June 26, 2019

Build Trust, Be Transparent, Be Realistic and Embrace Competition

The Alliance of Angels (AoA), a group of angel investors who invest in Pacific Northwest startups, held an event on June 12, 2019 in Seattle, Wash. featuring Hope Cochran, Managing Director of Madrona Venture Group, a Seattle-based venture capital firm. Moderated by Nicholas Norton, a consulting partner with Peterson Sullivan, an accounting and advisory firm, Ms. Cochran's remarks focused on startup financing, angel investing and venture capital.

While Ms. Cochran made several interesting points, one point that stood out was when she explained telling a founder seeking an investment to not quit his day job. While saying "I will not invest in your business" is a softer rejection, sometimes the tougher message is warranted if the founder is risking too much of his or her own time and money.

I have conveyed the tougher message when I feel the founder does not possess adequate skills to build a product or service of the highest quality, does not understand their customer or does not possess the knowledge or skills to build a profitable company (or more succinctly, the inability to build and lead a strong management team).

This does not mean that the founder should give up immediately. In a rejection to invest, I always hope the founder reflects on their method of communicating their proposal including their "path to success" as referenced in the previous post. Or the rejection will force the founder to reevaluate their plan to create a solution which will solve a problem people are willing to pay for on a scale that will generate sustainable revenue.

As with selling their product or service to a prospective customer, I also hope the founder will make another attempt to "close the deal" if the first attempt is rejected. When soliciting an investment from an investor, the founder should understand they are selling their business plan and investment proposal. In this blog post, I write about an article that contains a number of useful tips on raising capital including: "Absolutely follow up three times with an investor. No, you will not be scaring them away. Now, don't do it over a two-day span, but over a two to three week period. Follow up quickly and consistently."

A second point Ms. Cochran made that the audience seemed to appreciate was on the topic of when should a founder hire employees, She said she looks at the founder's schedule and if the founder is spending too much time on a particular activity that does not directly pertain to developing the product or generating sales, then it is time to hire an employee.

In addition to the discussion, a handout prepared by AoA listing ten tips for pitching angel investors was provided at the event:

1. Build trust

Angel investors are entrusting you with their personal cash savings. Show that you are a steadfast individual who will be a good steward of their money.

2. Be transparent

It is better to accurately characterize the status of your company than to try to impress investors with grandiose claims. The moment you are less than forthright with facts, investors will walk away.

3. Simplify your message to express benefits, not features

Customers buy a product because it solves a need, not because of a rich feature set. Discuss the benefits of your product and the burning pain point it addresses.

4. Give investors the information they want

Don't start by trying to tell investors everything you can about your company. Focus on the highlights, and help them connect the dots on how you're going to build a game-changing business.

5. Act like your audience is trying to catch a bus

By getting to the point quickly and succinctly, you are demonstrating that you value investors' time, and that you will show similar respect to your team members, partners, and customers.

6. Use a bottom-up approach to determine market size

A top-down market analysis often relies on subjective, broad-brush assumptions and may not deliver a convincing estimate. The bottom-up approach substantiates your domain expertise and is often better anchored to customer demand and market realities.

7. Competition is a good thing

If there is no competition, chances are there is no market, and thus no business. Describing your competitive advantage and/or barriers to entry is an effective way to communicate how you will win in this market.

8. Be realistic

Your assumptions should be well thought out and attainable, though on the aggressive side. This is your opportunity to demonstrate nuanced business judgment and the scale of your ambition.

9. The numbers should add up correctly

Disconnects between market size, pricing, and financial projections are unlikely to impress investors. They may signal the lack of operational excellence and attention to detail that are crucial to building an iconic business.

10. In fundraising, all other startups are your competition

Most angel investors only have so many dollars to invest in startups, with lots of companies vying for that investment. If your proposed deal terms are significantly out of line with what other startups are offering, many investors will rather pass rather than risk antagonizing you by negotiating.

I strongly agree with the importance of building trust, which is done through being transparent. The moment I see gaps or inconsistencies in a founder's story is when trust is quickly eliminated.

"I love competition" is a saying I regularly convey to my colleagues. Competition conveys there is a market opportunity for our product and service. In addition, comparing ourselves to our competitors provides us with the opportunity to gauge our own performance.

Lastly, I wish founders were more realistic about the chances of building a profitable business. I am not saying they should be negative about their odds for success, but they should understand that most startups fail not for a lack of opportunity, but because of any number of risk factors or bad luck. And when a founder tells me the total addressable market is so big that all they need is to capture a market share of one percent in order to be successful, the words "no, I will not invest" quickly enters my mind.

Do you agree with Ms. Cochran's remarks? Do you have any tips for pitching angel investors?

Aaron Rose is a board member, corporate advisor, and co-founder of great companies. He also serves as the editor of GT Perspectives, an online forum focused on turning perspective into opportunity.

June 22, 2019

No, I Do Not Want to See Your Pitch Deck

http://ow.ly/Lr6V50ziPxp
As an investor, I often meet with startup founders seeking seed or early-stage funding. While the first meeting with most investors typically involves showing a pitch deck that covers a number of points including defining the problem the company is seeking to solve and explaining its solution (i.e., product or service), traction, market size, customers, sales strategy and revenue model, management, financials and the investment offer, my preference is to spend the first meeting lasting 60-75 minutes in an engaging conversation.

