Are you starting a company? Looking to grow? Obtaining hundreds of thousands or even millions of dollars is not as simple as knocking on the door and asking for money.
Many founders turn to venture capital firms, angel investors or incubators as a source of funding. Obtaining hundreds of thousands or even millions of dollars is not as simple as knocking on the door and asking for money. It takes careful planning and a focus on presenting your request in the best possible light. One that shows you have a serious proposition deserving of the investor's time and money.I work at a startup incubator and review hundreds of pitches a year. Most are on paper and video but some are invited to pitch in person. Over the course of these presentations, some interesting patterns emerge:
Lacking an unfair advantage
You need one killer advantage no one can beat (because you might get beaten on everything else!).
No one said they'd buy it
You don't need statistically significant studies, but it's astonishing how many blaze ahead before they've found even a single person willing to give them money.
Incorrect positioning against the competition
The two faults here are opposites: Believing that uniqueness means competition doesn't exist, or defining yourself by the competition instead of constructing your own message.
No significant route to customers
If your marketing strategy is to run A/B tests and build RSS subscribers, you've already lost.
Every pitch I see has a section on competitive advantages, and nearly every time the claimed competitive advantage is not, particularly when everyone else claims the same advantage as you!
The following are not competitive advantages:
We have feature "x"
This is an advantage only until others copy it, so it's not a long-term protection against competition. Indeed, the next company can observe what works and what doesn't, and then improve on your innovation.
We have the most features
It's common for older products to compete on having more features than newer, competing products. The trouble is, customers rarely want more features, they want the right features. As everyone adds features, products reach critical mass where all have 80% of the features customers want, and then having "more" is no longer an interesting selling point.
We're patenting our features
"No one can compete with my blog because it's copyrighted." Silly, right?
That's what it sounds like when claiming a software patent will protect you from competition. Except in certain industries (e.g. food, drug, medical), I'm unaware of companies who stave off quality competitors through patent holdings. Every mp3 player uses multiple patents, but that didn't stop Apple from winning.
We're better at SEO and social media
80% of Americans believe they are better-than-average drivers. Can't be true, right? Well 80% of folks I meet tell me they're better than average at SEO, Twitter, and "building communities" (whatever that means).
Social media and SEO is ever-changing quicksand. You're on top of Google today, gone tomorrow. Other companies being good—or better—is completely outside your control, so claiming you have a sustainable advantage is poppycock.
We have three PhDs/MBAs
The landscape of successful startups is littered with people lacking post-graduate education. If you've lived in the software world you know what they teach you in school is often irrelevant, so who cares what degree you hold? In all the interviews you've read about founders' success, how many credit their MBA program? How many even have MBAs? It's not bad to have a degree, but neither is it a significant advantage.
We work hard and we're passionate
You hear about guys working 30 hours per week (or less), so you figure if you work a "healthy" 70 hours per week, you'll win! But working harder is not, in fact, smarter. And even if you could work 70 on-task hours per week, that's still blown away by 10 developers at a well-funded company or even 10 passionate open source developers working part-time. And who doesn't have passion? But in this context it's like saying, "My children are going to be more successful because I love them more than you love yours."
It's not bad to be cheaper. The key is you cannot compete solely on price because all a competitor has to do is lower their price. Established companies can destroy you with the "loss leader" strategy. Remember when Microsoft put hundreds of developers on Internet Explorer and gave it away for free, destroying the market for web browsers?
So where does that leave us?
You live in the era of a flat world where millions of people have access to technology, education, and a powerful sales, marketing, and communication platform (the Internet).
You live in the era where the most powerful programming frameworks and tools are free, local broadband and high-availability servers are cheap, and world-class people are willing to work 60 hours/week in exchange for free food and the chance to be part of a cool new startup.
There's too much energy, availability, intelligence and opportunity in the world to hide behind outdated notions of intellectual property. Almost anything can be copied. In fact, I'd claim that anything of any value will be copied. It should be part of your business plan that other people will copy you.
Fortunately there's plenty of ways to have true advantages that competition cannot readily overcome. Unfortunately, they're difficult and rare. And you thought creating and running a successful, untouchable startup was easy?