Traversing the Traction Gap

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Traversing the Traction Gap Page 6

by Bruce Cleveland


  Vlocity Crunchbase Profile

  FIGURE 103

  Note that if a firm hasn’t taken the time to update its Crunchbase profile, then the partner who made the investment may not be named. Therefore, you may need to go to the venture firm’s website to discover which specific partner made the investment.

  Next, make a list of startups that you believe operate in the same market as your startup but you don’t consider to be direct competitors. Now, go into Crunchbase and find out which venture firms, and which partner in those firms, invested in these companies and at which stage they did so. It may not seem so, but this is key information.

  Mid- to late-stage investors, for example, don’t typically invest in early-stage startups. So spending any effort trying to convince those firms and partners that don’t invest at your current stage is a waste of your valuable time. Don’t forget them, however; they may be the first people you want to visit when you reach that later stage.

  Now, you have your initial target list of venture firms and partners and are ready for the next phase.

  Developing Your Message

  Okay, you know the firms and the partners you want to target. What’s next?

  You need to develop a “native ad” for LinkedIn with a compelling visual, message, and call to action (CTA) that encourages your prospective investor to click. It is that straightforward—you are creating attractive bait for potential investors.

  You don’t need a design team or marketing agency to do any of this; the tools you will use are inexpensive, easy to learn, and, in most cases, built into the platform you will use to distribute the ad.

  Your ad always should include a link. Typically this is to the homepage of your website. Better yet, the link can be to a unique landing page that quickly informs your prospective investor about what you do and what you are seeking. This isn’t the time or place to tell your complete story; all you are trying to accomplish is to get a meeting.

  Your digital ad should always include imagery to induce interest and speed perception. At the very least, this should include your company logo and a graphic or image that best represents the market you serve or the product you’ve developed.

  Multimedia is even better. If you have a short video clip that you can overlay with your logo, all the better. Video has been demonstrated to perform better — higher click-through rates —than static images. You can easily purchase all types of stock (‘b-roll’), short video clips.

  Your message should be brief and cogent, and it should compel your prospective investor to want to learn more about you. You don’t need, or want, to tell them everything in the digital ad — that would be overload. You just want them to click on the ad.

  Your message might be something like:

  VC Targeted Ad

  FIGURE 11

  These ads will be seen only by prospective investors who have demonstrated an investment interest in your company’s category. So don’t be afraid to make the initial ask: you can be direct about the fact that you are seeking an investment.

  Finally, your call to action is simple: click here to learn more.

  While you can opt to just take someone to your website — if you have one — you are far better served if your ad takes the reader to a custom landing page that tells the investor exactly what you are seeking.

  There are many low-cost products on the market to develop a landing page, and you can find them in a simple search. Far more important than the medium is the message: what it is you say on your investor-specific landing page.

  Your objective here is to get a prospective investor to meet with you so you can tell your story. So, you want to say just enough to be compelling but not so much that the prospective investor feels he or she knows enough to make a decision about you.

  Here is what your landing page should contain:

  A graphic, photo, or video clip—something that is visually interesting and relevant to what you do, your logo, and your website URL.

  A short narrative about your company — a few sentences that tell the investor: Who you are,

  What category you are creating or redefining [this book as well as the book titled Play Bigger discuss category creation],

  What “big problem” you are solving, and

  Some preliminary results, if you have any.

  Your “digital warm introduction.” This is a positive quote about you or your idea from someone who has credibility (an executive in a notable company or a professor from a good school).

  Your ask—simple. You want to meet with your correspondent to: Tell your story,

  Explain how much capital you are raising, and

  How you will use it to accomplish key objectives.

  The landing page should be written from the point of view of the CEO/founder and provide his or her direct contact information. Keep in mind that investing in your company is personal. You are asking the investor to stake his or her reputation and potentially put their career on the line by making an investment in you. For that reason, raising capital is not a task the CEO can delegate to others.

  Getting Your Ad in Front of the Right People

  Fortunately, everything you will need to execute your ad campaign is on LinkedIn. All you need is a company page.

  Once you have your company page and created your native ad—or a few versions of them—you can use LinkedIn’s LI Audience Network, and its account and contact targeting, to cost-effectively target specific companies and people in those companies with your message.

  These tools allow you to directly target your ads to specific firms and even specific partners in those firms (if you have their email addresses) with LinkedIn sponsored posts. In addition, you can use these tools to target the same firms and people on key third-party publisher apps and websites outside of LinkedIn.

  You also can limit the amount you spend on any given day either from direct clicks (CPC) or ad impressions (CPM). The tools will tell you the typical bid/ask range for similar ad campaigns, so you can budget accordingly.

