Pitching your idea in ONE minute

Often entrepreneurs attend conferences and industry meetings where they have an opportunity to network with and meet investors. But, often these opportunities are not well utilized and entrepreneurs fail to get the complete attention of the investors.

networking-meeting-of-bus-007

 

 

 

 

 

 

 

Here’s why:

Through the day, investors are flooded with proposals, calls, mails and face-to-face interactions, where entrepreneurs request for meetings.

It is impractical for investors to accept all requests, and therefore, they end up using some criteria to filter and select, who they would like to meet. And, in the absence of any other criteria during one-on-one interactions in business conferences, the criteria used is the entrepreneur’s ability to clearly articulate the concept and the degree of passion driving that concept. For example, during the brief interactions at conferences, investors tend to seek more information, either through a longer conversation (rather than just giving a card and saying “Send me a mail and we will see” ) or calling for a follow-up meeting, from those who leave them with the feeling “Ah, this seems like a good concept, a good business case and this person seems to be sensible and smart enough to build a business”.

Here’s a list of things you may want to consider, when attending networking meetings where you may meet investors. The key message here is that you need to PREPARE a brief pitch, practice it and deliver it as if it is extempore.

  • Keep a 1-line descriptor about your company ready. When someone asks you what you do, rather than going into a long story, you should be ready with a one-line answer. (e.g. the descriptor of The Hub is – we help startups build sharper business plans).
  • Convert this statement into an introduction. e.g. “Hi, I am Prajakt, co-founder of The Hub for Startups. We help startups build sharper business plans. We conduct a 3-Day Boot Camp and a 1-Month Business Plan Builder Program”. Pause. Wait for the other person to respond. Add on more information, only if, there is build-up of interest and the conversation continues. Else, it becomes a monologue with just meaningless and disinterested nods. Not all investors attend conferences to seek entrepreneurs and hence, even if your concept is interesting, they may not be receptive at that forum. In such cases, it is best to leave your business card and move on with an email as a follow up.
  • At the back of your business card, put a 2-3 line descriptor of what you do. Because investors meet with a number of entrepreneurs, it is difficult for them to remember who you were, especially if the name of your company does not explain your business. e.g. if the name of your company was Travel Guru, you may not need a one line descriptor. But if it were 5 Clove, you will need to put a descriptor, so that the investor later remembers you as that ‘interesting’ person whom they would like to have a follow-up meeting with.
  • If there is interest in continuing the conversation, then provide additional information. E.g. “Our programs are quite popular with aspiring and recent entrepreneurs and we have had several success stories. We are now in our expansion phase, and that’s why I am at this conference… to present our business case to potential investors”. From here onwards, see how the conversation goes. But be prepared with the list of things YOU want to discuss and want to highlight.
  • Make a list of the key messages and highlight what you want to mention during your conversation e.g.
    • Entrepreneurs background (if it is relevant to what you do e.g. If you have worked at e-bay before and are now starting an e-commerce company, it makes sense to state that. However, if you were working with a healthcare company, and now starting an e-commerce venture, that may not be the most important point to state at the first meeting).
    • What have you done so far –  This could be about the background research you have done, the prototype you have built, the concept validation you may have done, the traction you may have got, the initial feedback or orders from a few initial customers. Essentially, it means, you may want to be prepared in your mind with a list of things that you have done in your entrepreneurial journey. (And remember, the journey begins not from the moment you start your company, but from the moment you decide to be an entrepreneur).
    • What are your aspirations and goals – Investors like startups with large aspirations. But when stating your aspirations and goals, be as specific as possible. E.g. Saying “We want to be the leading e-commerce company in the school supplies segment” is not a good enough statement for anyone. You may want to say “In the next 3 years, we aim to be among the top 3 school supplies businesses online. And our plan is to get to about USD 10 million in 3 years, and in the next 10 years or so we aspire to be anywhere upwards of USD 250mn in revenues. We believe the market potential in India itself to be about USD 1 billion”. Sounds better, doesn’t it ?
    • How much funding are you looking for and what will the monies be used for – the key to this answer is specificity. Different investors invest in different stages of a venture and hence it is important for them to assess whether your stage is right for them, and if the amount of investment you seek, is within the range that they want to invest in. (Often entrepreneurs end up asking for angel/seed-stage funding sums, which are often much lower, from VCs who typically invest higher sums of money. If you need USD 50,000 to get going, there is no point in seeking that from an investor who typically invests upwards of USD 1 – 2 million. Therefore, do research on different investors so that you are well aware of whom to target.).