The founders often optimistically express how their venture will generate millions of dollars in revenue in a few short years or be the next unicorn (valuation of more than $1 billion). They fail to recognize, however, that a large majority of startups fail within the first few years of existence. These startups failed not because of a lack of market opportunity, but as result of their inability to implement their business plan or foresee and mitigate any number of risk factors.

The initial meeting with a startup founder provides them with the ability to communicate their "path to success." In other words, what is their plan to overcome the long odds of turning their startup into a successful (profitable) venture?

Below is an agenda that I often provide the startup founder in advance of our first meeting in order to efficiently use our time together:
  • Where do you see your business in five years? What type of company are you trying to build? What will your company be the leader of and to whom are you serving?
  • What is the problem you are trying to solve?
  • In simple terms (i.e., in words my mom will understand), what is your company's solution to the problem? How is your product or service creating value for your customers? What is the "WOW FACTOR" that will motivate your customers to pay for your product or service?
  • What is your company's competitive advantage?

As noted above, WOW FACTOR #1 pertains to how you drive value for your customers. WOW FACTOR #2 is your plan to increase value for your company, which in turn will generate a return on investment for you (as investor #1), your co-founders and outside investors. Since I subscribe to the principle that if you don't know your numbers you don't know your business. I wish to know:
  1. What are your annual or projected sales based on a trailing 12 months, not the calendar?
  2. What are your gross profit margins?
  3. What are your expenses as a percentage of your gross profit? (Not a percentage of sales. You pay your bills with gross profit – not with revenue.)
  4. What are your operating expenses segmented by (1) sales and marketing, (2) general and administrative (G&A), and (3) research and development (R&D)?
  5. What is the percentage of each segment as a percentage of gross profit? In other words, what percentage of gross profit will be spent on sales and marketing, G&A, and R&D?
  6. What is your cost of revenue (sales)?
  7. What is the company's timeline for achieving key operational and financial milestones including break-even point?

I also support the notion that if you can't measure it, you can't manage it. Therefore, what are your top 3-5 key performance indicators and why?

A startup's "Path to Success" in achieving sustainable profitability is not a lack of opportunity, but identifying, mitigating and overcoming risks. Whether it is for a business where I hold an equity stake or companies I advise, I evaluate the strength of any business plan or long-term strategy on the ability to identify and mitigate the following risk factors:
  1. Product Risk (according to this article, product risk is defined as "the potential for losses related to the marketing of a product or service. It is managed using a standard risk management process of identifying, treating, controlling and monitoring risk as part of product development or product management.");
  2. Technology Risk (the potential for implementing new, unproven technology looms large in most content strategy projects. This article provides 36 types of technology risk. Furthermore, a business must consider the risk of a cyber attack or data breach. How is your company planning for the potential of technology failures to disrupt your business such as information security incidents or service outages?)
  3. Market Risk (bifurcated by geographic risk (different risks exist when doing business in China compared to the United States, for example) and sector risk);
  4. Management Risk (there is an assumption that the founder(s) possess some great skills and professional experiences, but the most seasoned professionals have some weaknesses or gaps in their management acumen. A discussion on management risk provides for the opportunity to hear more about these weaknesses and plans to build a solid management team. I take a philosophical approach to business where self-awareness is a quality that I find imperative because I am investing in the team to successfully execute a business plan);
  5. Scale Risk (a startup can maximize its speed of progress by keeping the five core dimensions of a startup: customer, product, team, business model and financials in balance. The art of high-growth entrepreneurship is to master the chaos of getting each of these five dimensions to move in time and concert with one another. Most startup failures can be explained by one or more of these dimensions falling out of tune with the others);
  6. Climate Risk (many businesses are facing the twin pressures of extreme weather events and failure of climate-change adaptation. A report by McKinsey & Company, a consultancy, classifies climate risk into two categories: Value-chain risks and external-stockholder risks. The former include physical risks ("those related to damage inflicted on infrastructure and other assets, such as factories and supply-chain operations, by the increased frequency and intensity of extreme weather events, such as wildfires, floods, or hurricanes"), price risks ("increased price volatility of raw materials and other commodities"), and product risks ("the core products becoming unpopular or even unsellable"). External-stockholder risks include ratings risk ("the possibility of higher costs of capital because of climate-related exposure such as carbon pricing, supply-chain disruption, or product obsolescence, regulation risk ("government action prompted by climate change"), and reputation risk ("either direct, stemming from a company-specific action or policy, or indirect, in the form of public perception of the overall industry"). The common starting point for creating a mitigation strategy is to undertake a full assessment of where climate-related risk lies within a firm.)
  7. Capital Risk (ability to raise additional capital including but not limited to a small business loan or line of credit, purchase order financing, vendor financing, product pre-sales, and crowdfunding); and
  8. Exit Risk (it is true that if you are focused on your exit strategy, then you are not focused on growing your business. However, are you thinking about the different options of how your investors are going to see a return on their investment?).

Lastly, the following three questions helps me understand your strength in self-awareness, which follows from management risk discussed previously:
  • What keeps you up at night about your business?
  • What keeps you going?
  • Why do you think you have the ability to successfully implement a business plan to lead a company to sustainable profitability?

