Last week, I was kindly asked to be a VC judge for an MIT Sloan entrepreneurship class called “New Enterprises”, taught by Noubar Afeyan. The class combines MBA and Engineering students into teams, and the idea is for each team to develop a business plan for a startup over the course of the semester. When the first draft of the business plan is ready, the students pitch the idea to a panel of 3 VC judges for feedback.
There were about 10 teams in total and overall, the quality of the ideas presented, and the skills of the students presenting them were impressive as one would expect from an MIT / Sloan class. As a panel, we provided feedback on market estimations, business strategy, financial projections, and all the usual aspects of a business plan, as well as on the presentation styles of the students.
After the fact, I thought that comparing the presentations of MBA students to the presentations that I see from serial entrepreneurs would be a great way to draw conclusions about what experienced entrepreneurs learn over the years. Here are my five main conclusions from this exercise, based purely on the recent pitches/presentations I heard.
Experienced entrepreneurs seem to have learned to:
1. Define the problem more precisely. For example, if the problem is information overload, which is very broad, a student entrepreneur may try to prove that there is a problem by showing how many emails/tweets/etc. are sent everyday globally. This will be an impressive number, but does very little to convince an investor about the business. A more experienced entrepreneur might focus on a survey of CTOs at Fortune 500 companies saying they are losing productivity due to information overload, and would be willing to pay up to $xx per employee to solve it. (this is just a made up example, for illustration purposes)
2. Better assess the cost of customer acquisitions. I think this is one of the trickiest things to assess, especially for early stage startups, and even experienced entrepreneur can find it challenging. But I have noticed that students and first time entrepreneurs will have a less systematic approach to thinking about this problem, and will typically estimate a lower cost of customer acquisition, leading to the need to raise money again earlier than anticipated or to raising more capital overall than initially planned. Complementing the management team with someone who has done this before, and looking at startups with comparable business models are possible ways to refine your estimates
3. Open the budget black box. Who is it, within the client organization, that has the budget for your product or service? Is there even a budget item for it? Is that person the same person who has the need or incentives to purchase the product? It is tempting to think of a big organization as always doing what is in its best interest. But the truth is that sometimes the individuals who need to make certain decisions within the organization just don’t have the incentive, time, budget or other resources to make this decision, even if they should in the greater scheme of things
4. Have more realistic expectations regarding partnerships. Partnerships are a great way to get exposure, customers, synergies, etc. But the relationship is almost never symmetrical, and priorities between the partners will be different. So unless it is very clear what each party is getting out of the deal and how they are doing so, it can be tricky and sometimes even frustrating. Startups are intense workplaces, and if one of the two partner startups is focused on a more important issue at the moment, the partnership could drop far down in the priority list, leading to even more asymmetry
5. Get the idea and product out there early. When you have gotten the product out there and received a lot of feedback from beta users, maybe even made a few sales, and circulated it enough to get an impressive advisory board, etc.. it will reflect in the quality of the pitch. It is an understandable reflex, when you are a first time entrepreneur, to want to protect the idea. But when you have seen the startup story played out a few times and realized that the idea is only the beginning, and that execution will be the bigger part of the success story, then you quickly figure out that the feedback you get from putting your idea out there in the world usually far outweighs any of the risks. (Example: I am working on a project that I wanted a friend of mine to beta test. I sent it to him two weeks after I had initially planned. When he asked me about the delay, I told him I had waited until I was comfortable with it before sending it to him, and he replied: “it means you waited too long!” I completely agree)
I think this is an important topic, and I will be thinking about it more. In the meantime, I would love to hear any comments, and see whether people agree/disagree with these takeaways.
Note that more experience can also limit the way you think sometimes, but that topic probably deserves its own blog post!
Disclaimers: 1. I am generalizing way too much in this post, but it is only in the hope that these takeaways are helpful. 2. I focus on investments in early stage web/IT startups, and my comments are biased towards that focus 3. Most of my takeaways have to do with sales and marketing because I have observed that this is a key area where experience seems to make a big difference, at least in the pitch