I had one too!).  And they all say they provide awesome leads.  And they all say their leads are 10x more cost effective than everyone else.  How is this possible?  Who is telling the truth?  Probably everyone — for certain customers, specific lead generation platforms and services are better than others.  But it’s not possible for an investor to verify this en masse, so many investors will pass outright, because they don’t believe this differentiator is true and won’t be able to prove it.

For businesses like these where an investor cannot actually verify your differentiator, you will need to get creative in your story.  Usually, the best way to do this is to incorporate your personal story.  If you have unique insights or domain experience, maybe this is what you use to differentiate your company from others.  Don’t use a story that your competitors can use.  For example, in the lead generation industry, a story I hear all the time is about how “Martha runs a flower shop and didn’t have customers.  Then awesome lead gen platform ABC came in and got her customers.”  All of your competitors / alternatives are telling that same story.  Your story should be unique to you — a story that none of your competitors or alternatives can tell.

To come up with such a differentiated story, in many cases, you may want to make it about yourself or your personal insights that are unique.  What is interesting about you?  And why are *you* doing this lead generation business?  If you can’t think of anything, spend the time to think long and hard.

Here’s an example that a CEO gave me the other day.  He’s building a company in a vertical that is pretty crowded.  He said, “Let’s take a step back – before we dive into my business, I want to tell you a bit about my life.  My mom was a single mom.  And I grew up poor.  And I could not get into college.  And everyone wrote me off as a loser.  And so I had to take a job after high school to make ends meet.  And, I ended up in ABC industry taking the only job I could get.  From there, I did XYZ, and eventually I realized from working in this business that a) I wanted to prove myself – that I was not just this poor boy with no future.  And b) that I knew more about the ABC industry than most people in the world, and here are my insights on it. And this is why I’m starting this company.”

His story was incredibly compelling.  Even though his product insights were not unique, he was able to differentiate his company from many of the other ones I’ve heard pitch, because I believed he knew more than other people about this industry.

4) Think about future differentiation

Once you’ve established why your company / product is different, think about how you’ll continue to be different.  Investors call this your moat.  You don’t need it now — most companies are not really defensible when they first start — but investors want to know how you think about this and how you’ll work towards this.

Your strongest story will be about how you’ll continue to keep your company ahead of the pack.  For example, if you have data that feeds into your algorithms to make them stronger, then your story is about growing your data access so that you’ll continue to improve your algorithms.  If your story is about network effects of people on your platform, tout that story.

But there are a lot of stories about improving your product that I hear from entrepreneurs that are pretty weak.  Saying, for example, you’ll continue to improve the user experience on your platform, while may be true and important, is NOT compelling.  Investors would expect you to continue to improve the product, and any newcomers or future competitors would do the same.  Your head start is likely minimal, so it’s moot.  Any competitor can come in and build a better product than you or play catch up with a better UI.

In most cases, where you don’t have network effects in your product or viral loops or whatnot — and most companies don’t — you’ll need to tell a story about a thesis that you have.  A thesis, by definition, needs to be both compelling and arguable.  In other words, a good thesis will get some people excited and passionate to join your journey but will be alienating to others.  Your job isn’t to get all investors to like you — your job is to find investors who believe in your vision of the world.  This is hard to do, because as a fundraising entrepreneur, it’s tempting to want to tell a story that everyone will like.  But, I’m saying you shouldn’t — you should come up with a thesis that at least a few people love and most people completely disagree with.

5) Don’t differentiate on price

Lastly, don’t try to differentiate on price.  Price is icing on a cake but is not the cake itself.  Your product should be differentiated in other ways, and it’s nice if it’s cheaper.  But it shouldn’t only be cheaper.  That’s the easiest way for another company to compete with you.

Good luck!

Cover photo by Randy Fath

Happy 2017! Some shoutouts and new goals

Happy 2017!  I’m thankful to be surrounded by so many wonderful people and for good health in 2016.   I look forward to a great new year ahead of us.

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Originally posted by 70s-80s-gifs

A few shoutouts and highlights from 2016:

1. Family

I feel so lucky and grateful to have such an amazing family.  Juggling our household schedules isn’t easy — especially with all my trips (Asia, Europe, LatAm, Canada, US) in 2016.  Those trips are a blast to be able to meet so many amazing driven entrepreneurs, but I realize it’s my family who ends up picking up the slack at home in order for me to do this.  I don’t ever forget that or take it for granted.