I was asked to create a presentation to a group of startup founders whom were starting the process of soliciting capital from investors. "Fundraising for Your Business: Dos and Don'ts of Pitching to Your Investor" provides some tips that I hope founders find useful. I purposely italicized 'your' in the title because, similar to sending a resume tailored for a specific position or company, the investment pitch (including a pitch deck, if you are requested to provide one) should be tailored to the investor whom the founder is seeking an investment from.

If I find the initial meeting/conversation compelling, then I will schedule a second meeting for the purpose of experiencing a demonstration of the product or service. Like purchasing a vehicle, I want to know the specs before I look under the hood and take a test drive.

If you invest in startups, what are your expectations during the initial meeting with the startup founder?

Aaron Rose is a board member, corporate advisor, and co-founder of great companies. He also serves as the editor of GT Perspectives, an online forum focused on turning perspective into opportunity.

June 20, 2019

'If You Can't Measure It, You Can't Manage It'

The concept of "if you can't measure it, you can't manage it" is more prevalent today than when I launched my first business many years ago. Startup entrepreneurs and corporate executives alike have access to a variety of methods to evaluating the success of an organization or a particular activity in which it engages through key performance indicators (KPIs).

An article published by Early Growth Financial Services, a California-based accounting services firm, accurately notes how KPIs are important indicators that "show the health status of your startup. Like how tracking what you eat, how you sleep and your blood pressure increases your likelihood of having a strong well maintained life, KPIs help illustrate how a business is connecting with the needs that keep it strongly humming along."

Furthermore, KPIs "are all the trackable elements that let you see where to find your greatest areas of opportunity, as well as where focus may have drifted and is needed. It can be easy to overlook tracking KPIs, or even setting up a track list to begin with, since they are repetitive measurements. Despite that, they remain essential to the smart manager or leader because it is in the routine that the base is secured for achieving the grand goals ahead."

The article suggests that KPIs can be classified into two different categories: leading and lagging. "With leading indicators, you are setting the marks to aim for; these are the future goals. Since they are oriented on what is to come, they are more challenging to measure accurately, yet easier to influence. An example might be the number of new prospects scheduled for engagement in the following week.

"By setting a target number you can track how well your sales team is engaging and getting in front of faces. The higher the number of meets the more potential for conversion into clients and revenue."

What is more, "Often sales can achieve a big close one week and lose focus the next on maintaining the drive to prospect. This won't show up immediately if you just look at revenue, but that's the beauty of having a lead indicator. Similarly, you can further break this down to more granular KPIs such as:
  • Number of cold calls daily setting up engagements;
  • Number of follow-ups with previous clients for further services; and
  • Revenue goals per salesperson.

"Leading KPIs are input oriented. They represent numbers to aim for. They are useful for setting culture and expectations with employees."

Conversely, "Lagging indicators are output oriented. They are easier to measure since they are based on what has already taken place. Often these are more internal, such as a KPI of burn rate or new employee growth per quarter. While you can measure many dimensions of accomplishments and benchmarks through all departments a solid core range of financial KPIs is especially useful for startups."

Lagging KPIs allow a company "to take stock of how things have been running. This aids firms when seeking investors. Many times, they will be used in tracking the financial health of the operation. Lagging indicators can make up a monthly or quarterly report card on how well your strategy and efforts are being achieved. Investors like firms to back up promises of potential with charted previous outcomes."

I concur that "[l]agging and leading KPIs work best when you bridge them together into a matrix for the firm. While one states your vision as realized accomplishments, the other breaks down the activities that create those accomplishments. If you see a steady rise in one without a rise in the assumed corollary, then you know it is worth reevaluating your strategic hypothesis."

Moreover, the article is correct "that KPIs are great at the company level, department level, and employee level; setting them up and running them is one of the surest ways to create repeatable solid success."

TYPES OF STARTUP METRICS

While created for startups, this infographic provides a comprehensive list of metrics that will help businesses of all sizes measure and manage performance:
  1. Monthly Recurring Revenue (MRR): monthly total of paid customer fees
  2. Annual Recurring Revenue (ARR): recurring revenue on an annual basis
  3. Average Revenue per Account (ARPA): MRR/Total # of Customers
  4. Gross Profit: total revenue minus the cost of goods sold
  5. Total Contract Value (TCV): value of one-time and recurring charges
  6. Annual Contract Value (ACV): value of a contract over a year
  7. Lifetime Value (LTV): prediction of the net profit from the entire future relationship with a customer
  8. Deferred Revenue: amount that was received by a company in advance of earning it
  9. Billings: current quarter revenue + deferred revenue from previous quarter
  10. Customer Acquisition Cost (CAC); full cost of acquiring one user
  11. Customer Concentration Risk: revenue from largest customer/total revenue
  12. Daily Active Users (DAU): users other than one-time users per day
  13. Monthly Active Users (MAU): users other than one-time users per month
  14. Number of logins
  15. Activation Rate: number of users taking a specific action to get value out of a product
  16. Month-on-Month Growth: average of monthly growth rates
  17. Compounded Monthly Growth Rate ((latest month/first month)*(1/# of months)-1
  18. Monthly Churn Rate: lost customers this month/prior month total
  19. Retention by Cohort: % of original installed base (1st month) that are still transacting
  20. Gross Churn Rate: MRR lost in a given month/MRR at the beginning of the month
  21. Net Churn: (MRR lost - MRR from upsells) this month/MRR at the beginning of the month
  22. Monthly Cash Burn Rate
  23. Net Burn Rate (revenues - gross burn)
  24. Gross Burn (monthly expenses + any other cash outlays)
  25. Total Addressable Market (TAM) (revenue opportunity available for a product)
  26. Annual Run Rate (projection of current MRR into the future, annualized)
  27. Gross Margin (difference between revenue and cost of goods sold)
  28. Sell-Through Rate (number of units sold in a period/number of items at the beginning of the period)
  29. Network Effects (effect of one user on the value of that product to other people (ex. Metcalfe's Law))
  30. Virality (viral coefficient - avg. number of invitations sent existing user * conversion rate of existing user)
  31. Net Promoter Score (how likely user is to recommend your product to a friend or customer)
  32. Platform Risk (dependence on a specific platform or channel)
  33. Direct Traffic (traffic that comes directly and not through an intermediary)
  34. Organic Traffic (unpaid traffic from search results)
Which KPIs do you find most valuable to your business? Do you use any KPIs not listed above?