Be specific about how much money you need e.g. “We are currently past our concept stage. The model is proven and we are now ready to go beyond the pilot stage. We are now looking for USD 250,000. This will be used for building our team for expanding our reach to 5 more cities and marketing. This money will last us for 18 months, after which we plan to raise another round for growth.”

Most importantly, after attending business conferences and industry events, be disciplined about writing to those you interacted with. Keep the mail message short and personal. DO NOT CUT-AND-PASTE A STANDARD MESSAGE ABOUT YOUR ORGANIZATION. No one reads through that. The intention of the follow-up e-mail is NOT to spread information about your company. It is to gain their attention and establish a relationship, or at least get an opportunity for a follow-up meeting.

Happy networking.

 

 

 

 

 

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The Direct v/s Channel Sales Debate

By Sean Wise, Managing Director   of Wise Mentor Capital- http://www.WiseMentorCapital.com and www. SeanWise.com.

There is a famous maxim that says  “The shortest distance between two points is a straight line” and while no doubt a truism, the shortest distance is not always the best   route to take. The same can be said for sales roll- outs with regard to the decision between building an internal sales force, and leveraging a pre-existing group of resellers.

Every entrepreneur dreams of the day when their sales rocket up from  $500,000 to  $35,000,000.  Along the way however, every entrepreneur is faced with a key strategic sales decision: ramping up firm sales by building an internal sales force (the Direct Sales Model), v. leveraging third-party market intermediaries to sell on your behalf (the Channel Sales Model). In   pondering    this decision, founders need to ask themselves several key questions, including:

  • On what criteria should you base that decision? When does one approach beat the other?
  • If I choose one, do I have to stick with it, or does it evolve over time?
  • When do you need to make that decision?

To tackle some of   these issues, I sat down with Les Hansen, Vice-President of Sales & Marketing for Gavel & Gown   Software,  a venture capital-backed   software  firm selling  enterprise  solutions  to the   legal profession. Since joining Gavel & Gown, Les has managed to triple G&G’s customer base to over 20,000 law firms in over 50 countries around the world. G&G have sold more than 250,000 licenses through a well- managed sales and distribution program, which leverages both a small dedicated internal sales team, and a small army of resellers around the globe. Les shared with me “The 5 C’s”  – which he believes entrepreneurs need to consider when pondering the Direct v. Channel sales decision.

 

1: Cost: What’s the best way to spend your money?

The cost of building a direct sales force internally can be daunting.  Not   only do you have to hire, train, and support them, you also have to allocate additional funds for draws, employee benefits, and sales support. In addition, you must do all of this before a single unit of product is sold. Giving up a percentage of future sales revenue in the form of reseller margin may seem cheap in comparison, but “you must think this through,” cautions Hansen.

“You need to first calculate the breakeven point on the direct cost of a sales force vs. the margin cost of the channel,” says this experienced sales   strategist. “Remember that, for the most part, direct sales costs are fixed   (apart from the commission component), and channel costs are variable. This also means that direct sales costs can be leveraged while channel margin costs cannot.”

In this way, you need to be able to look at the long-term picture; seeing not only the short-term sales costs, but also the long-term revenue potential.  You also need   to allocate fixed costs to areas where you can get the highest ROI.

 

2: Customer:  How much customer interaction do you need?

Finding a customer that is willing to buy is hard. Building a relationship that will ensure they continue to buy – much more so. Channel partners provide your venture with a much larger reach, but you need  to balance the  channel’s ability to leverage  pre-existing relationships,  with  your need to   access    direct   customer feedback  –  especially  in  the early    days   of product development and beta  testing, when  customer   feedback  is vital   to ensure long-term viability of the product. However, in the end, you need to weigh the long-term impact of keeping your customers at arms’ length vs the ability to have a larger number of feet on the street hawking your product.

 

3: Calendar: How long do you have?