2. My 500 Startups family

2016 marked my first full year as an investor.  I never intended to go into VC. Honestly, I never thought I would work for someone else for so long (just passed my two year mark at 500)!  I’ve been fortunate to have had the chance to see, champion, and be a part of so many deals — probably more than most people will see over a lifetime, and it’s been amazing to learn so quickly from those.  Most of all, I’ve appreciated having the best team ever.  Teams and culture are the lifeblood of any company (including VCs), and it’s teams and culture that make people happy with their work — not compensation and not the day-to-day work itself.  I feel lucky to have such a great team.

3. My blog readers

My new year’s resolution for 2016 was to consistently blog at least once a week.  In the beginning, I started the blog because writing was cathartic for me and was a way for me to write down what I was advising founders already on a 1:1 basis.  I thought that keeping up the blog would be very difficult for me, but in the end, I missed just 4 weeks and ended this year with ~3k email subscribers.  Thank you for reading!

4. My Rejectionathon supporters

This year I started a half-day event called Rejectionathon to help entrepreneurs get over their fear of rejection.  It took me years to get comfortable with being rejected while I was selling ads for LaunchBit, and so I started this in order to help entrepreneurs develop a thicker skin more quickly.  At these Rejectionathons, entrepreneurs would receive a list of challenges and would run around trying to accomplish those challenges.  The challenges ranged from really tough tasks such as asking a stranger if he/she could help you figure out if your deodorant is working to easier tasks such as high-fiving a bunch of people in a restaurant or bar.  Special thanks to my Rejectionathon co-founder Thea Koullias, whose primary gig is being the CEO/founder at Jon Lou, who has helped me pull this all together.

Goals

These past couple of weeks, I’ve had some time to sit around and think about how I want to change things up in 2017.

A few goals and things I’m looking forward to this year on a professional front:

1. Focusing on earlier stage entrepreneurs

One of the things I’ve seen over the last couple of years is that a lot of seed investors start out investing in idea-stage entrepreneurs but as they build a track record and raise bigger funds, they tend to move downstream and invest more money in later stage seed companies.  My own employer 500 Startups is a great example of this.  Newer VCs, who don’t yet have a lot of deal flow then fill this void and the cycle repeats itself.  Because these investors don’t yet have a brand, entrepreneurs often don’t know they exist, and funding at this “pre-seed” level is very difficult to come-by.

When people say “there are more seed investors” than ever, usually they are talking about the ample seed dollars available for companies who are already thriving and growing.  But if you are just starting out and don’t yet have traction, this doesn’t really apply.  There are a couple of things that I aim to expand on in 2017 to help with this pre-seed stage and a couple more ideas that I have in the works that I’m not ready to announce yet.

A. Changing Rejectionathon

One of the issues that I see with so many pre-seed entrepreneurs (including myself when I was starting LaunchBit) is that so many people are incredibly timid in approaching activities that could lead to rejection.  Founders at this stage often are too afraid to sell products, establish business partnerships, or ask hard questions when fundraising because they are afraid of being rejected.  When we go through about 20 years of school, we never once learn how to develop a thicker skin, and yet, it is probably one of the most important skills you can develop in life.  This is what we set out to help entrepreneurs with via Rejectionathon.

Being able to get over rejection quickly to build momentum and traction is particularly important for the pre-seed stage because you just don’t have any runway to sit around and lollygag.  I’m going to talk more about this in a future blog post, but we are changing the nature of Rejectionathon.  It will still be a difficult set of challenges for entrepreneurs to tackle — to help them get over their fear of rejection.  But, we’re tweaking things so that it will be directly applicable to their businesses so that they can make progress on their startups while at a Rejectionathon.  In addition, in 2017, we tested the Rejectionathon concept domestically, but we plan to roll out more of these worldwide in 2017.

Our next one is in Mountain View on Sunday, January 29, 2017.  Use my code EYFRIENDS for 50% off.

B. Blogging 3x per week

In 2017, I am aiming to blog 3x per week.  Don’t worry, it won’t just be me blabbering more.  I still plan to only write about 1-2 posts per week with my own thoughts on fundraising.  But, towards the end of 2016, I started experimenting with other activities on my blog including “Ask a new investor” which is an interview series to highlight new investors and allow a curated group of entrepreneurs have a remote conference with them.  This is still in experimental stages, but the initial feedback from the first one was promising, so I plan to tweak this concept more and continue it in 2017.  The goal here is to illuminate more new investors (which is a fundamental problem at the pre-seed stage) and also make it easier for entrepreneurs to approach these people to better understand what they are looking for.