Aaron Rose is a board member, corporate advisor, and co-founder of great companies. He also serves as the editor of GT Perspectives, an online forum focused on turning perspective into opportunity.

June 17, 2019

When and How to Value Your Time

My friend, John Vander, who works as an independent consultant, recently sent me an article from the New York Times entitled, "The Right Way to Ask, 'Can I Pick Your Brain?'" Authored by Anna Goldfarb, John found this article relevant as he is often asked to meet with people for coffee for the purpose of getting his advice on a number of topics including business planning, effective management strategies or raising funds for working or expansion capital.

However, he often gets frustrated by the wrong way people ask "can I pick your brain?" and felt Ms. Goldfarb's article provides useful advice on the right way to ask that question. While I agree with the central premise of the article, it does not address another concern my friend expressed to me: when and how to place a value on your time.

I recommended that John read "No, You Cant No, You Can't Pick My Brain. It Costs Too Much" by Adrienne Graham. After doing so, John said he supported Ms. Graham's claim that "[m]y brain costs money to maintain. There's training, classes to attend, reading (I have to buy books), gaining certifications, costs of memberships so I can network, attending conferences and mastering my skills that all cost me money.

"I have to protect my investment. How fair is it to me to give away all the knowledge I have acquired that I use to make my living, pay my bills and eat?"

The article further notes: "With the Internet being so widely available loaded with free information, people automatically assume that you too have to provide information for free.

"My response to that is go ahead and read the free stuff. But when you still find yourself lacking answers, then apparently the FREE stuff doesn't work. You can't come to a professional and ask them to work for free. In essence, that is what you're doing when you ask to pick someone's brain."

I explained to my friend that as a consultant, I recommend to people whom seek to "pick my brain" to read the free information on the internet including my blog and then schedule a fee-based consult if they need my assistance on how the information they read can be effectively applied to their business.

Some of my advice to John resonates with Ms. Graham's recommendations on when and how to value your time:
  • "Believe that what you know is valuable. If it wasn't then why are they coming to you? You're their chance to solve a problem or find a solution. That has value. Charge for it.
  • "Create a fee schedule. Whenever someone wants to pick your brain, make sure you have your fee schedule in front of you. Give them a quote for how much it will cost them."
  • "Decline lunch/coffee invitations unless they are strictly non-business. If the conversation swings around to business, quickly and politely tell them you're off the clock. If they are interested in a consult they can book an appointment and let them know what the charge is for that.
  • "Keep it light. ... Give the why and what but never the how. Anything beyond the why and what comes with a charge. And don't even point them in the direction to obtain the how. That's short changing yourself.
  • "Prominently post that there are no freebies. OK not in those words. But if you have a blog or website, and even on your social media profiles, make sure you mention that consultations are available at a fee.
  • "Exchange for equal value. This puts you in an advantageous bargaining position. If someone requests free information or help, you must feel comfortable in asking for an in kind value service. Assess what they have that can be of equal benefit for you. If they are genuine, they should have no problem in an even exchange of knowledge."
  • "Refer them to your 'free' resources. If you write a blog, have published articles, have archived videos or podcasts or have a show in which you dispense advice, refer them to that information."
  • "Don't be afraid to send them to Google. You can recommend they go to Google, or any other search engine or to sites that have articles or information about what they need advice on. You can also recommend a book or magazine that might be helpful."
  • "Ask them for a paying referral. If they truly want your expertise, they have to be willing to help you out too. It's kind of like the Equal Exchange point I made above crossed with paying it forward. Before you dispense any advice, ask them to provide you with referrals to others who most certainly need (and can afford) your service.
  • "Don't back down. I know it's hard to say 'no' sometimes. But you can't back down. People will know how far they can bend or push you. Stand firm, set your boundaries and guard your treasures (your brain and the know how in it). The minute you compromise you devalue yourself and your expertise."
John and I agree that "[m]any in the marketing circles will tell you the freebie give away is vital. But it doesn't always lead to a sale. ... It's up to you to determine what you're willing to give away and how much of it. Know your worth, understand your value."

When and how do you determine the value of your time?

Aaron Rose is a board member, corporate advisor, and co-founder of great companies. He also serves as the editor of GT Perspectives, an online forum focused on turning perspective into opportunity.

