BDV Webinar Series - Tony - Help to Get Investors Ready

Webinar:
Help to get investor ready
Tonny Velin (CEO Answare)
03/12/2019

Goal
▪ Help START-UPS and SMEs involved in Big Data and data-driven
economy to successfully face the INVESTMENT PHASE and to
maximize their chances to get external funding for their future
endeavor.
▪ Note: difference between a SME and a start-up -> scalability.

Some tips
▪ The ability to learn from missteps distinguishes a successful startup.
▪ Failure is an integral part of the search for a business model.
▪ No business plan survives first contact with customers.
▪ For an investor, what is important is not the product but how to sell it on
the market.
Source: The Startup Owner’s Manual

Traditional models for product development
New Product Introduction Diagram

Traditional models for product development
Product Development “Waterfall” Model

9 Sins of the new Product Introduction Model
1. Assuming “I know what the customer wants”.
2. The “I know what features to build” Flaw.
3. Focus on launch date.
4. Emphasis on Execution instead of Hypotheses, Testing, Learning and
Iteration.
5. Traditional business plans presume no trial and no errors.
6. Confusing traditional job titles with what a startup needs to accomplish.
7. Sales and Marketing execute to a plan.
8. Presumption of success leads to premature scaling.
9. Management by crisis leads to a death spiral.

1. Assuming “I know what the customer wants”
▪ One Day 1: Faith-based initiative based on guesses.
oNo customers
oGuess about the customer, problem and business model
oGo design a product and start spending money to build it to race to “first
customer ship” all before talking to a single customer
▪ To succeed, founders need to:
oTurn hypotheses or guesses into facts as soon as possible
oGet out of the building, ask customers if the hypotheses are correct
oQuickly change hypotheses into fact

2. The “I know what features to build” Flaw
▪ Founders presume they know their customers and assume they know
the features customers need.
▪ Proceed with waterfall development process for a year or two without
interruption and without customer contact.
▪ Progress is measured by lines of code written.
▪ Fixing the inevitable product mistakes is costly and time-consuming.

3. Focus on launch date
▪ Traditional product introduction model focuses engineering, sales and
marketing on the inmovable launch date.
▪ Neither management nor investors tolerate “wrong turns” that result in
delays.
▪ Test cycles alpha, beta and release but no time to improve the product.
▪ Product launch and first customer ship dates in mind.
▪ But the company has to understand WHO it’s selling to and WHY they’ll
buy.

4. Emphasis on Execution instead of Hypotheses,
Testing, Learning and Iteration
▪ Startup cultures emphasize “get it done and get it done fast”.
▪ But Startups should not focus on the execution of a business plan.
▪ Startups need to operate in a “search” mode and they test and prove
everyone of their initial hypotheses.
▪ In practice, startups begin with a set of initial hypotheses (guesses) that
might be wrong.
▪ The ability to learn from missteps distinguishes a successful startup.

5. Traditional business plans presume no trial and
no errors
▪ Traditional product development model:
oprovides boards and founders an unambiguous path with clearly defined
milestones.
oEngineers know what alpha test, beta test and first customer ship mean.
oIf the product fails to work, everyone stops to fix it.
oFinancial progress is tracked using metrics like income statement, balance sheet and
cash flow (even if there is no revenue to measure).
▪ Should ask specific questions about results of the tests and experiment to
validate all components of the business model.

6. Confusing traditional job titles with what a
startup needs to accomplish
▪ Most startups have borrowed job titles from established companies.
▪ But target customers, product specs and product presentations may change
daily.
▪ Early-stage startup executives need different skills from traditional ones.
▪ Customer discovery: people comfortable with change, chaos, risk, unstable
situations and learning from failure and can work without a roadmap.

7. Sales and Marketing execute to a plan
▪ Hiring VPs and execs with wrong skills leads to startup trouble as high-
powered sales and marketing people arrive on the payroll to execute the
plan.
▪ For majority of startups, measuring progress against a product launch or
revenue plan is false progress because of absence of customer feedback.
▪ Search for an understanding of customers and their problems and replace
assumptions with facts.

8. Presumption of success leads to premature scaling
▪ Business plan, revenue forecast and product introduction model gives little
room for error, learning, iteration or customer feedback.
▪ Stop and slow down hiring until you understand customers/Pause to process
customer feedback.
▪ Hiring and spending should accelerate after sales and marketing have
become predictable, repeatable and scalable processes.

9. Management by crisis leads to a death spiral
▪ Sales start to miss its numbers and the board becomes concerned.
▪ Board meetings become tense.
▪ Sales VP is fired and a new one is hired.
▪ A new sales plan buys the new sales VP a few more months.
▪ The problem is that no business plan survives first contact with customers.
▪ Failure is an integral part of the search for a business model.

