The best thing about being a VC is that you have the chance to take a sneak peek into many different teams and discover that ultimately each of them is a unique story. More or less, each story tends to fit into one of three categories:
The first category is the Not-yet-there. Enthusiastic and laborious people – who “have an idea”. Often they just turned to entrepreneurship but may still lack experience and important skills as well. We regularly help them with some advice, but we obviously never invest.
Only a few fit into the second category, which I’d call as The-Rockstars. Entrepreneurs who have the vision and all the necessary skills to go global (some of them even did before on their own). Immediate term sheet, of course – however, only 1 out of 400 applicants happen to fall into that category.
And then there’s this third category. The wicked-smart and skilled and laborious and generally awesome entrepreneurs, who – due to the lack of experience – are carefully and wholeheartedly planning to screw up everything around them – including their own company. Not in bad faith, of course. They just don’t get the whole logic of startups, the math what binds investment, value, growth, costs and every other numbers into one large cobweb that couldn’t be pulled at one end without being affected at every other corner of it. These people often make the exact same mistakes, because these can be derived from common yet false logic – so let’s see what are they saying and why is it dead wrong:
The top 10 evergreens
1. “First we’re validating in [insert your CEE home country here], because we’ll use the homeland as a test market, then we go to the U.S. market”
And who the hell told you your customers on the foreign market think, act or behave the exact same way as the ones in your home country do? Maybe they do. Maybe they don’t. Validate in your primary target market, whichever it is! Entrepreneurs usually say this because they have an established network and valuable field experience in their homeland, so they’re trying utilized it in good faith to show quick traction. In reality, this kind of traction will be irrelevant in a large market, due to differences in the opportunity of scaling and the above mentioned cultural differences. So, dear fellow tech entrepreneurs, pick your one target market (a large one) and focus on it with 100 %. Should I advise you one thing, pick the United States!
2. “Yeah, we know we’re raising US$ 2 million despite our pre-seed stage, but 80 % of the money will be spent on marketing in order to getting quick traction in larger markets.”
First, a monkey could build a large business if you gave her endless amount of money. The problem here comes from the misunderstanding of the connection between pre-money valuation, investment and dilution. Dilution of the founders at the seed round should be minor (something between 8-15 %), otherwise they’ll suffer so significant dilution through the follow-on rounds that they might lose their interest in the company. At the same time, overvaluing a company can be potentially deadly. So we have small dilution and small pre-money in the formula. How much will the investment be? Since
Dilution = Investment / [Investment + Premoney]
the seed investment should kept low. That’s why asking for millions of dollars at early stages of a startup is dumb. Aim for reasonable amounts, $50 – 250 k depending on your current status and traction. Second, marketing is for corporations. Please google “growth hacking” and just dig deep in it. Don’t plan on spending millions of dollars on marketing, because you either make reasonable investors pass or raise money way above the real worth of the company which will most likely turn you to the subject of a nasty, painful antidilution provision a year later.
3. “If we wanna start selling in the U.S., we’ll need a marketer, the best PR firm and a small sales team of 5 blue-eyed Ivy League grads – preferably famous ex-college quarterbacks.”
Sure. And I need Natalie Portman by my side on each of my business meetings, ‘coz she would definitely raise my chance of closing any deal. Could we please just get back down to Earth for a moment? Cheap airfare tickets, AirBnB, a solid pitch and a gruntload of time and work is what you need. Besides you won’t have that much money from any VC, sentences like this one above are like whispers in investors’ ears saying “She doesn’t have a single freakin’ idea how to do PR, sales or marketing at all!”. You don’t want that, do you? Be realistic – learn selling your stuff.
4. “We’re polishing this app for 2 years now, because we really don’t want to show up to market with something that’s not perfect. We know the competition overseas is killer.”
This is the single most common mistake: Product Focus. A whole book could be written about the psychology behind this madness. First, just please try to understand the concept of Lean. Don’t build anything unless you’ve proven there are a significant number of customers out there willing to vote with their dollars on you. Second, if you understood the Lean concept, ask yourself why are you building that app for two years instead of shooting out a nice landing page in two days with a short, yet awesome video on it and start collecting feedback and putting together the business part while you’re developing the product itself. And yeah, the competition is huge and you can only win by knowing your customers better than your competitor.
5. “How on earth could we start any activity with the U.S. if we’re not there physically?”