Building an internal sales force takes time.  Even once you have   them   hired   and trained raring to go, it will take still more time for them to go out, meet customers, qualify targets, build leverageable relationships, and   establish enough customer credibility to actually close a sale. Do you as a start-up have that much time, or do you need to leverage a channel that is already selling similar products to your target audience?

Investors want   scalability (the ability to ramp up revenue fast, and to do so without proportionately ramping up costs) and maximizing scalability often means deploying a channel sales force.

“Without those extra feet on the street, most VC’s will have a lot harder time believing in a venture’s ability to scale up to $35M+  in  3-5  years.  It just takes too long to   scale up internally,       and     without scalability, the VC will have a hard time getting their head around an  investment,” confirms  Phil  Reddon,  a  VP with   Covington   Capital,   a venture capital  fund with more than       $500-million under management.

4: Complexity

The   more   complex    the product is, the harder it will be to   drive   sales    through a channel, or so one might think. “There’s a myth out there that if your product is complex, you have to sell it direct. But that simply isn’t an absolute truth,” says Hansen. “In many cases, when the product is complex, you need channel partners to not only sell the product, but also to integrate the  product into the client’s existing infrastructure, to  service  and update   the   product   on   an ongoing  basis  and  to  provide end-user training on functionality.”

This makes sense to me, as a direct sales force, which just makes commissions on moving sales units, may not focus on after-sale support. “In complex sales, you   may   need   your channel to not only sell your product, but   to    also    sell additional    products and services that, when packaged with your product, create a complete solution offering for the   customer,” Les shares: “This can be a real advantage for you. Many channel resellers will make 5 to 10 times as much money on the consulting services they   sell alongside your product as they do on the margin you give them.  This means   that   they   will   have significant   incentive   to   sell your product, and it can save you margin   dollars.  It also allows you to  focus  on  your core competency. If you are not an integrator you shouldn’t try to be one. You should partner with someone who is.”

 

5: Control: Who  owns the Customer?

Another key sales maxim is: “He who   is   closest   to   the customer owns the customer.” This means that down the road, your channel partners may own your customers and therefore, if they walk, so may some of your customers. So you need to consider the impact of this. Is this a business risk that you can live   with?   While   customer poaching   does happen when internal sales reps switch to a competing firm, the terms of most employment contracts can mitigate    this    significantly. Accept that you will have much less control over your channel partners than you would over a direct sales force, which can be a challenge. Will you be able to exert enough influence over your    channel    partners, to comfortably    achieve     your business objectives? If not, can you live with this?

Control also addresses your ability to make adjustments on the fly and to influence the sales messaging quickly when needed, according to Hansen. “In start-up software sales, you may not get your go to Market plan and message perfect right out of the gate, so you need to be flexible and be   able to respond quickly. It is a lot easier to control your external communication through a sales team that reports directly to you, than through a channel with which you have an arm’s length relationship. Managing a message through a channel can sometimes be a lot like that game  ‘broken telephone’. You need to be concise and clear, or the message may get distorted as it disseminates.”

So, there   you   have   it   – “Hansen’s   5   C’s”   – which outline the key   matters you should consider before choosing a go to market strategy; but  what  about  the timing of the decision?

 

Evolving the Approach

In the venture capital world, where scalability and   rapid growth are   prerequisites for investment, the channel sales model seems to be preferred. “From a VC perspective, I like to see companies which can leverage other people’s sales forces   to   grow.   Yes, your company will give up some points in margin and also lose some   control over customer relationships, but will hopefully make up for  it  in terms of more volume,”  posts Ed Sim, Managing  Director at New York City’s Dawntrender Ventures, in  his  blog BEYOND VC.