June 14, 2019

Your Startup Does Not Need Investors (but 10 Tips on Raising Capital if Your Startup Requires It)

One disturbing trend that I have noticed during the past few years of attending business plan competitions or meeting with startup founders is the misconception that a business requires large amounts of financial capital during the startup stage. In an op-ed published by Inc., Brian Hamilton, founder of The Brian Hamilton Foundation, correctly notes that "[y]ou don't need investors to start a business, nor should you necessarily seek them when you start out."

He adds: "At a minimum, you certainly should be aware of the many pitfalls of raising money from venture firms. Raising outside capital dilutes your ownership interest, hurts your ability to run your own business, and diminishes your freedom--a key reason why many entrepreneurs start out in the first place."

I agree that television shows like "Shark Tank gives you the impression that pitching your idea to investors and raising money are significant parts of being an entrepreneur. The curricula at many of America's premier business schools reinforce that--and it's not true."

Mr. Hamilton asks: "So, if raising money like you see on Shark Tank isn't entrepreneurship, what is? It means starting and running your own company, not just completing a business plan or having a great pitch. Most businesses that are started are service businesses, many of which can be started with little money."

Whether it is for companies that I helped launch or those that I advise, I encourage the management team to focus on creating a path to revenue by building relationships with prospective customers versus the need to spend limited time cultivating relationships with investors. However, as Mr. Hamilton notes, "If you absolutely must raise money, do so deliberately. Be very cautious about the people from whom you raise it."

In an article published by Entrepreneur, sales strategist and author Marc Wayshak provides seven tips for getting more sales meetings with prospects:

1. Use an organized prospecting campaign.

"When it comes to prospecting and identifying cold leads, most salespeople are doing without any sort of plan in place. But when you just pick up the phone and randomly call prospects, you’re bound to hit a wall -- and fast. Here’s the problem: If prospects have no idea who you are, they aren’t going to want to talk to you.

"A sales prospecting campaign allows you to lay a foundation before you ever call a prospect. Map out an entire process with scheduled direct mailings, emails, event invitations and more. This targeted campaign prepares each prospect for your call, which will ultimately help you set more sales meetings than ever before."

2. Volunteer to speak.

"Public speaking makes many people uncomfortable, but if you're willing to face your fears, this is a great way to get in front of 70-200 ideal clients at the same time. When you speak, focus on sharing trends and challenges you’ve observed in the industry.

"By the time you're done, 70-200 new leads will suddenly view you as an expert with a lot of value to offer them. Just one speaking engagement can lead to tons of meetings with great prospects. That's certainly worth a temporary case of pre-speech sweaty palms!"

3. Ask for introductions.

"Work smarter, not harder. Introductions are an opportunity to let someone else do the heavy lifting for you. Take 15 minutes a day to ask someone you know -- a prospect, customer, friend or family member -- to introduce you to someone in their network who may benefit from your product or service.

"This simple habit will lead to five new introductions a week and 250 new introductions each year. Can you imagine how those 250 introductions could quickly lead to a calendar full of quality sales meetings?"

4. Write articles.

"If you can't bring yourself to speak at a trade group meeting, try writing an article for a publication instead. As a salesperson, you have the unique opportunity to meet dozens or even hundreds of people across your industry. This gives you a bird's eye view of what's going on, and your perspective is extremely valuable.

"Share what you know in an article, and trade publications -- which are constantly looking for more content -- will be happy to publish it. This helps establish you as an authoritative source, and prospects who spot your article will be much more interested in meeting with you to learn more."

One of the purposes of this blog is to share my perspective and that of my colleagues on matters valuable to prospective clients and customers. It is also important publish each blog post as an article on LinkedIn and sharing them via other social media channels such as Facebook, Twitter, WeChat, etc.

5. Create and share special reports.

"Many salespeople find it challenging to get from an initial phone call to a face-to-face sales meeting. Most of the time, it's because they're failing to provide anything of value to their prospects.

"Your prospects are constantly wondering, 'What’s in it for me?' Demonstrate the value you bring to the table by putting together a short report of trends you’ve observed in the industry. Share it with prospects, and watch how much more willing they are to meet with you when they realize what kind of value you have to offer."

6. Host your own event.

"I've personally found this to be the most powerful strategy for growing my own business, so I host two private events every year. First, rent out a space in your city that feels exclusive and special. Next, prepare to offer something of value to attendees. You can share insights based on your unique perspective, and invite other speakers to do the same.

"Finally, invite your top clients and encourage them to bring others who may find value in what you'll share. Ask everyone in your network for introductions to people who may be interested. This is a great way to establish yourself as a helpful expert, meet new prospects, and fill your calendar with meetings."

Hosting an event has been a successful strategy to attract new clients for CareerLight, company that provides customized career training for international students to help them prepare for a successful career. The following posts provide an overview of those events: "Helping International Students in the U.S. Prepare for a Successful Career" and "Tips on How to Build a Great Resume and LinkedIn Profile."

7. Conduct a small study.

"Although some scientific studies require years of research and thousands of samples, you actually don’t need very many people for a sociologically sound study. Send a survey to 20 clients, or simply ask the same few questions anytime you talk to a customer.

"Record the responses and compile your data. Then, share what you learn with prospects. This is a unique and powerful way to offer value and boost your credibility. As a result, prospects will want to set up a meeting to learn more from you -- and ultimately do business with you."