Customer Development Process

Customer development
▪ Customer discovery:
oCaptures the founder’s vision and turns into a series of business model hypotheses.
oDevelops a plan to test customer reactions to those hypotheses and turn them into
facts.
▪ Customer validation tests whether the resulting business model is
repeatable and scalable. If not return to customer discovery.
▪ Customer creation is the start of execution. It builds end—user demand and
drives it into the sales channel to scale the business.
▪ Company building transitions the organization from a startup to a company
focused on executing a validated model.

Customer Discovery (1/2)
▪ Get out of the building and into conversations with your customers to test
customer reaction to each hypothesis, gain insights from their feedback and
adjust the business model.
▪ Learn in depth customers problems, product features they believe will solve
those problems and the processes for recommending, approving and
purchasing products -> useful to build a successful product, highlight unique
differences and propose reasons why customers should buy it.
▪ In a startup, the founders define the product vision and then use customer
discovery to find customers and a market for that vision.

Customer Discovery (2/2)
▪ Two outside-the building phases:
▪ 1. Test customer perception of the problem and the customer’s needs to
solve it.
▪ 2. Shows the customer the product for the first time, assuring the product
(Minimum Viable Product) at this stage solves the problem or fills the needs
to persuade customers to buy.
▪ When customers confirms the importance of both the problem and the
solution, customer discovery is complete.
▪ Pivots may happen. Failure will happen. It is normal in the startup process.

Minimum Viable Product (MVP)
▪ Early version of a new product that allows a team to collect the maximum
amount of validated learning about customers.
▪ You decide what’s Minimum, the customers decides if it’s Viable.
▪ Many types of MVPs:
o Fast cycle sketch tests: a physical simulation of an experience, often created with
ordinary objects such as paper, cardboard, etc
o Front door tests: presenting a minimal “pitch” of the Customer Benefit where the
Customer is invited to indicate interest, e.g. a simple online landing page.
o Fake-O backend tests: techniques where real people or other manual workarounds
are used to mimic eventual backend or automated systems. Often combined with
“front-door” test.

Customer Validation
▪ Customer validation proves that the business tested and iterated in
customer discovery has a repeatable, scalable business model that can
deliver the volume of customers required to build a profitable company.
▪ The company tests its ability to scale (i.e. product, customer acquisition,
pricing, channel activities, …) against a large number of customers with
another round of tests, larger in scale and more rigorous and quantitative.
▪ Develops a sales roadmap for the sales and marketing team.
▪ Validation is measured by “test sales” that get customers to hand over their
money.

Customer Discovery & Customer Validation
▪ Refine, corroborate and test a startup’s business model:
oVerify the product’s core features
oVerify the market’s existence
oLocate customers
oTest the product’s perceived value and demand
oIdentify the economic buyer
oEstablish pricing and channel strategies
oCheck out the proposed sales cycle and process.
▪ Adequate sized group of customers + repeatable sales process that yields to
profitable business model -> scaling up (Customer creation).
▪ Limit the amount of money a startup spends.

Customer Creation
▪ Builds on the company’s initial sales success.
▪ Spends sums to scale by creating end-user demand and driving it into the
sales channel.
▪ Varies by startup types:
oEnter existing markets well-defined by their competitors.
oCreate new markets where no product or company exists.
oRe-segment an existing market as low-cost entrant by creating a niche.
▪ Each market-type strategy demands different customer creation activities
and costs.

Company-building
▪ The startup finds a scalable, repeatable business model -> now a company!
▪ Refocus the team’s energy away from “search” mode to focus on execution.
▪ Structured departments: sales, marketing, business development, VPs, …
▪ The passionate visionary entrepreneur is no longer the right person to lead
the now-successful company…

Customer development manifesto
▪ The startup finds a scalable, repeatable business model -> now a company!
▪ Refocus the team’s energy away from “search” mode to focus on execution.
▪ Structured departments: sales, marketing, business development, VPs, …
▪ The passionate visionary entrepreneur is no longer the right person to lead
the now-successful company…

Rule#1. There no facts inside your building, so get outside
▪ On Day 1, the startup is a faith-based entreprise built on its founder’s vision
and a notable absence of facts.
▪ Founder’s job is to translate this vision and hypotheses into facts.
▪ Facts live outside the building, where future customers live and work so
that’s where you need to go.
▪ Hard but fundamental -> separates winners from losers.
▪ To be performed by founder (not by employees or consultants).

Rule#2. Pair Customer Development with Agile Development
▪ Customer development is useless unless the product development
organization can iterate the product with speed and agility.
▪ Use agile methodology to continually take customer input and deliver a
product that iterates around a MVP or a minimum feature set.
▪ Before the company starts, the founders need to reach a commitment to
the customer/agile development partnership.

