I’m a venture capitalist (VC) who invests in media companies, and I consistently see entrepreneurs make the mistake of trying to do too much.
It’s understandable founders who want VC money feel the need to show a big return, and it’s fair to say that unicorn potential (the ability to hit a US$1 billion valuation) is something VCs look for (that’s how the economics of VC work). It’s also no secret the media industry is struggling, and so the ability to succeed where others are declining/failing comes with a higher bar for start-ups.
That higher bar can come in different forms. Maybe it’s the fact investors are just a bit more risk averse looking at media companies that are the “Uber of ...,” or maybe it’s that there are fewer investors who invest in media companies. Or maybe it’s that VC funding for media companies was drying up (last year at least), making the competition that much stiffer.
But entrepreneurs take note: The way to demonstrate (and achieve) your eventual success is not to show me a deck with a dozen different ways you’re going to make money. To be clear, I’m not saying you can’t monetise your content (assuming, in this example, that you are a content business) in different ways. By all means, show me how you’ll make money doing subscriptions, ad sales, advertorials, and the like. But show me what is at the core of your business and how you’re going to execute that one thing really well.
Continuing with the content business example, I’m not interested in how you’re planning on doing live or how you plan on making an e-commerce play. I want to see how you’re going to be the best at something. How you’re going to build something scalable, with network effects, so that eventually it will be impossible for a competitor to catch up or steal your customers.
How might you do all that?
Talk to your users. Notice I say “users” and not “customers” because a customer is somebody who pays for your product or service. A user is anybody in your value chain.
For example, let’s assume your company is a B2B model, and your eventual sign-off needs to come from a CTO. Know exactly what her pain points are and how you’re fixing them. But also talk to her direct reports. How is a junior engineer going to interact with your product? How are you going to demonstrate value for him?
Maybe you’ve got a two-sided marketplace (think eBay). Well, in that case, you’d better know what value each side brings and what they’re looking for from the other. You have to talk to your users and figure out what they truly want.
While it seems like a really rudimentary concept, I’m fairly confident I’ll get another 20 pitches this year from founders saying, “There’s a hole in the market.” But when I ask how they know, the answer has nothing to do with talking to users (Juicero or Segway, anyone?), and everything to do with, “Nobody else is doing it.”
But that’s because most don’t have a solid business at their core. If an entrepreneur is able to build a simple, commercial engine, focused on solving the needs of her user, she’ll be leagues ahead of the founder playing business model spaghetti — throwing anything against the wall in the hopes of something sticking.