And if you must raise capital for your startup, this article provides ten useful tips:

1. Relationship building is crucial for raising startup capital – start early

"If you're looking to build a company with venture funding, you will be a fundraiser for at least the next five years of your life. Networking and a lot of relationship building really matters when you're trying to make your next raise."

2. The venture community is small, don't burn bridges

"This one is pretty self-explanatory. The venture community is shockingly small. Any burned bridges may eventually come back to bite you, particularly when you are looking to raise funds. Our best advice? Don't burn bridges – you never know when a past relationship will come back to haunt you."

3. Build passion into your pitch, every day

"The hardest job you will have as a CEO is keeping the passion alive, and as hard as it may be, it is your responsibility to bring that passion every time you pitch. This is more than just for investor meetings, but for when you pitch candidates and employees."

4. Follow up three times

"Absolutely follow up three times with an investor. No, you will not be scaring them away. Now, don't do it over a two-day span, but over a two to three week period. Follow up quickly and consistently."

5. Pre-qualify your investor

"Pitching to investors shouldn't feel like a monologue of 20 facts listed by order of importance. Be sure to make pitching a dialogue, which entails prequalifying an investor. ... Prequalify investors to maximize everyone's time. Quickly establish the investor's investment criteria. Before going into your full pitch, find out if an investor can provide the minimum capital you're looking for and if they invest in your sector."

6. Don't run your business like fundraising is the main objective

"While your main goal as CEO is to fundraise, you need to be careful not to run your business as such. That means not telling your employees that you need this particular story to be told when raising a Series A or B. No employee wants be working at a company with that's always running to raise the next round."

7. Focus, focus, focus

"The most important thing as a CEO is to have focus and to ensure no one lets you deviate from that focus. Hone in on focus from everything from product roadmap to metrics. Every part of your organization should be aligned with your end story and goal.

"In that vein, a big red flag for investors is a lack of focus. You must be able to speak intelligently about your mission and goals. Focus on which metrics you measure, and having a complete understanding of the market and its nuances."

8. Build your story

"Run your business like your story is your main objective. Crunchbase CEO, Jager McConnell explains how right after he raises a round of funding, he will draft a pitch deck for the next round. Referring back to the pitch deck is a great way to see when you are gravitating away from your story, and to ensure you are always revising and adjusting your story accordingly."

9. Selling metrics vs selling a big vision

"Your goal when pitching is not to have people join your religion, but to convince them that your business is one worth investing in, and will make your investors' money.

"Depending on your business and the stage of your business you may need to decide whether it's better to pitch the hype or your strong metrics. Strong metrics that are eating the competition mean that you may not need to sell the dream because real metrics say the business is working.

"However, putting yourself against competition can be tricky, particularly if they are large companies. Investors will be disengaged if you pose yourself as a scrappy team of 5 or 6 taking on a company of 300."

10. Practice from your pitches

"Identify your top 10 to 20 investors who invest in companies like you, are top tier or are competitors of competitor investors. Then put this list aside.

"Practice your pitch with 'junk investors,' and wait until your pitch feels organic. Junk investors aren't necessarily bad investors, but they are the investors you're okay not getting your pitch perfect with or not winning. Strategically select when and who to talk to, because you won't get a second chance to pitch right."

What are your recommendations for how a startup can generate sales?

Aaron Rose is a board member, corporate advisor, and co-founder of great companies. He also serves as the editor of GT Perspectives, an online forum focused on turning perspective into opportunity.

June 7, 2019

GSMA Report Examines the Market Opportunity in Agriculture E-Commerce in Developing Countries

Over the course of my career, I had the opportunity of working in developing countries where the agriculture sector serves as the primary contributor to a country's gross domestic product. In 2009, for example, I advised officials with Afghanistan's Ministry of Rural Rehabilitation and Development on a strategy to grow the country's economy through agriculture and agribusiness development. While some Afghans owned mobile phones at the time, e-commerce was virtually non-existent. If presented with the same opportunity today, e-commerce will play an essential role in growing the agri economy in Afghanistan and most developing countries worldwide. This post is about an insightful report on agri e-commerce.

GSMA Intelligence, the research arm of GSMA, a UK-based organization that represents the interests of mobile operators worldwide, published a report that "examines the market opportunity in agri e-commerce, with a focus on Sub-Saharan Africa as well as developing countries in Asia and Latin America." The report also "highlights key emerging trends, business models and recommendations for stakeholders to maximize the agri e-commerce opportunity. As part of the research, we interviewed 21 businesses across Sub-Saharan Africa, Asia Pacific and Latin America. Three of these companies (AgroCenta, Farmcrowdy and Twiga Foods) have received grant funding through the GSMA's Ecosystem Accelerator program in recent years. Interviewees included agri e-commerce businesses, mobile operators and mobile money providers."

E-commerce in agriculture: new business models for smallholders' inclusion into the formal economy presents the following key findings:

Agri e-commerce can disrupt traditional agricultural value chains

"Traditional agricultural value chains involve multiple intermediaries between farmers and consumers. Typically, farmers sell their produce at the farm gates to middlemen. Produce then passes through multiple intermediaries before reaching the end customer. As a result, farmers receive only a small proportion of the price paid by the end consumer as each intermediary in the value chain earns a margin.

