Ask the Wizard

So, you're out trying to raise your first round of financing, and you've gotten introductions to some VC's and you've had your first meetings and maybe even second meetings and now you're in "next steps" mode. Next Steps mode is where you ask everybody at the end of the meeting "what are the Next Steps?" and the answer you get is "we're interested. Keep us posted." The variation on the end of this kind of meeting is "When do want to close the round?" to which you respond something like "as soon as possible" or "we need to close the round by end of june" and the VC responds "ok, we're interested, keep us posted".

If you do not get an enthusiastic "what do we need to do to get involved" or "I think we'd like to do this, what's the timing" or "Can you come to our partner meeting next monday and present this to the rest of the team" then what you're generally hearing is "eh, i'm not convinced". Why don't they just tell you "eh, i'm not convinced"? Well, for a couple reasons: a) nobody wants to be the jackass that said no to the next Facebook or ebay, so it's better to leave the door open in case you turn around and really start to prove the model. That way they can call you in two months and say "hey! I asked you to keep us posted? Couldn't you tell how much we loved this? Why aren't you letting us invest!?" and b) nobody wants to tell the person that just came into their office with passion and determination that "i think this is stupid". Maybe it's just too early, maybe they just don't get it yet.

So, what do you do in these cases? Let's say you've met with six firms, gotten six "keep us posted" and you need to raise the money in the next month in order to keep going. There are a couple things you should do and a couple you shouldn't.

SHOULD: Go back to the potential investors and propose terms to a few of them as leads on the round. As I've said as many times as I can, you shouldn't get hung up on the valuation on an A round. Propose terms that are favorable to you but with a valuation the investors find attractive and aggressively pursue a commitment to lead from one. This will have the added benefit of exposing to you how much of their opinion was really "we're interested. keep us posted" and how much was "we mean 'no' but we don't want to say 'no'. HOWEVER, only do this in conjunction with the next SHOULD a paragraph down!

SHOULDNT: Try to bolster the company's look by adding impressive advisory board members. This isn't going to make a lick of difference to potential investors. Don't waste your time or equity.

SHOULD: Meet with a LOT more potential investors! You got six people who aren't impressed, but there are hundreds of folks out there looking to put money to work in early stage technology. Not everybody is going to get their A round done with their favorite investor.

SHOULDNT: Assume that if you pitched six second tier investors that the first tier investors will hate it too (or if you pitched six angels that hated it or pitched six first tier investors, etc.) When we started Spyonit, we didn't really know anybody and our first investor meetings were with four or five investors that most people have never heard of and a tier one firm. We were told everything from how stupid the idea was by the third tier/rate investors, to how it would be better if we were using Oracle as a dbms (not kidding) by the tier one investor, to the inevitable "we're interested, keep us posted". We then were introduced to and met with two of the best local VC's and they loved it. You simply cannot assume that the first six disinterested responses imply universal rejection.

SHOULD: Aggressively continue to try to mix and match a syndicate from the people you're meeting with. There are investors that like to work together and look for opportunities to work together, and you should attempt to discover those opportunities.

SHOULDNT: Sacrifice too much just to get a deal done. Don't put yourself in a position where a year down the road you are less excited about the business because of everything you had to give up in the first financing. Again, don't obsess about the valuation at the expense of everything else, there are lots of important terms, make sure you've got a company with room to run and room to grow that you're going to be passionate about if this funding gets done.

SHOULDNT: Assume you need to keep changing the pitch. If you're passionate about what you're doing and this is how you explain it, then that's all you can do. Just because the last person you met with said "this business would be better if it had a seafood component" does not mean you should go into your next meeting and add a slide with your Red Lobster Strategy. I can't tell you how many times people do this. Your job is to build your business, not build somebody else's business.....and it's particularly not 'build the business suggested by the guy who didn't like your business'. You should be open-minded to feedback but do not adjust your pitch higgledy-piggledy based on one off comments you get during meetings.

Posted by Dick at 10:37 AM | Permalink | Comments (2) | TrackBacks (0)

Our kids had spring break a couple months ago, and owing to some tremendous misfortune that befell my wife last year on a trip to visit family, we were the beneficiaries of four free round trip tickets anywhere in the US. Since the flights were free, we decided to splurge on the hotel and ended up staying at one of the more upscale hotel brands. Interestingly, when we left Chicago, our departing flight was 40 minutes late, and when we got to the hotel that evening, our room wasn't ready, and also ended up being about 45 minutes before we could get into the room (which was fine since the weather was fantastic and we were happy to be outside). The difference in customer service between the airline and the hotel is instructive for thinking about customer service as a startup, whether you're enterprise or consumer focused.

The airline's website and official customer service language are all about lines like 'the customer comes first', 'you are [airline name]'s most valuable asset', etc. The hotel's website and official customer service language are non-existent. I couldn't find anything on the site that explicitly mentioned customer service. Of course, the actual customer service experience was first-rate at the hotel and miserable with the airline. You cannot provide or foster phenomenal customer service by saying you have it. You can only provide and foster customer service by embedding the customer in your company. There are two ways to embed the customer in your company:

1. The company only has one constituency, customers. How many times have we heard executives make statements about 'stakeholders' and 'several kinds of customers, including our shareholders, industry partners, blah blah blah'. Companies that think they answer to multiple entities answer to customers last. I think this is probably a contentious point, but you can't have a customer-centric business that feels it serves multiple masters. Companies that serve only the customer provide what the other stakeholders want as an artifact of their focus on the customer. Companies that serve multiple constituencies have "good reasons" why they just can't provide their customers with [insert something the customer values].

2. More information is always always always better than less information, aka Transparency. Businesses that provide outstanding customer-service have employees that all know it's ok to provide the customer with more information. Airlines, for some reason, are absolutely horrible at this. You can be sitting in a gate area for a delayed flight with an unknown departure time and get absolutely no information. I've actually heard gate agents come over the PA system and say "the answer is that there are no answers". Inexcusable behavior that's engendered by employees who are afraid of what might happen to them if they say something. EVEN when the information you provide is of no additional benefit to the customer, letting them know what you know is helpful, comforting, and builds a relationship with the customer. Going back to our airline/hotel example - delayed flight with no information until it was suddenly ready to board resulted in high stress, lots of passenger tension in the boarding area, lots of frustration with the airline. We got to the hotel, the room's not ready. The registration person says "look, the lock on your door is apparently broken, because the key only works 'sometimes'....i don't really know what means since i've never heard of it happening before, but the security team says they think it will be about thirty minutes to an hour. if you could come back here then, we'll either have your room ready or i'll have more information". In both situations, the employee couldn't really do anything for us. In the latter situation, I at least now have a sense of what's going on and that they realize it's a problem, and that they're working on something specific. In the airline case, there is no transparency, leading to anger, frustration and mistrust between the employees of the airline and the customers.

When you're building a business that you feel needs to be customer-centric, the path to success lies not in hanging signs on walls or writing mantras and slogans. It's reinforcing to your team that a) there is only one 'constituency', the customer, and that transparency is a company value.

Is it possible to build a successful business without great customer service? Yes. Absolutely. There are untold numbers of profitable businesses that resent and mistreat their customers and many of these are high on the list of having "the customer comes first!" billboards in their stores, websites, and literature. It's up to you to decide if your company is going to make customer service a competitive advantage. If you do, it has to be embedded in the company from the start, it can't be managed into the company later with messaging and mission statements.

Posted by Dick at 09:34 AM | Permalink | Comments (2)