My usual answer to this used to be this: “How would you start it if – literally – your life depended on it?” I personally would write some nice, short messages to influential people in my space on LinkedIn. I’d started commenting on blogs in my industry. I’d use Twilert or TweetAlarm and engage some folks on Twitter. I’d ask for intros, participate on free webinars, take a free online course. I’d start a blog, I’d try contributing to someone. Whatever. Come on, colleagues! We’re livin’ in the world of social media! Of course you have to hit the ground in the U.S. sooner or later. But not doing anything at all before this opportunity opens is just nothing but a lousy excuse.
6. “We’re starting in the U.S., so we’ll need a general lawyer, a patent lawyer, an immigration lawyer, a tax advisor, a financial advisor, a pitch coach, a business coach, and a personal coach at the beginning.”
Correct. You need all these people. And many more. Just not at the beginning. There are a couple of basic things you need to do when you opening your business in the U.S., but any experienced entrepreneur or advisor can tell you about these things. Engaging with a U.S-based lawyer and having a flat fee agreement with her is even better if you can afford a few hours. But forget patents, because they don’t help you in early stages and the ton of work they require will distract you from the real focus: your Customers and the P/M fit. In terms of immigration, you’ll need three months – a basic B Visa provides you six. Problem solved, next one please. Taxing? You don’t even have the final business model! Isn’t there anything more urgent? If you’re at the earliest stages of your startup and still worried about not understanding legal structures in the U.S., start reading about them or use Quora. Period. Don’t build an expensive team – build your audience!
7. “Most of the investment would be spent on gaining more awareness by a significant online presence.” (aka. We need a killer webshop.)
Great! And when you finally have it, how on Earth will you drive traffic on it? By spending $ 10 M on marketing, right? After we discussed above why you should be able to get along burning not more than 100k total for 6 to 9 months, let’s just skip this option. And yes, finding the appropriate sales channel for your startup could be pretty challenging if you’re selling physical goods. Selling on eBay, partnering with a retailer or going to trade shows are all worth a try. You have to try several channels and focus on the most promising one, which usually ends up being something totally out-of-the-box. One thing is for sure: a webshop alone doesn’t bring you glory.
8. “In terms of marketing, we’ll focus on social media, PR and viral elements…”
Awesome. Like a BMW exec would announce their new car like “In terms of quality, we focused on the engine, the chassis and all the rest.” This is just pure bullshit and it clearly highlights you don’t have a clue what to do at all. Mostly all of us could list the potential marketing channels, the big question is which will work particularly for you? Do your homework and test out each of these channels!
9. “We’ve chosen a name which only makes sense in our mother language – spoken by 1-10 million people only – because every domain that makes sense in English was taken.”
Oh, I see, no problem: you gonna explain this to that other 6 990 000 000 people on Earth one by one – well, good luck and have fun. That’s what we call management debt. First of all, please rebrand it – like, for example, instantly! Why? Because despite those 1-10 million people, the rest of the 99.85% of the world DOESN’T FREAKIN’ UNDERSTAND IT! Being in the startup world means you wanna grow fast and grow big. “Big” means you’re global from day 1. Being global from day 1. means you have to use a language what most of the world understands – surprise: that’s English.
10. “Our idea is so complex that it’s literally impossible to explain in a 4 minute pitch, no matter what the U.S. standards are for pitching!”
Dead wrong, absolutely no matter what you’re doing. A spaceship is sort of a complex thing, yet I can explain it in just one single sentence… Oh sure, all the details won’t be clear, but you’re gonna get the whole picture. And after getting the whole picture as my audience, we can talk about details for years. Focus on the problem you’re tryin’ to solve. Or highlight a specific group of people that you’re helping with your invention. If you can’t do that, you most likely only have a technology or an idea with no Product/Market Fit yet – but that’s not a startup, that’s only an opportunity worthy of further experimentation.
So just change your attitude
Here in the CEE region, many entrepreneurs are wandering around meetups and startup events for years without taking even one single step to hit foreign markets. This is part culture, part risk-awareness, part comfort or simply having less self-confidence. Whatever it is, if you tend to do the same you have to stop it and you’ve to stop it right now! Go out to the jungle, take some risk of failing, engage with people! After all, as long as your startup is barely more than a dream, you have nothing, right? So tell me, as long as you have nothing, what can you lose?
Start engaging now by adding your comments below! What are your most fearsome barriers? What holds you back from going global from day 1?