Guy Kawasaki, an American marketing specialist, author and Silicon Valley based venture capitalist talks about the 10 most common mistakes that most entrepreneurs do while pitching their ideas and their fixes:
Mistake #1 Multiply big numbers by 1 percent
While analysing their target market entrepreneurs tend to follow a top-to bottom calculation approach. For example, if a dog food company is pitching to investors, it would go like this:
“There are 300 Mn Americans, these Americans roughly own 75 Mn dogs, each dog eats 2 can of dog food per day. That means 150 cans of dog food per day. And this is not B2B, this is B2C. So the total addressable market is (150 Mn multiplied by 365). In the worst case scenario, let’s assume that 1% i.e 1.5 Mn of this market can be captured. How difficult that can be?”
As per Kawasaki, that’s what people do and it’s total bullshit because you cannot address that kind of market. It’s not that easy to get a 1 Mn user base. “In all my years meeting several entrepreneurs, I have not seen any company meeting its financial projections.”
Solution #1 Calculate From The Bottom UP
If you use the mistaken way, you calculate 1.5 Mn dog food consumption per day. Now taking the bottom-up approach, with an online dog food selling website, lets figure you can get 50,000 unique visitors per day (being conservative) and out of these visitors, say 1% actually buy your product each day, i.e 500. Multiplying it by 30, it becomes 15,000.
You are going to be much closer to 15000 today, than 1.5 Mn and that’s how you prevent this mistake. You have to be realistic. The results will always be closer to the bottom-up analysis than top-bottom analysis.
Mistake #2 Scale Too Fast
The foundation for this mistake lies with the previous one. In an attempt to reach 1.5 Mn consumers per day, you start setting the service infrastructure, multiple warehouses, shipping services to every corner and more. And then your burn rate comes out – half a million dollars with your software delayed. This goes on for year with no sales and money running out, eventually dropping confidence of the investors.
Solution #2 Eat What You Kill
One should focus first on getting sales, rather than building other things such as infrastructure and support. Because odds are that you will be late. “I have never seen a company that dies because it’s not able to scale too fast.”
Mistake #3 Form Partnerships
Partnership is a very very overused word. In many circumstances, the word partnership means lack of sales. “Since you don’t have any sales, you say that you have very promising partners.” The most important part is to sale and no partnership could fix this. When forming partnerships, one should do the spreadsheet test asking this question,”Did you both excel in either lower cost or increased sales?” Because any partnership that doesn’t force you to recalculate finances, is not fruitful.
Solution #3 Focus On Sales
Most entrepreneurs use the P word because they are not able to focus on the S word. Those who promote partnership as their key strategic point, are tend to be in trouble. So, one should always focus on sales, because if a picture is worth thousand words, a sale is worth thousand partnerships.
Mistake #4 Focus On Pitch
Entrepreneurs want to make a perfect pitch that proves that there is a big addressable market, to prove that they have a world class team, and a world class paradigm shifting technology. And they spend days perfecting their pitch. That’s absolutely wrong.
Solution #4 Focus On Prototype
Instead of focusing on pitch, you should focus on building prototype of your product because at some level, all pitches are equal. The goal of your company is not to have a great pitch, but a great product. “The best pitch for a sophisticated investor is – Let me show you what it does. It’s all about a prototype and a good demo. Do a good enough prototype and you will never have to give a pitch.”
Mistake #5 Use Too Many Slides
Most of the entrepreneurs use around 50-60 slides during their presentation. Also, they are of the view that for investors team is the most important thing. So, they open up their presentation and spend 15 minutes in explaining that they have a world class team. The truth is everybody is more interested in your product.
Solution #5 Obey the 10/20/30 Rule.
The optimal number of slides that you should use is 10, should give those 10 slides in 20 minutes and the ideal font size should be 30 points. After preparing the presentation, you should do a test: Select all the text in your slides, turn it to 30 points and see what still left. If you force yourself to do this, you will be remained with the most essential part of your pitch. “The ideal powerpoint pitch is with one slide.It’s the product prototype and demo which wins the game.”
Mistake #6 Proceed Serially
Entrepreneurs want to do things serially: raise seed money, get the prototype, ship it, find the customer, then sell it and support the customer, and then get another round and then get employees.
Solution #6 Proceed Parallel
Kawasaki believes that in an entrepreneur life thing should run parallely. You should be pushing 10 variables down the track at the same time. “You have to time slice, that’s the reality and you should accept it.”
Mistake #7 Retain Control
Founders are of the belief that until they own 51% stock of the company, they are running it. So, they sell as little stock as possible and try to maximise valuation. “I don’t suggest taking outside money until it is absolutely necessary. The moment you take outside money you are working for outsiders and have the responsibility to double what you have taken in. It doesn’t matter if you have 10% or 51% of the company.”
Solution #7 Make A Bigger Pie
Rather than holding 51% share of a $10 Mn company, you should focus on having 2% of a $5 Bn company. The key here is to make a bigger pie. “If you and your buddy are starting a company, don’t think that you both will be getting 50% each. It doesn’t work like that. You have to keep a majority portion for outside investors and future employees.”
Mistake #8 Use Patents For Defensibility
A patent is not an option to defend a business because litigation is so expensive and it takes so much time that you will die long before it ends. So, in the worst case, if Microsoft or Google infringes on your patent, and you think you can sue them, it will take 5 or 10 years and $25 Mn. You don’t have that much time and money.”
Solution #8 Use Success For Defensibility
You must make the investors believe that it’s the way that you will be operating and scaling in the market, dealing with competition, will make your business defensible. You should convince them that you have the capability to be better than everyone else and you need sophisticated investors like them to understand their product and vision. “That’s the answer to how you will make your business defensible.”
Mistake #9 Hire In Your Own Image
If you are all from the same frat, same age, same experience, it will lead to weakness. Whether the employee fits in the company or not, is a different point of discussion. But if you hire all MBAs because you are an MBA, it will not going to work in long term.
Solution #9 Hire To Complement
One needs diversity in his company, a variety of skills, perspectives and backgrounds to succeed. Instead of hiring people who are your mirror images, you should focus on people who can add value to the company.
Mistake #10 Befriend Your Investors
Venture capitalists are in the business of making money. You are a means to an end. This doesn’t mean that they will want to be your friends or vice versa. Ideally, you get your money, they help you to build a great company, everybody goes home happy and rich.
Solution #10 Exceed Expectations
Rather than trying to be friends with the VCs, you should just always exceed expectations. You tell them that you are gonna get so many users by this date and you should be able to send that number. A very good rule of thumb is that you should take a number, be it revenue, users, whatever it is, that you are 80% certain of. Your job is to raise money from investors, use it wisely, and then return ten times more than they invested. It doesn’t matter if you end up hating one another as long as you meet your deadlines and exceed sales projections.
Guy is also the chief evangelist of Canva, a web-based graphic design tool. Previously, he was an adviser to the Google’s Motorola business unit and chief evangelist of Apple. He has written a number of books including The Art of Social Media (2014) and Database 101 (1991). He is the founder of Fog City Software, Garage Technology Ventures, Truemors and Alltop and have a net worth of $30 Bn.