When marketing their start-ups, entrepreneurs will naturally seek to put their companies in the best possible light. Investors are a cynical lot, however, and there are a number of “red flags” which every potential investor unconsciously listens for in elevator pitches, business plans, and executive presentations, notes Martin Zwilling, CEO and founder of Startup Professionals, Inc., and managing partner of Southwest Software Ventures and Consulting. He offers a list of ‘Ten Start-up Lies,’ “not to impugn the honesty and integrity of entrepreneurs, but maybe to curb your natural over-enthusiasm that might detract from your impact.”

1. “Our product is truly disruptive technology.” If your product really represents a paradigm shift, you probably haven’t figured out yet what problem it solves. At best investors can count on it taking many years to catch on, just like other ‘disruptive technologies’ before you. No investor wants to wait that long for his return or fund the years of waiting.
2. “Gartner says our market will be $50 billion in 2010.” “It always amazes me how an entrepreneur can define his market opportunity so broadly, then assess his competition so narrowly in the next breath,” Zwilling comments. “You won’t impress investors by claiming that everyone in China needs one, and nobody else has exactly the same features to compete with you.”
3. “All we have to do is get 1% of the market.” This red flag is the flip side of “the market will be $50 billion.” There are two problems with this assertion. First, no investor is interested in a company that is only looking to get 1% of a market. Second, that first 1% is the toughest of any market, so you look naïve implying it’s easy to get.
4. “We don’t believe there are any competitors.” This is a turn-off because it leads to only two logical conclusions. First, no one else is doing this because there is no market for it. Second, the entrepreneur is so arrogant that he hasn’t even used Google to figure out he has competition just down the street.
5. “Microsoft is too big/slow to be a threat.” Usually the reason the big companies are no threat is that the market is too small. Competing with IBM, Microsoft, and other large companies is a very difficult task. Entrepreneurs who utter this line are kidding themselves, and investors know it.
6. “We have the first-mover advantage.” Investors will view this statement as a positive spin on the fact that the start-up lacks a patent or a true competitive advantage, Zwilling asserts. “A start-up with no brand name and no intellectual property is a sitting duck for the big slow company, as soon as they see you gaining a bit of traction,” he says. “Sleeping giants do wake up.”
7. “Our projections are conservative.” A start-up’s projections should never be conservative, Zwilling maintains, while also noting that even low-ball numbers are rarely actually achieved. “We all know that financial projections are a confidence test on how committed you are to the project, so don’t try to minimize them,” he advises.
8. “We have a proven management team.” If the founder and team were that successful, they probably wouldn’t be asking for money. Truly proven in an investor’s eye is a team that has had multiple successes, defined as returning billions to backers.
9. “A world-class CEO will be joining us after the funding event.” This is often just wishful thinking, and most world-class execs are not jumping at the chance to leave their big-company, high-paying jobs. “Rest assured the investor will ask for names, and place some calls. Hedges here by your [CEO] candidates will definitely kill the deal,” Zwilling cautions.
10. “We have strong interest from a major customer.” The mention of unsigned contracts normally takes away more credibility than it adds. You can counter this position by bringing the interested party to the meeting for support, or at least showing a Letter of Intent. Otherwise talk about paying customers only.

Zwilling highly recommends that you screen your business plan and your executive presentation carefully for variations on any of these statements, and remove them. “Your integrity and honesty are you best assets, so don’t jeopardize them with common over-statements, even if your intent is virtuous,” he advises.

Source: Startup Professionals Musings

Posted October 13th, 2009 under Intellectual Property Marketing

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