2. Focusing on high impact activities

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Image credit: Business2Community

I’m sure many of you have seen this 2×2 matrix before.  This way of thinking drives how I structure my life, but it is so easy to fall into the trap of doing activities in #3.  This year, I aim to be better at this by doing these things:

A. Ignoring more emails

2016 was the first time I ignored a lot of emails.  At first I felt guilty.  (I still haven’t written back a whole bunch of people who applied to our seed program in the spring of 2016! 🙁 )  But the reality is that unfortunately, there just isn’t enough time in the day to respond to every email.  🙁

This has forced me to think about both my professional and personal email differently.  I now have more canned responses and automated emails than ever in order to write emails faster.  And I’m much more adamant about taking action right away on emails.  Either I respond or archive an email.  But, I shouldn’t let it sit around.  If an email sits around, it means I won’t respond to it ever, and I plan to be more decisive and proactive about that this year.

B. Moving more conversations to email

In addition, I now have gotten comfortable taking more initial conversations with people over email.  And then later moving them to phone if it makes sense to hash through the details.  A lot of my best mentors are people I’ve primarily talked with over email, and at first I had wondered just how helpful that could be compared to a phone call.  But, I’ve come to embrace email as a conversation medium and have learned that this allows both parties to respond whenever it’s convenient — even if it’s at 2am.  Phone calls, in contrast, need to be slotted for specific set times and don’t always fluidly work into schedules.

C. Outsourcing

I’ve written a bit before about outsourcing various personal chores.  In 2017, I hope to do more of this.

In addition, I’m always interested in playing with new tools to help save time.  I’m most interested in tools that can help me respond quicker to emails while on the go.  What I would really love is to be able to just quickly send a voice memo as a response to an email.  I don’t need a voice-to-text translator — I just want to be able to respond in some format quickly because that’s better than no response.

If you have any tools that help you with productivity, I would love to hear about them!

3. Exercising!

Lastly, I quit exercising for the latter 5 months of the year in 2016 because of my travel schedule.  In 2017, I’m going to resume swimming and hope to sign up for 1-2 lake races.  I never swam on a team as a kid and took up swimming just a few years ago because it’s a low impact exercise.  So I’m still a novice here and have even watched YouTube videos to improve my stroke!  In the past, the races in the Bay Area I’ve done and have really liked are the Tri Valley Masters Del Valle Open Water Festival in Livermore and the Splash and Dash Evening Series in the Stevens Creek Reservoir in Cupertino.  (The water is warm at both events and the best part is that they have hot dogs and pizza! 🙂 )

Wishing you a great year ahead – happy 2017!

 

Cover photo by freestocks.org on Unsplash

Why investors are like sheep (and how to herd them)

A fun little post for Halloween.  In many ways, a lot of investors are like sheep.  Not all.  But many.

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Image courtesy of cliparts.co

Hopefully they are not like this:

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Image courtesy of cliparts.co

I don’t know what sheep like to eat, so let’s say they like ice cream (I mean who doesn’t?) Let’s say you are selling ice cream cones, but other entrepreneurs are, too.  It can be easy for sheep to get paralyzed when deciding whom to buy ice cream from.  There are just so many options.

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This can be frustrating if you’re trying to sell ice cream.

So you start by telling one sheep, “Hey, I have a limited amount of ice cream…wanna buy?”  Then you say the same thing to lots of other sheep.

Then, a bunch of sheep are now closer to your ice cream truck, but they are not buying your ice cream because they are still deciding whether they want your ice cream or someone else’s.  This is OK and perfectly normal.  At this point, there is no need to put a ton of pressure on any of the sheep until you have enough sheep moving your general direction.  This means you need to take a lot of initial meetings with a ton of sheep.

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Images courtesy of cliparts.co 

Soon you’ve got some semblance of a herd around your ice cream truck, but no one is buying yet. So, you start to put more pressure on all of them: “Hey, I’m starting to have final conversations with a bunch of sheep.  If you are truly interested in my organic, gluten-free, tasteless ice cream, we really should talk in the next couple of days.”

At some point, you need to tell all the sheep, “I’m in final conversations with ~20 sheep about buying my ice cream but only have enough ice cream for ~10 sheep.  Can you let me know if you’re in or out?”

This is a risky move, but at some point you may just need to do this to round up as many sheep as you can.  In fact, your lasso (do people use that for sheep?) may end up missing everyone!  You may not end up with any sheep buying your ice cream, but if none of the sheep hovering around your ice cream truck is biting, you may just need to take that risk.

Sheepishly, this post may have made everything more confusing.  But, what do I know?  I’m not actually a sheep…

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Happy Halloween!

 

Cover photo by Sam Carter on Unsplash