Stephen Pollack, CEO of the Toronto based venture backed PlateSpin and an  IT  Veteran with a wealth of  experience in creating        and               delivering software and  software service, agrees  with  Sim: “We found that    establishing a global business model was only possible through   a   channel approach.  That   was a main driver for us along with the desire to  work through trusted sources (that) the customer  can rely on instead of a  ‘startup in some far away  place’. We now have 1000 customers spread all over   the world through our channel model”

Therefore, if you decide on building channels, the question then becomes when to focus on such. Covington’s Reddon comments: “Companies need to land, usually via direct- initiatives, commercial reference-able customers first. Then once they have enough proof of concept installs, they can turn to channelizing the process.”  Mike   Green, President, Greenco Investments Corp. (and former Chair of the Toronto Angel Group who now works   closely   with   several young software companies on issues including sales rollouts), echoes this notion: “There is no point in moving to an  indirect channel until AFTER  you have got  it   right  with  your  own direct  sales  efforts.  Once you understand what it takes to sell, can communicate the typical sales cycle,  your  key  selling points, and …   handle   the standard  sales objections, then you   are  ready  to  give  the indirect   sales   channel    the ammunition  they  need  to  be successful…but not before!”

Tips for Managing Channel Sales:

Once you’ve got the ammunition and   information from those first 20+ reference-able customers, you are ready to start building out your channels. To do this, Les says that the fastest way is to find a group of like-minded individuals who are already in deep with your target customer base. The best way to do that? “Ride someone else’s channel. Never build   when you can borrow,” Hansen comments. “Take a look at the products that your target customers are already buying, and find out who they’re buying them from. Chances are that someone has an    established distribution channel    into    the     market segment you want to get to.” Remember  – if   you have a product and are looking for a channel, somebody out there probably has a channel   and they are looking to push more products through that existing channel.  Even better  – if you can             establish integration between   your   product   and theirs you   can improve the revenue generating capability of a single sales call, allowing the sales reps to  ‘double-dip’ their commissions.

However, channel management does not end here. Once you have the channel, you not only need to maintain it  – you need to motivate it. Hansen gives three pieces of advice    to    future    channel managers:   “Be   fair – your channel partners expect it. Be consistent  – your    channel partners will talk to each other, so accept it.   Be friendly  – relationships go a long way, so invest in them.”

 

The Bottom Line

There are definitely pros and cons on both sides of the Direct v.  Channel debate.  A direct sales force allows you more customer interactivity, but may cost more  (in terms of both time and money). Harnessing a channel sales approach allows you to leverage on pre-existing relationships, but does not offer up as much control.  Neither model is perfect, nor can either be applied in all cases.  The shortest distance between two points may be a straight line, but the shortest distance is not the only route to take – and it certainly is not the best route to pursue under all circumstances.

 

 

B2B Sales : How do you deal with high customer acquisition cost when selling to SMEs ?

Customer Acquisition Costs should, like any other cost, be factored into your pricing. I.e. you have to estimate what it is going to cost you to acquire a customer, and build that into your business case.

In the initial phases of a business your cost of customer acquisition may be much higher. Here, you have the option of estimating what the eventual cost of customer acquisition be at scale, and include that into your costing. In this case, you will be making lesser margin per sale than you would at scale, but you will be able to price your product closer to your eventual selling price and not make initial adopters pay for inefficiencies of smaller scale.

On the other hand, you may take a call to load the entire higher cost of initial customer acquisition on to the customer.

Of course, you should try to continuously reduce the cost of customer acquisition. Apart from direct sales, here are things that you could try:

  • Be present in conferences and seminars where your customers are present – ideally, try to get a speaking slot on a panel
  • Write a blog or a ‘though leadership’ piece in an industry relevant publication
  • Make sensible comments or write sensible answers on questions on LinkedIn groups
  • Use PR well… celebrate your early successes [early adopters are the most difficult to get, but post that many more customers are usually comfortable trying out a solution when they know that others have tried
  • Request your initial customers to be your brand ambassadors – get testimonials – publish those with their photographs on LinkedIn and your official Facebook page – tag these early customers – of course with their permission

Invest in creating well-designed communication material – digital or printed. Practice your pitch well – focus on the value proposition, not just product features.

