10 Common Assumptions Entrepreneurs Make That Kill Their Ventures: De-Risking Your Ideas and Increasing Your Chances of Success v3.0 December 2008 Presented at IDC, Herzliya, Israel Steve Barsh www.stevebarsh.com  blog.stevebarsh.com steve@barsh.com  +1.215.888.2101  twitter: sbarsh

Premises & Observations Pitch for money too early Look for validation from investors Business based on 3 – 7 key assumptions Spend more time de-risking the idea Before pitching Before building or finishing the product Have trouble Identifying risks Coming up with out of box ideas on how to de-risk the risks stevebarsh.com

Pitch for money too early

Look for validation from investors

Business based on 3 – 7 key assumptions

Spend more time de-risking the idea

Before pitching

Before building or finishing the product

Have trouble

Identifying risks

Coming up with out of box ideas on how to de-risk the risks

Stop Waving, Start Pointing! “Show me, don’t tell me.” stevebarsh.com

Team Product development Competition Market size Customer / market demand Pricing Sales cycle Capital plan Exit value Execution Marketing stevebarsh.com

Team

Product development

Competition

Market size

Customer / market demand

Pricing

Sales cycle

Capital plan

Exit value

Execution

Marketing

Risks Assumptions = risks Risk Something in the future that you… Think Estimate Forecast Hope … is going to happen, and you could be wrong “ Being wrong” could be very bad Large class of risks are numbers Assert a fact But, it’s not a fact, it’s an assumption stevebarsh.com

Assumptions = risks

Risk

Something in the future that you…

Think

Estimate

Forecast

Hope

… is going to happen, and you could be wrong

“ Being wrong” could be very bad

Large class of risks are numbers

Assert a fact

But, it’s not a fact, it’s an assumption

How do you identify a risk? Many of your documents are full of risks and assumptions Look at your Plans Presentations Pitches Financial models Forecasts Estimates Things with numbers or graphs Underline / circle anything that you are not 100% sure of What did you learn in your earliest science classes? stevebarsh.com

Many of your documents are full of risks and assumptions

Look at your

Plans

Presentations

Pitches

Financial models

Forecasts

Estimates

Things with numbers or graphs

Underline / circle anything that you are not 100% sure of

What did you learn in your earliest science classes?

Experiment / Test! stevebarsh.com Hypotheses you are trying to prove Valid experiments to prove or disprove Valid proxy you can use So, it’s / were just like ____ Be ready to defend

Hypotheses you are trying to prove

Valid experiments to prove or disprove

Valid proxy you can use

So, it’s / were just like ____

Be ready to defend

De-Risking Goals Be capital efficient Consume intellectual capital before venture capital Convert assumptions into knowledge at the lowest cost and as early as possible Think outside the box Set up “experiments” to lower risk and prove (or disprove!) your hypotheses NITMOI stevebarsh.com

Be capital efficient

Consume intellectual capital before venture capital

Convert assumptions into knowledge at the lowest cost and as early as possible

Think outside the box

Set up “experiments” to lower risk and prove (or disprove!) your hypotheses

NITMOI

Risk Types & De-Risking Approaches - 1 stevebarsh.com Management / team VC’s: Team! Team! Team! Demonstrate that you are Thoughtful Creative Problem solver Coachable Can build a team Ask for help Can serpentine Deliver product Sell, sell, sell! Take input Flexible Focused Not defensive Execute Concerned with team DNA Have a PMA

Demonstrate that you are

Thoughtful

Creative

Problem solver

Coachable

Can build a team

Ask for help

Can serpentine

Deliver product

Sell, sell, sell!

Take input

Flexible

Focused

Not defensive

Execute

Concerned with team DNA

Have a PMA

Risk Types & De-Risking Approaches - 2 stevebarsh.com Product development Release early and often  get market feedback Confidence-based estimating (CBE) Competition Do good SWOT’s (QuickMBA.com) Know & monitor: competitors and market space Track on Google Alerts (N|B|W|V|G) Track on Twitter/Summize (RSS) Google Advanced Search on FileType XLS, PPT, DOC and include the word “confidential” Search on slideshare.net What’s the plan when competitors emerge? Talk to past failures

Release early and often  get market feedback

Confidence-based estimating (CBE)

Do good SWOT’s (QuickMBA.com)

Know & monitor: competitors and market space

Track on Google Alerts (N|B|W|V|G)

Track on Twitter/Summize (RSS)

Google Advanced Search on FileType XLS, PPT, DOC and include the word “confidential”

Search on slideshare.net

What’s the plan when competitors emerge?

Talk to past failures

Risk Types & De-Risking Approaches - 3 stevebarsh.com Market size Define your market segment (or segmentation) Total addressable market (and geographic region) Cite your data! Calculate bottom up, not top down (e.g, “ if only 1% of $xxx million, we are sitting on a $___ opportunity”) Customer / market demand Test on Google Adwords Sell / talk to potential customers EARLY! CHEAT! -- LinkedIn. Your University! Find out their REAL problems Urgency? Addressing the problem today? Definition of a qualified lead? What are they willing to pay? Confirm your features, benefits, and differentiation are aligned with what will motivate them to buy or use Figure out the OBSTACLES TO SALE (so if you had it today, would they buy it immediately and start using it? How would that work? CBE it!) BTW, potential funding source?

