What’s the number one issue for early stage founders?

angels

The founders I mentor are, with few exceptions, engineers and scientists, and as such they have a deep knowledge of their product’s subject domain and usually have made excellent progress on developing their product. But as angel Jeffery Potvin says in the Inc. article Need Funding? Ask This Angel for Advice, sub-titled Founders need resources to learn best practices around obtaining investments in their businesses: Most entrepreneurs are “builders, not sellers.”  I’m in violent agreement both with this quote and with the article’s sub-title. The number one issue, measured by the amount of time I spend mentoring founders about it, is how, when, why, and where to raise capital. I resonate with Mr. Potvin’s experience as a founder:

When entrepreneur turned angel investor Jeffery Potvin decided to turn some of his success into investments, he met a lot of interesting people with “great ideas and terrible pitches.” He says, “I kept seeing the same problem over and over: They couldn’t get attention and their value proposition didn’t make sense.

Early on in my career I was very fortunate to be mentored by an executive in Apple’s Higher Education group. She taught me about how to create visual and engaging pitches, pitches that were simple, clear, and compelling in conveying our value proposition. In other words, she was teaching me Apple’s best practices in creating pitches, as defined by its co-founder, Steve Jobs. (Perhaps proof of her success was in not only in our garnering an investment from Apple’s venture group, but for several other startups over the years.) I’ve created dozens and reviewed hundreds of pitches since that time. I find that pitch review is one of the key ways I can mentor founders. Mr. Potvin also has words worth reading about mentorship

“But throughout the years, and though through ups and downs, I always had mentors,” he says. “And there was a value in those mentorships.” However, they weren’t from the startup world. So, in retrospect, he realized that they didn’t always know how to guide him as he worked to build his first company Hardboot, which provides outsourced technical resources for enterprise companies. “But all the things I didn’t do right, I learned from. And with OPN, I want to help others learn how to do them so that they can drive their business forward.” In fact, he says he’s learned one simple lesson about whether a burgeoning business should seek investment: “If you want to grow a stable business, you don’t need money. If you want to grow fast, you need money.”

Im in total agreement with his last sentence, though I phrase it somewhat differently. I advise founders that investors invest in one thing: growth. If founders aren’t committed to building a high-growth company they should not pursue outside investment; rely on friends and family and customer revenue to support building a stable business.

Here’s some additional advice from Mr. Potvin that is worth taking into account by founders thinking about raising capital:

There are a few other tips he’d offer to any founder, particularly those who are perfecting their pitch. “First, before you build anything, define your problem. Then verify it with a company or two. Second, being marketable is everything. Reduce risk. Work with an early customer to ensure that you are solving a problem and to show that there’s a market. And third, get in front of people–at pitch events, speaking at and attending conferences… work on that elevator pitch.”

Too often I find founders fixated on their product and raising capital. This is backwards: you need to focus on the problem you are solving and your customers. Just as form follows function, product follows problem. Too many founders have a solution in search of a problem. And I have to plead guilty to multiple violations of this dictum; I have learned this the hard way.

But nothing says engineers and scientists can’t be great sales people, a very few I have known have been. But if you are like most, you are a builder, not a seller and so my last bit of advice is to consider partnering with a business person with solid sales experience, who also loves your product and buys into your vision. And whether you bring on a sales savvy co-founder or not, take advantage of the multiple mentoring opportunities out there to get good advice on the best practices in raising capital.

Author: Mentorphile

Mentor, coach, and advisor to entrepreneurs, small businesses, and non-profit organizations. General manager with significant experience in both for-profit and non-profit organizations. Focus on media and information. On founding team of four venture-backed companies. Currently Chairman of Popsleuth, Inc., maker of the Endorfyn app for keeping fans updated on new stuff from their favorite artists.

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