"Agri e-commerce provides an opportunity to streamline the agricultural value chain and reduce inefficiencies in the distribution of farm produce. It represents a new way for farmers to sell their produce to an array of buyers, including agri businesses, retailers, restaurants and consumers. Agri e-commerce also increases farmers' access to new markets and adds transparency to the value chain. It enables farmers to bypass several intermediaries, resulting in higher income for the farmers, reduced wastage, and the potential to deliver fresher produce to customers. Such benefits are especially significant in developing regions, where more than 97% of people employed in agriculture live and where the sector's contribution to GDP is in double digits."

GSMA's agri e-commerce Market Attractiveness Index highlights the maturity of key markets

"Agri e-commerce is an emerging opportunity in developing regions. However, there is considerable variation in the readiness of developing countries in regards to agri e-commerce. These differences are examined in our Market Attractiveness Index, which ranks countries according to a number of agri e-commerce enablers."

GSMA Intelligence's "research identified seven enablers for agri e-commerce in any given market. One of the foremost enablers is internet connectivity, allowing buyers and sellers to perform key tasks over online platforms. Logistics is another key agri e-commerce enabler. National infrastructure (such as roads) in addition to delivery services and purpose-built facilities (such as warehouses) allow agri e-commerce businesses to transport produce between farmers and buyers more cost effectively. Countries that have high mobile internet penetration and improving logistics infrastructure, such as Malaysia and Thailand, score highly on our Market Attractiveness Index."

Business models must fit local market conditions

The report explains that "[t]o maximize the emerging opportunity, agri e-commerce businesses require scalable and sustainable business models. The choice of business model depends on the operational functions the agri e-commerce business performs in the context of their local market. It also depends on factors such as product category and the strategic objectives of the business. A sustainable business model balances these considerations to build trust and increase user loyalty."

What is more, "The business models of agri e-commerce businesses in developing regions can be grouped into five levels. Each is defined by the operational functions and capital intensity of the business model, with businesses that perform the least functions at level 1 and those with the most integrated approach at level 5. Asset-light business models are less capital intensive but – in the context of developing markets – have a higher potential for farmer and customer churn. Conversely, asset-heavy business models are more capital intensive but enable the agri e-commerce business to have greater control over key elements of the service, including customer experience, product quality and packaging, and farmer education."

Mobile operators can add value to agri e-commerce businesses in several ways

Matoke for sale at a public market
I visited in Uganda
Based on my experience, I agree with the assertion that "[m]obile operators can play a central role in the emerging agri e-commerce space. At a foundational level, mobile operators provide the connectivity that enables online services and, increasingly, facilitates digital payments through mobile money. Beyond connectivity and payments, there is scope for mobile operators to leverage other key assets, such as APIs, investment capital and distribution channels, to increase their footprint in agri e-commerce."

Moreover, "As mobile operators are increasingly participating in both agriculture and e-commerce segments – by launching their own products and working in partnerships – the emerging opportunity in agri e-commerce is a key strategic consideration. The integration of operator-led mobile money services into agri e-commerce platforms can increase mobile money adoption and usage by meeting the demand for digital payments. Mobile operators' scale and existing relationships with customers could serve as a platform to expand services more quickly for agri e-commerce businesses. In addition, agri e-commerce can deliver benefits to operators' core services in rural areas through improved customer acquisition and retention, as well as increasing network usage and ARPU."

Stakeholders must align to fulfill the agri e-commerce opportunity

While there is much discussion on the subject including numerous conferences and whitepapers, GSMA Intelligence is correct to note: "Agri e-commerce is at a nascent stage of development, especially in developing regions. However, the commercial opportunity and potential social impact are not in doubt. Apart from agri e-commerce businesses and mobile operators, governments and investors can tap into this opportunity to drive growth in the agricultural sector and improve the livelihoods of farmers."

The report adds: "The development of the agri e-commerce ecosystem requires government ministries and regulators to establish an enabling regulatory environment. Government ministries can further support agri e-commerce businesses by supplying information on local farming regions and holding events to raise farmer awareness of agri e-commerce opportunities. Donors and investors also have an important role to play – for example, through investing in agri e-commerce businesses that have a sustainable competitive advantage and potential to scale. This means understanding local market dynamics and the level of development of the key agri e-commerce enablers."

What products or services do you see as vital to the development of the agri e-commerce ecosystem?

Aaron Rose is a board member, corporate advisor, and co-founder of great companies. He also serves as the editor of Solutions for a Sustainable World.

June 2, 2019

Will Your Company Appoint an AI Director to Its Corporate Board?

Photo illustration by Slate
Leadership and artificial intelligence (AI) are two distinctive topics that are discussed on this blog. An article, "Why Not Appoint an Algorithm to Your Corporate Board?" authored by Will Pugh and published by Slate merges the two topics together. Mr. Pugh says board of directors, charged with overseeing chief executives and their management teams, face two key difficulties: "first, that boards typically consist of notable people with limited time and attention spans, and second, that their flow of information regarding corporate affairs is typically controlled by the CEO." Referencing a BBC article, Mr. Pugh writes how Deep Knowledge Ventures, a Hong Kong-based venture capital firm focusing on drugs for age-related diseases, "has raised a tech-forward way around these conundrums: appointing an algorithm to one of the directors' chairs."

According to the BBC, Vital, a program by UK-based Aging Analytics, "will vote on whether to invest in a specific company or not. ... [Deep Knowledge Ventures] said that Vital would make its recommendations by sifting through large amounts of data." Furthermore, "The algorithm looks at a range of data when making decisions - including financial information, clinical trials for particular drugs, intellectual property owned by the firm and previous funding."

