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Nov 17

Strategy Roundtable: Investors Don’t Fund Broad Ideas

Note from Jimmy Hua: Be smart on how you are spinning your business. What you might think would be an advantage, might actually be doing you more harm. People invest is something that is tangible and they can see it happening. A concept with no substances is still nothing.

This post is shared through my Google Reader from another source. All credit of the post belongs to them which you can access by going to Strategy Roundtable: Investors Don’t Fund Broad Ideas

start_chair.pngAt today’s roundtable I had a disturbing experience.

One of the entrepreneurs presented a business idea that sounded like a business-to-consumer concept, but as I peeled the onion, it turned out that the business was really a business-to-business concept. I asked why the pitch was so confusing and all over the place, to which the entrepreneur answered: “I am trying to keep a broad idea so that when I talk to investors, they can decide which way they want to go.”

I almost fell off the chair.

Then, I got very agitated.

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Here I had an entrepreneur telling me with a straight face that he was leaving the most basic business decisions for the investors to make.

Absurd, but most of all it scared me. It disturbed me no ends. I am still kind of rattled today trying to figure out how entrepreneurs can be given some basic lessons on startups and funding.

Folks, if any of you are out there with such naïve ideas, please understand that investors do NOT invest in broad ideas. And they don’t make critical business decisions on your behalf based on some nebulous concepts.

I will not go into the details of the specific discussion any further. Instead, let me talk about the other three businesses we discussed today:

Application Services International

First up was Robert Woltz with Application Services International, whose product EMPAS will provide an on-line low cost solution that benefits medical institutions searching for qualified, credentialed and verified candidates. The medical field has a very high employee turnover rate, with 5 million medical professional employees leaving current positions each year (U.S. Bureau of Labor and Statistics – 37.5% per-year).

To replace them, employers spend $11,500 average per healthcare employee acquisition cost (20% of the annualized salary plus hiring incentives is considered customary for acquisition cost). There is no available simple or inexpensive way for employer and employee to find each other except through Monster-type services.

Robert has come up with a solution to this problem at 20% of the cost of hiring employees through Monster, and has several hospitals signed up to pilot it as soon as the product launches next month. He has a couple of hospitals who have agreed to pay approximately $35,000 annual subscription if they like the product, and another dozen also lined up to try it. He is looking to raise money now, but I must say, his financing strategy made me cringe.

We have to work on that!

Financial Consulting Service

Then Lokesh Parakh discussed a consulting service that he and his five colleagues are trying to pull together in the pre-paid card business, helping non-banking financial institutions launch card services in South Asia. In speaking with Lokesh and discussing his and his colleague’s backgrounds, I sensed that this is a group trying to do management consulting with little or no background.

Whatever background they have is more suited to IT consulting, and I suggested that they become a value-added-reseller of a major card technology vendor and represent them in the South Asian market. Gemalto, the smart card world leader comes to mind as a possible vendor. It might be a much better alignment of skills.

Distribution Channel for Product Companies

Then Amit Gurung pitched a business plan to create a distribution channel for product companies trying to cater to the rural base-of-the-pyramid (BPO) market in India. Amit’s analysis is absolutely on the mark that there is a tremendous paucity of distribution channels for BPO products, but he did not present any information about how he was going to solve this problem. All I could assess that he is bound to face a chicken-and-egg problem – not having enough scale to attract product vendors to use their channel, versus not having products with which to build a customer base. How does he mitigate that?

Since I don’t know anything about the solution Amit has in mind, I just threw an idea out there… why not become a retailer of the same basket of products that he wants to distribute? Buy from the vendors as all retailers do, and see if the chicken-and-egg can be mitigated that way.

I’m also thinking seriously about creating a private (paid) lounge for 1M/1M entrepreneurs who, like Amit, don’t want to share their ideas in a public roundtable. I constantly get requests for feedback from such entrepreneurs, and I recognize that this is an issue. However, it hasn’t been physically possible for me to offer free consulting to such large numbers of people thus far. Nonetheless, increasingly, this private lounge is emerging as one of 1M/1M’s biggest requirements.

For those planning to pitch their business during an upcoming roundtable, please use the Clarify Your Story appendix of my Positioning book to prepare your pitches. While many entrepreneurs find it difficult to answer all the questions in the CYS framework, I strongly recommend that you address the following items in your roundtable pitch at the minimum:

  1. A validated customer value proposition
  2. Detailed segmentation analysis and target customer definition at a fairly granular level
  3. A customer acquisition strategy that is pragmatic, and
  4. We also recommend that you present a succinct summary of whatever customer validation work you have done.

Your roundtable pitch should be no more than three minutes, and consist of four slides. No more. No less.

I started doing my free Online Strategy Roundtables for entrepreneurs in the fall of 2008. These roundtables are the cornerstone programming of a global initiative that I have started called One Million by One Million (1M/1M). Its mission is to help a million entrepreneurs globally to reach $1 million in revenue and beyond, build $1 trillion in sustainable global GDP, and create 10 million jobs. In 1M/1M, I teach the EJ Methodology which is based on my Entrepreneur Journeys research, and emphasize bootstrapping, idea validation, and crisp positioning as some of the core principles of building strong fundamentals in early stage ventures. In addition, we are offering entrepreneurs access to investors and customers through our recently launched our 1M/1M Incubation Radar series. You can pitch to be featured on my blog following these instructions. Recordings of previous roundtables are all available here. You can register for the next roundtable here. All three of today’s roundtable companies will soon be featured on Incubation Radar.

Recordings of previous roundtables are all available here. You can register for the next roundtable here.

Sramana Mitra is a technology entrepreneur and strategy consultant in Silicon Valley. She has founded three companies, writes a business blog, Sramana Mitra on Strategy, and runs the 1M/1M initiative. She has a master’s degree in electrical engineering and computer science from the Massachusetts Institute of Technology. Her Entrepreneur Journeys book series, Entrepreneur Journeys, Bootstrapping: Weapon Of Mass Reconstruction, Positioning: How To Test, Validate, and Bring Your Idea To Market Innovation: Need Of The Hour, as well as Vision India 2020, are all available from Amazon.

Photo by designkryt

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Permanent link to this article: http://blog.jimmyhua.com/2010/11/17/strategy-roundtable-investors-dont-fund-broad-ideas/

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