Define your market segment (or segmentation)

Total addressable market (and geographic region)

Cite your data!

Calculate bottom up, not top down (e.g, “ if only 1% of $xxx million, we are sitting on a $___ opportunity”)

Test on Google Adwords

Sell / talk to potential customers EARLY!

CHEAT! -- LinkedIn. Your University!

Find out their REAL problems

Urgency?

Addressing the problem today?

Definition of a qualified lead?

What are they willing to pay?

Confirm your features, benefits, and differentiation are aligned with what will motivate them to buy or use

Figure out the OBSTACLES TO SALE (so if you had it today, would they buy it immediately and start using it? How would that work? CBE it!)

BTW, potential funding source?

Risk Types & De-Risking Approaches - 4 stevebarsh.com Pricing Market comps Test on Google Adwords Ask potential customers Sales cycle Break out the step by step and go through it bottom up. Sell / talk to potential customers EARLY! How long sales will take Process that will work How much a sale will cost Capital plan Rounds, valuation, valuation drivers Careful about pricing yourself out by setting too high a valuation too early! Are you “VC fundable?” Do you hit their “magic ratios?”

Market comps

Test on Google Adwords

Ask potential customers

Break out the step by step and go through it bottom up.

Sell / talk to potential customers EARLY!

How long sales will take

Process that will work

How much a sale will cost

Rounds, valuation, valuation drivers

Careful about pricing yourself out by setting too high a valuation too early!

Are you “VC fundable?” Do you hit their “magic ratios?”

Risk Types & De-Risking Approaches - 5 stevebarsh.com Exit value Think through – what will drive your company’s value? Revenue $? Net $? Users? Customers? Uniques? Engagement? Slope of the curve? Comps, and why they serve as a proxy for you Public company comps (if applicable) Execution Plans / goals / milestones Show previous Think through alignment Show your real grade (hey, MS is late!) Show how you are getting better

Think through – what will drive your company’s value?

Revenue $?

Net $?

Users?

Customers?

Uniques?

Engagement?

Slope of the curve?

Comps, and why they serve as a proxy for you

Public company comps (if applicable)

Plans / goals / milestones

Show previous

Think through alignment

Show your real grade (hey, MS is late!)

Show how you are getting better

Risk Types & De-Risking Approaches - 6 stevebarsh.com Marketing Can you get to your market efficiently? Test on Adwords Positioning works? Tune it! Differentiation compelling? Conversion rates? Costs? Survey Monkey Cost of customer acquisition? Customer churn? How do you know? Other thoughts Blogs PR (key messages, outlets, etc.) Tradeshows Advertisements (online | offline) – did you test?

Can you get to your market efficiently?

Test on Adwords

Positioning works? Tune it!

Differentiation compelling?

Conversion rates?

Costs?

Survey Monkey

Cost of customer acquisition?

Customer churn? How do you know?

Other thoughts

Blogs

PR (key messages, outlets, etc.)

Tradeshows

Advertisements (online | offline) – did you test?

Risk, VC’s, and Pitching Don’t wave your hands, point! Don’t be a know it all Show humility Show what you know, and and what you have de-risked Ask VC’s what risks they see Ask the VC: What would I need to do / show you to get you to invest? stevebarsh.com

Don’t wave your hands, point!

Don’t be a know it all

Show humility

Show what you know, and and what you have de-risked

Ask VC’s what risks they see

Ask the VC: What would I need to do / show you to get you to invest?

Premises & Observations Pitch for money too early Look for validation from investors Business based on 3 – 7 key assumptions Spend more time de-risking the idea Before pitching Before building or finishing the product Have trouble Identifying risks Coming up with out of box ideas on how to de-risk the risks stevebarsh.com

Pitch for money too early

Look for validation from investors

Business based on 3 – 7 key assumptions

Spend more time de-risking the idea

Before pitching

Before building or finishing the product

Have trouble

Identifying risks

Coming up with out of box ideas on how to de-risk the risks

DreamIt Ventures is a pre-seed business accelerator that provides startups with the capital, expertise, mentorship, and guidance they need to succeed.

DreamIt Ventures is a pre-seed business accelerator that provides startups with the capital, expertise, mentorship, and guidance they need to succeed.

What We Offer Entrepreneurs Apply January 2009! dreamitventures.com

2008 Buzz Considered among top-3 business accelerator 76 Technorati citations Increased Alexa ratings for rank, reach and views Syndicated coverage for DIV and companies

Considered among top-3 business accelerator

76 Technorati citations

Increased Alexa ratings for rank, reach and views

Syndicated coverage for DIV and companies

10 Common Assumptions Entrepreneurs Make That Kill Their Ventures: De-Risking Your Ideas and Increasing Your Chances of Success v3.0 December 2008 Presented at IDC, Herzliya, Israel Steve Barsh www.stevebarsh.com  blog.stevebarsh.com steve@barsh.com  +1.215.888.2101  twitter: sbarsh