 

 

 

 

B2B sales: Enterprise sales tips for startups

Apart from direct sales, here are things that you could try:

  • Be present in conferences and seminars where your customers are present – ideally, try to get a speaking slot on a panel
  • Write a blog or a ‘though leadership’ piece in an industry relevant publication
  • Make sensible comments or write sensible answers on questions on LinkedIn groups
  • Use PR well… celebrate your early successes [early adopters are the most difficult to get, but post that many more customers are usually comfortable trying out a solution when they know that others have tried
  • Request your initial customers to be your brand ambassadors – get testimonials – publish those with their photographs on LinkedIn and your official Facebook page – tag these early customers – of course with their permission
  • Ask for warm introductions from early customers… even from those who do not buy from you but were impressed with the product/solution
  • Ask for warm introductions from ALL your relevant contacts – father-in-law, neighbour’s brother’s uncle, ex-bosses, ex-clients, ex-vendors, etc. – literally anyone who you think may be able to make a warm introduction should be requested to make one. You never know which particular contact could change the fortunes of your startup.

Invest in creating well-designed communication material – digital or printed. Practice your pitch well – focus on the value proposition, not just product features.

 

Understanding the concept of a business model

Simply put, if the idea is the ‘what’ part, the business model is the ‘how’ part of your plan. It is a clear statement of how you are going to make money from your venture.

In other words, it reflects your thinking on the following broad parameters. Of course, the parameters will vary by business:

  • Who is your customer
  • What are the revenue stream(s)
  • How much will they pay for the service
  • How much gross margin will you make on each sale

 

To illustrate with an example:

For an online toy store the business model can be as follows:

“We sell & deliver toys to consumers who order online from our website. Our target consumer is the affluent family with children below 7 years. Our average ticket size per transaction is INR 1000 and we expect our target customers to buy 2-3 times a year from our online store.

We have a 50%+ gross margin on our products. Thus, we expect to make about INR 1000 gross per customer per year.”

Note: Once you have your business model detailed out, you will need to check if your concept and business model has a business case. I.e. At the startup stage of low capital-intensive businesses, it will suffice to identify at what phase does the business become operationally profitable.

Business models could vary, even for the same concept different companies could follow different business models. Let us see with another example:

 

Possible business models for an outsourced HR management company:

  • One-time engagement for setting up processes
  • On-going, shared services model
  • On-going embedded employees model
  • Consulting services model

 

 

Understanding pricing or revenue models

How much to charge your customers is a critical decision for entrepreneurs. I.e. pricing is a critical component of your business strategy. While getting your pricing strategy right is no guarantee of success, getting is wrong is one sure shot route for failure. Obviously, how much consumers are willing to pay is dependent on the value they see in the solution you offer, be it a product or a service.

price

 

 

 

 

 

There are quite a few Revenue Models available for startups to consider:

Cost Plus mode: where the seller decides the price of the product based on the cost of the product. This is usually done for physical goods e.g. shoes, garments, computers, pens, etc. Doing this model for online services is not feasible because there is no real cost of the physical goods. How much premium you can charge over the cost is dependent on a number of factors including competition, alternate options, the overall value-proposition that the customers see in your offering, and often, also the personality & equity of the brand.

Value based model: For products or services that do not have an individual unit price [e.g. Microsoft Office software], the seller decides the price based on what they believe is possible to be charged from the consumer. This is the toughest part and may require some experimentation and in-market tests to arrive at the price point that you could charge.

Distribute the product free but customers pay for services: In some markets telecom companies follow this model where they give away the telephone instrument for free, and people pay for the usage. In some cases, e.g. printers, the base product is not given free but is offered at a very low price, often lower than the cost price, with the hope of recovering it through sale of related products and services e.g. cartridges and printer servicing.

Free for consumers – ad supported model: E.g. Angry Birds

Freemium: Free for basic, paid for premium services. E.g. sugarsync.com, linkedin, gmail, etc.

Portfolio pricing or package price: This strategy is applicable when the seller has a range of products and/or services and may want to engage the consumer for the entire portfolio. E.g. Insurance companies which offer for corporates a portfolio comprising of life insurance + car insurance + fire insurance + health insurance

Subscription model i.e. users pay a per month/per year e.g. book libraries, dropbox and other online storage sites, SAAS platforms, etc.

Pay-per-use model i.e. users pay as they use it e.g. Platforms like Webex have a pay per use model

One-time payment i.e. users buy a license to use e.g. Microsoft Office

Tiered or volume pricing: Typically used to group buying benefits. E.g. an enterprise software where the license fee per user reduces as more licenses get bought. The pricing in this model is often defined in slabs as relevant to the category.