Mr. Pugh notes that "as of now, AI directors would be illegal under U.S. corporate law, which requires directors to be 'natural persons.' But the idea of putting AI on a corporate board isn't as far-fetched as it may seem. In a 2015 study by the World Economic Forum, which surveyed over 800 IT executives, 45 percent of respondents expected that we'd see the first AI on a corporate board by 2025, and that such a breakthrough would be a tipping point for more."

With respect to the two aforementioned difficulties boards encounter, (1) limited time and attention spans and (2) their flow of information regarding corporate affairs is typically controlled by the CEO, Mr. Pugh suggests thinking "of how much further it could go if a company were to supplement" high-level "supervision from, say, sophisticated AI that could independently monitor fine-tuned goals ... and even balance competing interests on a more nuanced level. It's the kind of technology that could help those human board members transition from high-level supervisory entities to effective micromanagers."

What is more, "Consider the data-hungry environments where AI thrives. Machine learning is ideal when you need to find hidden patterns in vast troves of data. An AI director could consume huge amounts of information about the company and the business environment to make good decisions on issues like the future demand for the company's products or whether the company should expand to China. This is exactly how the first AI director, appointed by the Hong Kong company Deep Knowledge Ventures, is being used: It's tasked with consuming data about life science companies and then voting on which companies are good investments. The company says that it relies on the AI's recommendations by refraining from making any investments that the AI doesn't approve—which they say has helped with eliminating some kinds of bias and avoiding 'overhyped' investments."

Mr. Pugh asks: "But why go to the extreme of giving A.I. its own seat when, theoretically, the board could just consult such algorithmic assessments to inform its decisions? This gets back to the issues of time, loyalty, and access to information. Unlike a human, an AI director is appealing as a potential independent tiebreaker on any disagreement between the human board members. What's more, if such algorithms cast votes, it will be harder for other directors to disregard those votes, and it will force those directors to find compelling reasons to oppose them. In some cases, an AI director's vote could be a red flag, an antidote to groupthink. In others, it may force human directors to confront potential biases in their thinking, like loyalty to a particularly charismatic CEO. Think of what an AI director at General Electric might have focused on in recent years when the company appeared to disregard its plummeting cash flow and mounting pension liabilities from operations over many years."

Crucially, Mr. Pugh observes "[t]here are, of course, limitations and issues to overcome before giving software a seat at the directors’ table. For one, many forms of AI 'learn' from human-generated and human-curated data—which has been known to replicate human bias. This kind of bias can be hard to fix because it can creep in at many different stages of AI training, including the goals programmers assign the AI to achieve, the data sets they feed it, the data attributes they choose to focus on, and the data they use to test it. Many programmers are becoming more cognizant of these issues, however, and are looking at better ways to address these biases in the process of developing these tools—including projects like AI that aims to 'de-bias' other AI tools."

Moreover, "Deep learning techniques are currently 'black boxes.' A self-driving car may be able to identify a crosswalk, and a valuation algorithm may be able to say that a company is worth $X, but if AI directors are going to interact with shareholders and human directors, they need to be able to explain their conclusions. If we can't look under the hood and see their reasoning, AI directors will be hard to trust, and courts won't be able to ensure that they are fulfilling their legal duties to provide shareholders 'candor'—i.e., all information that would be important to a shareholder. Under securities law, one of the most common disclosure items for directors is an explanation of how and why directors are handling risk in a specific way. If machine learning algorithms can reveal their internal logic and are designed to analyze and communicate such risks well, they may even do a better job at providing such disclosures by helping humans focus on the right details by filtering out noise in data.

"This also gets at another advantage that a transparent algorithm could have: a refreshing lack of personal ambition or interests. Assuming sufficient advancement in AI technology, shareholders and stakeholders alike could trust AI directors to be forthcoming about why they are taking a specific action—an attribute not always found in their human counterparts. Courts have recognized that, while directors may ostensibly be trying to benefit shareholders, there's an 'omnipresent specter' that members of the board are, intentionally or not, actually pursuing self-interest. On a hybrid board with both humans and AI, the AI could provide shareholders, as well as other directors, with a more objective analysis when it comes to, say, questions like how a potential merger could affect directors own net worth."

Mr. Pugh writes that "legislative proposals in the U.S. call for directors to consider shareholders and other stakeholders' interests. This could be achieved by requiring a subset of human directors to look out for employees while others remain focused on shareholders—or it could be achieved by fine-tuning an individual AI director's ultimate goals. If AI technology advances to the point where AI directors could explain how they reach their conclusions, then a single AI director could, for example, be programmed to consider both shareholder and stakeholder interests in a more transparent way than a human director could."

In my experience of serving on the board of directors of several companies, I can attest to the problem of limited time, loyalty and access to information. While AI is not a complete solution to solving corporate governance issues or strategic planning, I see value in including an AI director. Doing so could provide objectivity that will force human directors to confront there biases or determine the impact of a decision through machine learning that human directors could not ascertain on their own.

What do you think? Will your company appoint an AI director to its corporate board if or when it is lawfully to do so?

Aaron Rose is an advisor to talented entrepreneurs and co-founder of great companies. He also serves as the editor of Solutions for a Sustainable World.