VI

1381 The tower of London is stormed by rebels who enter without resistance.
1648 The first witch is hanged in Boston.
1775 The birth of the US Army.
1777 The Stars and Stripes is adopted as the US flag.
1789 The mutiny on the Bounty survivors arrive on Timor.
1807 Napoleon defeats the Russian army.
1822 Charles Babbage propose his “difference engine” to the Royal Astronomical Society.
1846 California is proclaimed a republic.
1919 The first non-stop transatlantic flight.
1937 The House of Congress passes the Marihuana Tax Act.
1940 Paris falls to Germany.
1967 Mariner V is launched towards Venus.
1982 The end of the Falklands War.
2010 StartVI starts.

Three questions came up after the last bootcamp session. The third is associated with general selling (this applies to both selling your product and selling an investment in your company – which can be considered as a product).

As a product manager, it was my job to provide sales training each quarter to the new sales reps.  I found that 25% of the time was spent training the reps on the product – but only it’s features, functions and benefits. The other 75% was spent on competition, competitive differentiation and customer objections.

Over time, I’d been called by sales reps with every customer objection imaginable.  (In sales management I’d never accept that a there even *existed* a reason for “not buying”, I’d always turn it around to ”we haven’t yet been able to establish the product’s value proposition”.

(Tip. Use that concept liberally when you are dealing with sales!!!!)

If I was pitching an investor for an investment in my business, I’d start by really understanding *all* of the value propositions that can constitute a “win” for an investor.

Obviously investment size, coupled with your (negotiated) valuation will serve as a basis for establishing the investors return. But I’d also look for all other “value” that can help create a “win”. Being the first, or the biggest, or the one with the most prestigous board, or even the company with the wildest launch parties may represent “value” to the investor, give them a “win” and help sell the deal.

Then I’d have someone try to sell me the investment.  I’d list every objection I could come up with, as to why I wasn’t going to invest. (You be surprised at how, with your inside knowledge, you’ll be able to come up with a very comprehensive list.)

I’d then reverse seats again, listen to the objections, and develop rebuttals to them.  You’ll never get all of them, trust me some really strange objections come out of the woodwork during sales negotiations, but you get a great start.

It also helps when you’ve been in the barrel a few times. Nothing develops sales experience like sales experience!!

Three questions came up after the last bootcamp session. The second is:

“I’ve been talking to potential investors, but keep getting surprised when I think we have a deal. What am I doing wrong?”

Whilst this (and the following post) are way beyond the scope of the bootcamp, it’s worth touching on a couple of points that may be helpful.

“Negotiating” is really just another way of saying “selling”. Selling (as opposed to taking orders) involves some exchange of value between a seller and a buyer, and an explicit or implicit win-win. If the seller can convince the buyer that the value the buyer is receiving is greater than or equal to the value they are giving, then it’s a win for the buyer. If it’s also a win for the seller, it’s a deal!!!

In an investment negotiation the entrepreneur is “selling” the risk-considered value of the return to the investor, and the negotiation is usually around differences in opinion of valuation and risk.  The entrepreneur is likely to have a higher view of the valuation and a lower view of the risks than the investor.

Now, when the investor is a VC, a win can mostly be created when (s)he has a favorable return on their investment, and the points of negotiation are usually valuation and equity position.

But, “win” can encompass more than “return”.

In any buying/negotiating situation, people “buy” for all sorts of reasons; ego, prestige, power, etc. And closing a sale is – to a greater or lesser extent – about understanding what constitutes a “win” for the buyer, that also enables a “win” for the seller.

In an investment negotiation, a “win” can be more that financial return for a VC.  In a down round or a down economy, a “win” maybe an egregious valuation – just because they can!!

Similarly, a “win” for an angel investor can be all sorts of things – power, publicity, position.

And sometimes a “win” for an entrepreneur that’s running out of cash is simply being able to stay afloat.

Three questions came up after the last bootcamp session. The first is regarding P&L’s and their role in business plans and operational plans.

P&L is a set of financials that are required for both the business plan and the operations plan. However they serve fundamentally different purposes in each plan.

In a business plan, the P&L is a 5-year overview of revenue and expenses. The goal is to create a financial picture for investment and exit valuations, and determine cash/investment needs. It’s a very much top-down approach, and I’m perfectly happy seeing it driven from market share acquisition rates. I’m also perfectly happy to see expenses “bucketed” in general accounting categories; like R&D, Marketing, Sales, and G&A and be derived as a percentage of revenue. To do this with credibility, it’s essential to have previous (and possibly extensive) experience with actual business operations to get really comfortable with operating expense percentages. Lacking that experience, an excellent proxy would be to look at the annual reports of your three closest competitors, or companies in the same industry space, and use *their* operating expense percentages as plugs for these values.

Just as a note, that exactly what I look at in due digence anyway.

On the other hand the P&L in an operations plan *is* a real budget!!!  It’s bottoms-up from the actual level you care about. Personally, I don’t care to breakout paper clips or pencils, but rather just lump those things into a general account of “Office Supplies”. And if that is less than 5% of you operating expense budget roll it up into a higher level category until it reaches that percentage. That gives you ~20 expense categories to manage, and ensures you are not majoring in minors.

BTW. Once you have a budget for four quarters, roll that into your business plan, and use it as a base to roll forward your projections for the next four years.