Written by: Andrey Kessel

No obligation conversation

I’ve met a lot of founders feeling upset about someone not investing in their company. Totally understandable. But look at it this way — investors don’t have to invest in your company. Similar to kids in an ice-cream shop, they don’t have to buy until they find the flavour that’s just right and may even walk away. After all they may decide to buy a candy bar, go to a different shop, or wait for another day. How would you feel if an ice-cream shop keeper would get upset with you for not spending your money there? And by the way, there are a lot of shops selling ice-cream, candy and toys to choose from — some investors spend most of their working time going from one to another and comparing. It doesn’t mean that each investor selects the best companies. Many poor investments are made, many great ones are missed (check missed opportunities, aka “anti-portfolios”, first published by Bessemer Venture Partners, https://www.bvp.com/anti-portfolio). But that’s hindsight and in the moment investors try to make their best decisions.

In fact, there are some strong incentives for investors NOT to invest. Fundamentally the same, they differ somewhat for different groups:

· Business angels. The head of one of the European national angels associations told me: “I invest my childrens’ money”. Fabulous framing — by investing angels take money away from their kids. Not an easy competition, is it? Add to that that the angels are under no pressure to invest at all and if they do they can choose any asset — public shares, T-bills, term deposits, etc. Only seeking superior returns and personal self-expression may counter-weight that.

· Institutional investors. This group has to deploy money during the fund’s investment period. If they don’t, it may negatively impact their own fundraising. However, similarly to angels, institutional investors invest someone else’s money — the money that their investors gave them to manage. That comes with fiduciary duty and being able to explain their decisions. Even if they never have to explain anything to anyone, they still need to raise the next fund — and bad investments tend to have very bad impact on fundraising. I’d argue that it’s better to not deploy the entire fund than consistently invest the money badly. The price of poor decisions is very high, often existential. Therefore, although they do have to invest, they are naturally driven to select what they believe to be the better investments.

Looking at it from another angle — investors don’t have a problem with a company until they invest in it. However, after they invested — it´s a totally different predicament, they will almost certainly have at least some problems.

In short, you have to raise investments for your company, while investors don’t have to invest in any one particular company. Hence, assume that a) the default is that they don’t invest, and b) you need to convince them otherwise. You can’t take offense at that. Even those who don’t understand your company and make little effort to do so are totally within their right to put their money where they want to. Turn them into believers or move on to the next bunch.

Greed and fear

I believe this is one of the key dynamics in the psychology of investing.

I asked ChatGPT to write a paragraph on greed vs fear in investing and this is what came out:

“In the wild world of startup investing, it’s like there’s this epic showdown between two heavyweights: greed and fear. Greed, the risk-taking maverick, whispers sweet promises of big bucks and groundbreaking victories, convincing investors that they’re on the brink of the next big thing. On the other side, fear, the cautious protector of wallets, raises a skeptical eyebrow, warning about the wild rollercoaster of markets and the ever-looming threat of financial setbacks. It’s a constant tug-of-war, with investors trying not to get too carried away by greed’s charisma or paralyzed by fear’s ominous warnings. Striking the right balance becomes the ultimate challenge”

Hard to argue. Except I think this is a bit too macro-level when it comes to investors looking at a particular startup. In my view, those two things don’t just fight with each other — at the same time they also work together in the same direction. At first, fear is the fear of making a mistake, making a wrong investment. Which feeds greed — the greed for potential loss of capital. That’s the subconscious starting point of any conversation. If the investment starts looking promising, then the fear turns into FOMO (fear of missing out) and greed turns into craving potential returns. That’s where you want to be.

Come see the lemmings in their natural habitat

I loved this comparison — “investors are like 6-year-old soccer players, all clustered up at the ball.” Everyone wants in on the same hot deals. The flip side is that if nobody is interested, chances are that everyone will be very cautious. We totally can blame the industry for this herd mentality and we would be right. Or we can explain why this is the case — human nature makes us uncomfortable alone in the dark trying to predict the future. We are much more comfortable holding hands in this situation.

