A lot of people I know feel that the potential investors were very tough on them or on their startups. I would say that you, as the entrepreneur, should be the toughest critic of your startup.
There is a difference between optimism and fantasy. While the former is grounded in reality, the latter is based on Utopian beliefs.
In the battle of gut and the brain, I strongly believe that that gut should win. However, it is very important to have the facts and numbers right before stepping into a business.
The strange thing about a startup is that it is prone to failure even if all the ‘t’s are crossed and all the ‘i’s are dotted. So, to venture into a startup without proper planning is definitely not the wisest thing to do.
There are literally infinite resources on creating a pitch for a VC. The pitches range from the ‘elevator’ ones where you do a pitch in a couple of minutes, to detailed partner meetings where you have an hour or more to share details of your business to the investors.
The problem comes when the entrepreneur has not thought through the ‘business’ aspect of the company (which is the MOST important part of the company), and instead focuses on the technical inanities. The technology is of course important. But, it means nothing if it doesn’t create traction, and, in the end, create value for the entrepreneur and investors. No VC can do philanthropy from the money collected from their Limited Partners! They can only donate the money that they earn AFTER the return of the investment.
Can you don the role of the toughest critic of your company? Ask yourself the following questions:
- What problem does my product / service solve? Will YOU pay for a similar service if it is available?
- How big is the market? Is your solution applicable to everyone in the planet? Or is it limited to a market that is very limited?
- Business model – How do you plan to generate revenue? Will you ask your customers to pay once, or do you ask your customers to subscribe?
- Traction – How often does your user come back to use the product? Does the novelty wear off after initial excitement?
- Entry barrier – What does it take for a BIG player to make an entry and take away the market? (This is becoming less important than it used to be.)
- Team – Do you have a team that can work in sync with the vision to pull it off?
- Do you have a co-founder? (Most important question to have an YES to.)
- Do you know how your product will be positioned or priced? What are the metrics that you need to track to know if you are progressing?
There are more questions, and honestly, as an entrepreneur you must know more about your domain than anyone else. Dispassionately, ask all the tough questions.
It is very important to write down all the assumptions and QUESTION ALL YOUR ASSUMPTIONS periodically! Have the market drivers changed? Is there an impact of macro-economic policies/ indicators? For example, in my startup, we suffered a lot since we had to rely on some of the technology rollouts by network operators, which were not in our control.
You will find the importance of detailed analysis mentioned in vedanta, the most advanced section of ancient Indian philosophy. It requires analysis of a concept from multiple angles without losing perspective when you move across different views. So, the students of vedanta chant a particular hymn (called Medha Suktam) to increase their analytical skills for this kind of application (analysing a problem from multiple perspectives).
I am not asking you to drop the famed entrepreneur’s optimism! I am just asking you to periodically wear a hat of a critic and do a jolly good job at it, before you walk into the office of a VC.
Entrepreneur! Be your startup’s toughest critic!