At Minnebar 17, Jim Moar, a MESA co-founder and current president, spoke in a well-attended session on MESA learnings from over 12 years of mentoring 76 startups. MESA’s five critical startup business needs have shown to repeat themselves, and Jim shared these to help emerging businesses understand what it takes to be successful. Highlights from Jim’s session are edited and condensed.
We know that founders and CEOs of startups have fantastic domain knowledge, but leading a business is typically not a founder’s experience. We know they’re smart people and they can learn on their own, and they will, but the challenge is speed. And speed is critical for any entrepreneur and startup because time is critical. But if you can interact with an advisor or mentor who has “been there, done that” experience – you can speed your learning and ramp up your business success.
At MESA, our five key teaching points are:
- Selecting a first market
- Founder as a 1st-time salesperson
- Path to predictable sales results
- Getting ready to raise cash
- Avoiding cash crises
- Selecting a fast first market
Selecting a first market is really selecting your fast first market. You’re looking for that market that’s going to be fast to adopt your offering. In my mind, it’s not product market fit here, it’s market product fit. You’re looking for a market that’s going to be fast to adopt the product you have, not the product that you will have in the future. The market that sees the need to have features of what you have today – you’re looking for that fit right now.
So, what is a fast first market? It’s one where your product is a need to have, not a nice to have. The challenge is to get your customers to tell you why it’s a need to have. Getting a similar response from the market, where 10 prospects give you consistent validation and respond the same way is better than 20 with disparate answers.
- Founder as a 1st-time salesperson
In our experience, a very high percentage of the founders we work with are from a technical background and as I mentioned, they’re running a business for the first time. And they don’t have the cash to go out and hire a salesperson, so guess who gets to be that first salesperson? It’s the founder. Again – very smart people but selling is something they’re doing for the very first time.
Learning to sell quickly and learning from your prospects is important. In this case – we counsel that the founder needs to not go into great technical detail in a first sales meeting. Tell the prospects enough to help them understand what you have to offer and why they should continue the conversation – but then start asking open-ended questions to get their perspective. What you’re trying to explore is whether they are a ‘need to have’ prospect, and if they can identify the benefits your product brings to their business.
One of the best salespeople I ever worked with said that they hated “maybes.” Take it as your job to weed them out, because a maybe will take up the precious time you have. No’s are good – you learn from the no’s and you’re going to spend the least amount of time on them. But what makes a “yes?” First – is there a champion within that prospect who will take your product forward? Second – how many levels are they from the decision maker? The more levels, the slower the process. And last, do they buy from startups? If there’s no history of buying from a startup, you’re not likely to be first.
- Path to predictable sales results
This Is probably the least understood by most founders. And the reason to do it is if you’re thinking about getting investment money, there is nothing investors like more than having a company come to them when they are already on the path to predictable sales results.
What we advise is getting to a discipline of sales pipeline management as quickly as you can. And this is mapping out the stages of your sales process. Typically, it’s four or five. For example, it can be initial contact, demo, meeting with the decision maker, contract sent, and contract signed. The stages should be logical for your business. What you’re looking for as you build up your pipeline is what percentage move from stage one to two to three, and how long does it take. This gives you “leading metric” insight and data. When you have a sales pipeline discipline you can say for example, “We just had 10 demos this week and we know with reasonable confidence that four of those will convert to contracts in two months.” This also creates an earlier understanding of your revenue-to-sales expense ratio which can be the basis for adding sales staff with confidence.
- Getting ready to raise cash
We often talk with our mentees early in the relationship about their thoughts on raising capital. And the first question is, do you need to and want to? We have many successful mentees that started bootstrapped and still are today – and they are very, very successful. Others have said I need a round A and round B because of the market I’m in and I’m going to need that capital and horsepower to be successful. There is no right answer. But if you want to raise capital, find someone who’s done it. This is a unique area and finding someone who’s been through the good and the bad of raising outside capital will be very, very helpful.
When you’re looking at investors, find out where they play – seed funding, A round, B round compared to your needs. You also need to understand if they play in your market. If they’ve never invested in a FinTech business, and you’re FinTech, the likelihood that you will be first is not very high. Scope this out and then find a few that you can socialize with early, before you go in and do a formal pitch. Begin a dialogue with them, because they want to know you as a person and have confidence in you. They’re also going to give you feedback early.
Lastly, don’t agonize over the percentage of ownership if the cash infusion is critical to your growth. I realize this is a little controversial. But my advice is that if that capital raise is key to explosive growth – would you rather have 40% of a $50 million company or 45% of a $20 million company? The percentage is not what you care about, it’s the dollars. If it takes a little bit of give on the percentage to get that raise and be successful, do it. And it hurts, we know it hurts, but if that’s what it takes to grow and be successful, you should do it.
Getting investor ready
So, what makes you investor ready? Realize that what an investor wants is not necessarily what you want. They’re looking for a 10x return on their money. When they invest in 10 companies, they don’t know which of them will be home runs. And some of them will push you to be that 10x company when that’s hard for you to do. It’s not that they’re wrong, it’s that you should appreciate their orientation.
When you get to that presentation, those first few moments are everything. Your job in those first few minutes is to have that VC think, ”You can do that? How do you do that?” You want them to stay with you for the rest of that presentation because when they’re sitting there, they’re evaluating you. Are you a need-to-have or nice-to-have? Do you have a strong value proposition and is it validated in the market? And in the best world, you’ve got your sales pipeline results to say, if I have this money, I can hire more salespeople and grow. With this data in hand, you help reduce the risk for that investor. Hitting on these points also builds investor confidence in you as the leader.
- Avoiding cash crises
This last one is probably the most obvious. When you start out – you’ve got a great idea, but your business is a hypothesis. You believe that there is a market for your offering, you believe that there are customers, and you believe that you can be profitable. But at the start, it is a hypothesis so being careful with cash is critical. We encourage our companies to do their Excel spreadsheet for revenue projections and then do a projection that’s more conservative and base your spending on the more conservative numbers. Because how many times have you seen those hockey sticks showing hyper-growth achieved?
We have a couple of very successful former CFOs in our MESA mentor group. They say, if you’re running through cash the yellow flag goes up at 12 months of cash on hand. The red flag goes up when you’re down to 6 months of operating cash. You really don’t want to go there, especially if you need to go out and raise more money. Guess who’s got the leverage in that conversation? It’s not you. We encourage people when they’re getting to that point of 12 months of cash on hand, start cutting expenses. Lastly, you can look at hiring part-time staff. Whether you’re looking to get into marketing or add sales, this is a good way to conserve cash.
Those are the five critical disciplines for a startup that repeat themselves over and over again. We’ve learned that over 12 years of mentoring, these are the five that are essential to understand and manage to grow a successful business.
Are you ready for a MESA mentor? Contact us today for more information.