  LinkedIn Ad Campaign

  FIGURE 12

  Further, these tools offer basic analytics on how your ads are performing — conversions, impressions, clicks, social actions, and what you spend.

  Adding Email to the Mix

  If you want to take your campaign to the next level and make it more effective, you can follow up your ads with targeted emails.

  Companies, such as discover.org, can provide you with the specific email addresses of everyone you want to target. However, these solutions can be expensive and require someone on your team to set them up (as if you have such resources at this point in your history).

  A far less expensive route is to use one or more of the tools such as Clearbit, SellHack, or LeadFuze, along with an intern (or you), to find all the email addresses you are seeking.

  Then you should use an inexpensive app, such as MailChimp, to create a targeted email to every partner in the firm, reference the digital ad with which you’ve been targeting them, and ask for a meeting. Don’t forget to include that “digital warm introduction” you used on your landing page. The reason you want to use a product like MailChimp is that it allows you to easily track delivery and open rates and by whom.

  Venture investing is a relationship business. If you want a 21st-century venture investor to invest in your company and you don’t have personal relationships with that person, don’t rely on 20th-century techniques. Take advantage of these low-cost approaches to get in front of that person by convincing her that even in personal communications, you are on top of your game.

  A few final words here. When you do get that meeting, be sure you are well prepared for it. Find out which partners you are meeting with and get background information on them before the meeting: the college(s) they attended, the places they’ve worked, the startups they’ve invested in previously (type and stage), etc. See if you can determine how many successful investments th
e investor you are meeting with has made; that will determine her “power”—her reputation—within the firm. This is an enterprise sales call, and you need to know as much as you can about the firm and partner(s) you are meeting with so you can tailor your presentation accordingly. And don’t rely on intermediaries to help you raise capital. Early-stage venture capitalists seldom respond well to these groups. Venture investors expect you, not a banker, to figure out how to get their attention.

  3

  THE ROAD TO CATEGORY KING

  The focus of this chapter is on a critical element of market-engineering, “category design”—that is, why trying to compete in an existing category already ruled by a “category king” is fraught with significant challenges. In other words, why “me-too” usually leads to “me-dead.”

  I will provide evidence why a failure to create a new category for your startup—or to redefine an existing one—is a recipe for disaster.

  “In a well-honed category-driven strategy, the company designs the category, evangelizes the problem, offers its solution to the problem, and then the category makes the company its king. . . . A self-determined king that isn’t made by the category is a hollow despot destined to be overthrown at the first sign of weakness.”

  CHRISTOPHER LOCHHEAD, coauthor, Play Bigger: How Pirates, Dreamers, and Innovators Create and Dominate Markets; host, Legends & Losers podcast

  ■

  THE IMPORTANCE OF CATEGORY DESIGN

  So, you have an idea for a new product and/or new company? That’s awesome. Your next step is to realize that ahead of you is a long journey from Ideation to a scalable, successful market-leading company.

  The first critical step in that journey is category design and reaching the Minimum Viable Category (MVC) value inflection point on the Traction Gap Framework. In particular, you must design a new category—or redefine an existing one—by naming it and developing a well-conceived plan to overtake it and then own it. Then, if you expect to survive and thrive as a company, you must install your company as the king of that new sector. This process needs to happen early in a startup’s life cycle. Very early.

  Why is category design so important? Because humans naturally compare and contrast new concepts, ideas, and products against what they already know. We respect novelty, but fear the utterly new. We like to categorize. We need to organize. This innate human talent allows us to quickly determine where innovative concepts and products fit into our sense of the world.

  That’s why, when a company emerges with a new offering, we humans immediately try to determine how it compares with what we already understand.

  If a new company with its new offering doesn’t explain who it is and what it does in an elementary, comprehensible way (what a friend of mine likes to call “in crayon,” to capture the simplicity of this message), then potential investors and customers will attempt to impose their own description on the company. Thus, if the company offers complex products bereft of a simple message to explain them, outsiders will often end up confused and move on to something else less confusing.

  You often hear the term “elevator pitch,” that brief description of a business that can be told to an interested party over the course of a brief elevator ride. Yet you would be astonished how many CEOs—even those of established companies—are unable to give a precise description of what distinguishes their company in the marketplace.

  B2B startups that fail to adequately explain the category they are in find themselves in delayed sales cycles. Even worse, they end up with poor win/loss ratios because potential customers/clients tend to want to buy from existing category kings, even if those products aren’t quite as good, cool, etc.

