Five Years Too Late

February 26, 2009

Pitching 101: The Competitive Matrix

Filed under: Pitching — Tags: , — fiveyearstoolate @ 8:21 am
Eric Wiesen

Eric Wiesen

Pitching 101: The Competitive Matrix

In the last installation of Pitching 101 I applauded a company who had applied the best practice of doing research before pitching investors. Today’s chapter is about a practice of which I’m less fond.

As background, it goes without saying that we’re going to want to talk about competition in your space. We’re going to want to have this discussion first because we’re going to need to know whom you’re dealing with as a competitive set, but equally importantly, we need to get a sense of how you think about competition and about your competitors.

To this point, it has somehow become commonplace to include a “Competitive Matrix” slide that looks like this:

competitive-matrix

On the one hand, we get what you’re trying to say – you’re doing something very differentiated and very special. And in a sense, you’re trying to make good on the general investor worldview that if you’re going to compete with incumbents, your offering needs to be not just incrementally superior to them but a significant step forward.

But … come on. We know and you know that in only very rare cases is this slide even remotely accurate. In very rare cases can you legitimately cluster all your competitors, large and small, into the lower-left corner of the competitive matrix slide.

Most investors essentially ignore this slide except for the names of the competitors, about whom they’ll do their own research. At best, it’s a non-factor. But it also looks like you are hiding a scary competitive set of threats through chest-beating hyperbole. And at worst, it signals to investors that you don’t actually understand your competitive challenges. And that’s not something you want to communicate.

My suggestion for best practice is a willingness to have a frank conversation with investors about your competition. Below are some good answers I’ve heard from companies who do this well, answering the competitive question from different angles:

“Yes, XYZ company has raised a lot of money and was a year ahead of us, but they’ve executed poorly, their technology led them down a dead end, and we have won 10 out of 12 customer wins from them in the last six months, which is the real proof that even though they’re the big name, customers are looking for an excuse to leave them”.

“Sure, ABC company is the big name in the space, but they invested tremendous resources in building out a big global platform, and we use cloud services for everything we do. Until and unless they scrap everything they’ve done, we have a major cost structure advantage”.

“It’s true that Google could come around and crush us, but that’s true about almost every B2C web company. We’ve looked at what they’ve done in areas around our space, have talked to people at Google, and we’re comfortable this is not a high-priority area for them. But you’re right, you can never totally control for this.”

Ultimately, if you are really scared to give investors the true answer, and if that true answer is that you’re doing something incrementally better than an entrenched incumbent (or incumbents) or something without a lot of differentiation other than “we’re smarter and will do a better job”, you may be in the wrong business. Investors are going to figure that out whether you tell them upfront or not, but you’re much more likely to get constructive feedback and form a good relationship with investors if you play it straight with regard to competition.

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January 27, 2009

Pitching 101: Be Prepared

Filed under: Pitching, venture capital — Tags: , — fiveyearstoolate @ 8:28 am
Eric Wiesen

Eric Wiesen

Today’s installment of Pitching 101 was motivated by a great recent presentation I saw. The message this time is – be prepared for each pitch. Two young entrepreneurs had been referred to RRE by one of our portfolio companies and we set up a time for them to come and tell me about the business and what they think it can be. These are guys a couple years out of college who have bootstrapped the business for the first year and who have achieved significant proof points while working on the company part-time and holding down “day jobs”.

Separate from the business itself (which I liked), it was immediately clear that these entrepreneurs were well-prepared for this meeting. They were prepared not only to present the business in a systematic, thoughtful way, but they had clearly looked at RRE’s current and previous investments and were prepared to talk about investment themes that we had already explored and where they might be an intersection with their business and its model. They had gone through the bios of the different investors at our firm to see ways in which we might be a good fit for their company, and had even read this blog and worked some of the ways we’ve indicated we like to be pitched into their presentation.

Is it work to do what these guys did, especially if you are pitching a lot of firms? Absolutely. But think about it the other way – you’d prep for a major sales meeting, partnership meeting or other significant line-of-business presentation. When a company pitches a potential investor, you are typically asking to be one of the two to five (depending on fund size) investments that firm is going to make that quarter, and are asking the VC to get involved with you and your company for a period of several years (and potentially as many as eight or nine years, although few want to admit that hold times can be that long). If you come in with a presentation that shows you were thoughtful and prepared, it’s a huge positive indicator of other things we can expect from you.

If you’re wondering what happened, the company doing the pitching isn’t going to be an RRE investment, for a few reasons. On the one hand, it’s not in a sector that’s of particular interest to us. On the other hand, the company doesn’t need very much money, and have quite a bit of their round already spoken for by angels. It would be a very small investment for RRE even if we took the whole thing.

And in most cases that’s where the story would end, but in this case I’ll be actively referring this company to either firms who specialize in seed rounds or to angel investors I think might be interested, because I want to see these guys succeed and because the level of professionalism and preparation for our meeting lends me confidence that I can recommend them to others.

In sum, take an hour to know the person or people you’re pitching. It will improve your odds of getting to next steps with them, and will generally help you form a relationship with that investor that may be helpful down the road.

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