A Few (Very) General Areas I Would Like to Invest In

Better Financial Tools / Resources for Lower and Middle Class There is an unacceptably large knowledge gap that a large percentage of the population has concerning personal finances. Better education & tools, perhaps even at the high school level, are desperately needed. Also, if there are any entrepreneurs out there with a way to improve the pay day loan industry for the consumer, I’d love to talk to them.

Companies building the best & largest datasets in their markets The best dataset is generally worth more than the best algorithm, especially if the dataset is very difficult and expensive ( or practically impossible ) to build elsewhere. I’m less concerned with what market the dataset addresses and much more concerned whether it is ( or can be ) the best dataset that market.

Businesses that level the playing field by enabling others to be more competitive. OK, so some of the best businesses, at least from the perspective of those who share the economic upside, are monopolies. Monopolies are able to charge prices significantly above their costs because there is at least one (often large) barrier preventing competitive options. Some of these barriers are enduring and highly defensible moats, but not all. I want to invest in businesses that challenge monopolies at their vulnerable points. One way to do this is for a start-up to to democratize an industry and enable others to be more competitive by provider tools and platforms that chip away at a monopoly’s competitive moats.

Capital to Cash Flow If I can buy an asset with a record of generating a fair cash flow ( e.g. an apartment building is the most basic version of this ), my checkbook opens a lot quicker ( and many, many times wider than my typical early-stage check ). Business ideas do not need to be a traditional VC return model, just an adequate risk-adjusted return on capital invested. This gets more into the venture debt realm of things and there are existing players that already do this; however, they tend to skew towards a higher scale. If you have a workable, proven model with positive cash-flow, my assertion is that you should have options to finance the growth of that business without having to trade in equity.

If your company falls into one of these categories above, reach to me @dan_relihan.

Early-stage Pitfalls: Hiring Sales

Early stage founders tend to grossly overestimate the impact of hiring a sales team in the early stages. Typically, these startups may have only a handful of customers ( or in some cases even none at all ) and believe that a sales team is the key to acquire more customers. I immediately become suspicious when early-stage founders say they plan to use their seed funding for sales hires, particularly if the startup has only a few customers. I find this often masks bigger problems. The startup may be having a tough time acquiring customers and rather than taking an honest look at how their product relates to their market, they assume that investing in a sales staff will magically be able to get them customers.  Or, the founders find sales awkward and unpleasant and are the type of people who ultimately want to avoid the tough work. As an investor, both are non-starters for me.

Sales is everyone’s responsibility in a startup. You cannot outsource this stuff until you have solid evidence that not only the product you have makes sense for the customer you are going for, but also that your sales process works. Founders should call customers directly to experience for themselves what works on that first call and what doesn’t. Founders should run demos directly to customers so that they can see their reactions, absorb their feedback, and gain the best understanding of their customer and their customer’s problems possible.These sales meetings are gold mines. In these early meetings, customers will tell you how they can give you money. 

Hiring a sales team prematurely is like being lost in the woods and rather than trying to find familiar landmarks, rivers/streams, or even a faint trail to find your way, you half-blindfold yourself, pick what you think is the most promising direction, and sprint as hard as you can, hoping that the direction you chose is a clear path out of the woods. You may find the optimal path out of the woods, but chances are much greater than you’ll run headfirst into a few trees, trip on a root, or maybe even “Wile E. Coyote” off a cliff. As a basic rule of survival when lost in the woods, you want to optimize your probability of getting out alive, not the speed at which you get out.

Ok, enough metaphors. When should a startup hire sales? When the founding team becomes the sales bottleneck, then its time to consider whether to make a sales hire and not before. At that point, you’ll know a lot more than you do right now about how to sell your product to your customers, so you’ll be able to target, recruit, and onboard exactly the type of sales talent you need. You will also have a much clearer understanding of the ROI of that hire, which will help you a lot when talking to investors in future rounds.

Ok, so what if the founding team is not “good at sales”? To me, that’s the same as someone telling me “I’m not good at math”. It is not a valid excuse. Its probably because you never really worked on. I mean really challenged yourself, identified specific shortcomings, and worked on those with intent to improve. You don’t have to be a Zig ZiglarJoe Girard or a “natural salesperson”, but you must be capable of selling your product. If you have no sales experience, find a mentor who does, particularly in your industry, and work with him or her as much possible. When in doubt, pick up the phone, send an email, or knock on a door and talk to as many potential customers as you can.

Worry About Your Customer, Not Your Competition

You do not, with a few exceptions*, have much control over your competition. You do, however, have a lot of control over what you provide to your customers. So, before you spend time worrying about what you competition is doing and scrambling to match them, make sure you do as much as possible to improve your current products and services for your customers.

If you keep an open dialogue with your customers, you should have a pretty good idea of why they need your product and how they use it. Its your job to deliver not only what you promised in your product, but also to continue to make your product better for your customer. Always be on the lookout for ways to help your customers.

If your competition has introduced a new feature or widget, your customer may ask you for it. Before you jump up blindly to start copying that feature into your product, take a step back, call your customer, and ask for more information. This short discussion gives you a great insight into your customer’s root need. Use that information to build a feature into your product that addresses that need extremely well. More often than not, you’ll find the feature ends up being different ( and better ) than your competitors.

So what if your competitor is trying to undercut you on price? Well, all that means is your competition has figured out a more efficient way to address your customer’s need. If you were really looking out for your customer, instead of trying to maintain a fat margin, you would have already figured out a way to offer your product at a more competitive price. Shame on you. Remember, there is always a Jeff Bezos pounding a table chanting “Your margin is my opportunity”.

To be clear, I am not arguing against high margins. If your product is so good that your competitors cannot deliver a comparable product, you should enjoy high margins. If you sit back on your laurels and just keep pumping out your widgets without continuously working on maintaining and improving that competitive advantage, your high margin will erode to competition over time.

In my job, I read every single customer email related to my area of the product. These emails are gold mines. They take a significant time to review ( ~ 10 – 20% of my time ), but they are the best way for me to figure out how to keep making the product better. I never worry what a customer says a competitor has, but rather, I seek to understand the customer’s need and improve our product to address that need as best as I can.

Best of luck with your customers and remember they are expecting you to make you products better and better over time.
* A few ways you can control your competition

  • Sue Competitors for Trademark, Patent, or Copyright Infringement
  • Hire away key employees
  • Acquire Them
  • Build a big enough moat that your competitors do not even try to compete with you