Rule#3. Failure is an integral part of the search
▪ Failures in an existing company are an exception.
▪ Startups go from failure to failure.
▪ In a startup you are searching, not executing.
▪ You try experiments – lots of wrong turns.
▪ Failure are not truly failures, but an integral part of the startup learning
process.
▪ When something does not work, successful founders orient themselves to
new facts -> frequent, agile iteration followed by testing the iteration that
often leads to another iteration or pivot, which leads to more testing, etc.

Rule#4. Make continuos iterations and pivots
▪ A pivot is a substantive change in one or more than the nine boxes of the
business model canvas.
▪ Pivots are driven by the learnings from a continuous stream of “pass/fail”
tests you run through discovery and validation.
▪ The best startup founders don’t hesitate to make the change. They admit
when hypotheses are wrong and adapt.

Rule#5. Use business canvas (instead of business plan)
▪ There is only one reason for a business plan: some investor coming from
business school does not know any better and wants to see one.
▪ But once it has delivered financing, the business plan is useless.
▪ Business plan is a collection of unproven assumptions.
▪ The difference between a static business plan and a dynamic business
model could be the difference between flameout and success.

Business model canvas
▪ WHAT ?
o Value proposition: which the company offers (product/service, benefits)
▪ HOW ?
o Key partners: participate in the business and their motivations for doing so
o Key activities: necessary to implement the business model
o Key resources: needed to make the business model possible
▪ WHO ?
o Customer relationships: to create demand
o Customer segments: users and payers
o Channels: to reach customers and offer them the value proposition
▪ HOW MUCH ?
o Cost structure: resulting from the business model
o Revenue streams: generated by the value proposition(s)
Source: Alexander Osterwalder: Business Model Generation

Rule#6. Design experiments and Test to validate hypotheses
▪ How do you test ? And what do you want to learn from these tests?
▪ Ask yourself:
oWhat insight do I need to move forward?
oWhat is the simple test I can run to get it.
oHow do I design and experiment to run this simple test?
▪ Examples: mock-up a web page or create a demo/prototype to elicit
valuable learning.

Rule#7. Agree on market type. It changes everything
▪ Product/market relationships:
oBring a new product into an existing market
oBring a new product into a new market
oBring a new product into an existing market and try to:
• Re-segment that market as a low-cost entrant
• Re-segment that market as a niche entrant
• Clone a business model that is successful in another company
▪ Majority of startups are not pursuing known markets and don’t really
know what their customers will be.
▪ Market types influences everything a company does. Strategy and tactics
that work for one market type seldom work for another.

Rule#8. Startup metrics differ from those in existing companies
▪ Startup metrics should focus on tracking the startup’s progress converting
guesses and hypotheses into facts rather than measuring execution of a
static plan.
oHave the customer problem and product features ben validated?
oDoes the minimum feature set resonate with customers?
oWho in fact is the customer? Have the initial customer-related hypotheses (value
proposition, customer segments, channels) been validated through face-to-face
interaction?
oAverage order size, customer lifetime value, average time to first order, rate of sales
pipeline growth, revenue per sales person, …
▪ Also: cash burn rate, number of months’ worth of cash left, short-term
hiring plans, when reaching the break-even,…

Rule#9. Fast decision making. Cycle time, speed and tempo
▪ Pivoting but … speed matters inside the company.
▪ Most startup decisions are made in the face of uncertainty.
▪ Adopt plans with an acceptable degree of risk.
▪ Make decisions quickly based on facts, not no faith.
▪ Startups decisions are reversible or irreversible:
oReversible: Add or drop a product
oIrreversible: fire an employee, launch a product, …
▪ Learning to make decisions quickly is just part of the equation.
▪ Speed and tempo (agile) are integral parts of startup DNA.

Rule#10. It is all about passion
▪ Startup people think different.
▪ It is not 9 to 5. It is 24/7.

Rule#11. Startup job titles are very different from a large
company’s
▪ Startups demand execs who are comfortable with uncertainty, change and
chaos:
oOpen to learning and discovery – highly curious, inquisitive and creative
oEager to search for a repeatable and scalable business model
oAgile enough to deal with daily change and operating “without a map”
oReadily able to wear multiple hats, often on the same day
oComfortable celebrating failure when it leads to learning and iteration
▪ Customer development team: Company’s founder then sales closer

Rule#12. Preserve all cash until needed, then spend
▪ Preserve cash: when money is tight, it is crucial to minimize waste. Do not
hire sales and marketing staff until the founders turn hypotheses into facts
and discover a viable product/market fit.
▪ While searching: Preserve cash while searching for the repeatable and
scalable business model.
▪ Repeatable: Search for a pattern that can be replicated.
▪ Scalable: Does the addition of one more salesperson or more marketing
dollars bring in more gross profit?
▪ Spend like there’s no tomorrow: when management and board agree that
they’ve found a repeatable and scalable sales model, then invest the
dollars to create end-user demand and drive customers into sales channel.