  For B2C or even B2B2C startups, it’s worse. Consumers will just ignore the new company and its products entirely. That’s because the company/consumer contact (typically over the Internet) is so quick that there is no sales cycle, no opportunity for a human to convince them that they need the product. In an instant, lacking a quick understanding of what is being offered, the consumer is clicking off to another company or product.

  In their ground-breaking book, Play Bigger: How Pirates, Dreamers, and Innovators Create and Dominate Markets, a group of several veteran Silicon Valley entrepreneurs explain how and why “category kings” capture, on average, 76 percent of all profits in their category. And they show why trying to displace a king in an existing category is expensive, time-consuming, and rarely successful.

  Play Bigger makes a compelling and statistically relevant case for why new startups and products must either redefine an existing category or create a new one. So, your challenge is either to redefine an existing category so that the current king is left ruling a deserted kingdom (think iPhone and Blackberry), or it is to create a new category (think cloud computing and perpetual enterprise software) with a large and addressable market and with you as the new category king to rule over it.

  The following are a couple of examples of B2B technology startups. They both understood the importance of category design:

  “When you innovate, you’ve got to be prepared for everyone telling you you’re nuts.”

  LARRY ELLISON, Cofounder, Executive Chairman & CEO, Oracle Corporation

  Oracle was founded in 1977 by Larry Ellison, Bob Miner, and Ed Oates. Oracle was not the first database company. Oracle wasn’t even the first relational database company. But Oracle was the first portable, SQL relational database company.

  Before Oracle, most databases were inextricably linked to the operating system and hardware they ran on. Applications written for one platform were not easily “portable” to another, if at all. Companies experienced “vendor lock-in” once they made a hardware/OS decision and were forced to endure ever-increasing price increases from their vendor because the cost of moving the application to an entirely different platform vastly exceeded the annual price increases.

  Oracle positioned itself as the only commercial, portable SQL relational database with the tagline: Portability. Compatibility. Connectability. Capability.

  Let’s look at each word in the tagline more closely and the marketing message it conveyed to potential customers:

  Portability—Implying Oracle runs on virtually any hardware/operating system combination.

  Compatibility—Oracle supports the industry-standard Structured Query Language (SQL).

  Connectability—Oracle supports connecting two or more databases.

  Capability—Oracle uses a technology architecture that addresses performance with techniques as “row-level locking” versus “page-level locking.”

  Regarding the latter, Oracle’s marketing and sales organization extolled the virtues of supporting a truly relational model (messaging that IBM was simultaneously driving into its customer base, and off which Oracle was able to draft), Structured Query Language (SQL) compatibility, the ability to connect several databases together, and “row-level locking,” the ability to lock and update a single row of data, versus locking an entire page or table in the database. The latter approach—in common use at the time—prevented multiple users from being able to quickly update information contained in the same area of the database at the same time.

  By comparison, row-level locking enabled higher levels of “concurrency,” the ability to support large numbers of users all attempting to update the database at the same time. Brilliantly, Oracle captured all of these technical concepts in a single word: “capability.”

  As IBM marketed the significant benefits of the relational model to its customers, Oracle was able to state that “IBM is right” and that Oracle was 100 percent compatible with IBM’s offerings, but also offered the additional benefit that Oracle could run those applications on any vendor’s hardware and operating system (not just IBM’s).

  By defining in the simplest possible terms what it meant to be a portable SQL relational database, and positioning itself as the only company offering such a solution—the category king, Oracle set itself on
a path toward becoming one of the most influential and successful technology companies in the world.

  “The only constant in the technology industry is change.”

  MARC BENIOFF, CEO, Salesforce.com

  Salesforce develops business software products primarily for the Customer Relationship Management (CRM) category. Salesforce didn’t actually define the CRM category. That distinction goes to Tom Siebel and Pat House, the cofounders of Siebel Systems. Siebel Systems was founded in late 1993 and grew to nearly $2B in revenue in just 5 years from its first product shipment. Siebel is still recognized by Deloitte as one of the fastest-growing companies in US history: more than 750,000 percent CAGR over 5 years.

  At the time Siebel was founded, the state-of-the-art computing architecture for enterprise applications was called “client/server.” This is an architecture in which the client application resides on a user’s local desktop or laptop and the data and other services reside on a remote server. The two then are connected by a network.

  A downside to this earlier model was that each time the application was modified or needed to be upgraded, every user needed to have his or her copy revised. This was a headache for IT personnel, who had to deal with local and remote users who owned laptops and desktops in myriad configurations.

  If you own a smartphone, you are familiar with this concept because you own client/server applications. Every time a mobile app provider modifies its app, you are requested to update your phone’s version via the app store. This similar updating process is cumbersome and difficult to manage in companies with hundreds or thousands of users.

 

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