Rule#13. Communicate and share learning
▪ Share everything that is learnt outside the building with employees, co-
founders and even investors.
▪ Weekly company meetings to keep employees informed and board
meetings to let investors understand the progress made in the search for
the business model.

Rule#14. Customer development success begins with buy-in
▪ Everyone on the team – from investor to engineers, marketeers and
founders – need to understand and agree the Customer Development
process.
▪ Customer development is a fluid, nonlinear search for a business model
that can sometimes last for years.

Pitch Deck
▪ A pitch deck is a 10-20 slide presentation designed to give a short summary
of your company, your business plan and your startup vision.
▪ It serves very different purposes, from trying to get a meeting with a new
investor, to presenting in front of a stage, and each one of them should
follow a different structure.
▪ A demo day presentation should be very visual and contain very little text.
It is going to be seen from by a wide audience (projector) and you will do
all the talking.
▪ A pitch presentation that you are planning to email should be completely
self-explanatory (and it is going to be seen on a laptop monitor).

Structure
1. Cover
2. Problem
3. Solution
4. Market (with TAM (Total Adressable Market), SAM (Serviceable Available Market), SOM (Serviceable Obtainable Market )
5. Product
6. Business model (key point)
7. Metrics up to date
8. Strategy for growth
9. Main competitors
10. Difference/Competitive advantages
11. Team
12. Needs for investment
13. Thanks and contact details

TAM (Total Adressable Market)
▪ Total size of the market = how much turnover our business opportunity
represents.
▪ Very interesting for investors because it gives an idea of the financial
possibilities of the project and its possibilities to scale.
▪ To get a value, we can sum up the turnover of our main competitors at
global level or look at existing studies.
Source: https://thepowermba.com/2018/12/11/como-calcular-el-tamano-de-mercado-tam-sam-som/

SAM (Serviceable Available Market)
▪ Represents the available market or the market volume that we are able
to serve with the definition of our current business model and with the
sales channels we have developed for the launch of our product and /
or service.
▪ When we start our first sales, we have to size our capacity very well
and figure out if we can reach the market we want to cover.
▪ This calculation also indicates our growth potential by offering the
services and products that we have defined.
▪ The calculation of the SAM will be done taking as reference the
maximum number of units that our current business model is able to
sell in a year. It is advisable to take our competitors as an example.

SOM (Serviceable Obtainable Market)
▪ Serves to assess the potential in the short / medium term that we can
obtain with the resources that we are going to invest, that is, we must
take into account not only the size of the current market but the
percentage of the market that we can capture with our strategy of
recruitment and resources.
▪ The SOM will offer us an estimate of who will be the buyers of our
product and / or service. A very important fact when validating our
business idea.

Top-Down
▪ Makes the investment decisions based on the most global or international
variables to gradually go down progressively until reaching the most specific.
▪ The process to follow would be the following:
oAnalyze the situation of the international economic cycle
oAnalyze national economies
oAnalyze the sectors to know which will grow more than the economy as a
whole
oAnalyze the aspects of each company taking into account their competitive
situation.
▪ This approach is intended for the analysis of large macroeconomic figures, such as
potential client trends, demographic data, GDP evolution, trade balance, raw
material prices, surveys, industrial activity, energy consumption, etc. From these
data, we try to guess what behaviors different markets can register.

Bottom-up
▪ Is the reverse process.
▪ Start with the details and the smallest parts trying to solve the smaller problems
that together are giving solutions to other problems. In this case, companies are
not analyzed, but values, investment opportunities, regardless of economic
prospects or sectors as a whole.
▪ Three basic elements are involved for decision-making: business, valuation and
risk (business or market).
▪ To carry out their calculation, the analysts study the concrete reality of the
companies that are under their monitoring with: financial statements, investment
plans of new markets, annual reports, financial restructuring plans, etc.
▪ Based on the detailed knowledge of the companies and comparing them with
their competitors, we try to guess the behavior that can be expected from the
price of their shares in the medium and short term.

Build up a powerful team (1/2)
Team “Solution” (inside the building)
– coding, testing, versioning, etc
Source: yoemprendo – José Antonio de Miguel
Team “Problem” (outside the building)
– interviews, customers, Ux, etc

Build up a powerful team (2/2)
2 or 3 persons
Easier communication
You build less, you spend less
Burn rate under control
Development Design Marketing

Some links
https://smallbusiness.chron.com/difference-between-seed-
funding-earlystage-funding-33038.html
https://fundingsage.com/startup-funding-rounds-and-the-funding-
life-cycle/growth-stage/
https://slidebean.com/blog/startups-pitch-deck-examples

Next steps and contact
▪ A handbook is coming with the steps to follow !
▪ Tonny Velin
▪ Email: tvelin@answare-tech.com
▪ Mobile phone: +34 661 727 951

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