But what we think about it is irrelevant. This is the fact of life to be conscious about. That means you need to:

· get as many investors interested as you can. (Well, within reason, of course, but putting a cap on this number is a quality problem to have — I wholeheartedly wish you to suffer from this problem). This, by the way, is not very different from most negotiations, where having options and a lot of interest gives you a much stronger position. Such is life…

· Be super clear about what you need next in your investment process. First you need to generate interest and conversations, then you need to move them into due diligence and so forth. Focus on the next result you need

· And the main point — get someone to move first. Very often this is super hard to do. Everyone says “we like it”, but all seem to be looking at everyone else, so nobody moves to issuing a term sheet. Be brutally single minded about getting that first term sheet. Don’t put anything in a way of it, don’t allow any distractions, clear all obstacles as much as you can. Actions to get to it may differ, so think, think, think (or ask for advice).

Often, once you have a term sheet, you have a tool to turn the greed and fear dynamic in your favour and get others on board. Be shameless about it, use it to the maximum.

By the way, contrary to popular belief, lemmings do not commit mass suicide. They are smarter than that.

Who´s the daddy?

Anyone who has been in sales learns to probe for the decision-making dynamics. Actually, make it broader — anyone who ever interacted with a group of people. Why would you expect investors to behave differently? There is often an official decision-making process, an unofficial “power network”, influencers and the whole shebang. You can’t know all the inside details, but you should at least be aware they exist and try to understand them. A couple of example points:

- Angels vs VCs decisions. Angels most often make their own individual decisions. That doesn’t mean they are not influenced by others, be that co-investors, their successful buddies from the industry or just a friend they go for a pint with. VCs usually have a mechanism for collective decisions, which could be a majority of partners or a unanimous vote. The main consequence is that an angel can say both “yes” and “no”, while in a VC partnership almost anyone can say “no” (including a junior recent hire taking the first look at your presentation) but there is not a single person who can say “yes”. There are, of course, exceptions, e.g. a founding/super-senior partner in a VC shop will probably find a way to do the deal they really want to do. But those are exceptions that bend the world into the same rules.

- Group dynamics. Any group has its own dynamics, with leaders and followers, seniors and juniors, and the rest of it forming an invisible web. That is as true of investor syndicates as it is of VC partnerships. Understanding this could help, not understanding it could damage. You could get fooled by excitement of a junior VC who doesn’t decide much. You could fall for support by a senior partner who is on his way out of the partnership for whatever reason. You may not even suspect that two business angels don’t get along. Or you could be blissfully unaware that the guy who is interested in you is the one calling the shots. I am not even going to go into partnership politics and exchanges of favours, which still exists — you are very unlikely to hear about that unless you have a spy on the inside…

- Career impact. Quality of investments (i.e. company name recognition, financial return, etc) defines VCs’ careers. It is less true of angels, but is still true. Often the best deals are shared by a closed club. To be part of that club often an investor, angel or VC, has to have something interesting to show. Therefore, any investor to a larger or smaller degree shapes his future (career or future opportunities and outcomes) by their investments. You’d forgive them for having that thought in the back of their mind when talking to you, wouldn’t you? A classic example of this is a junior VC who is fighting for the right to lead his first “own investment” while trying to gain weight in his partnership at the same time. Of course, you’d rather be promoted by the founder of a VC shop or a famous senior business angel — if you have a choice, but you don’t always have it. In any case, helping that individual looking good in their own eyes and the eyes of the others (be that colleagues or co-investors) is likely to gain you a friend.

One man’s meat is another man’s poison

A pretty obvious point. Many investors, angels or funds, specialise in particular areas. Drug development is very different from IT, energy is different from ecommerce, B2B is different from B2C. Moreover, all investors (aka people) have their preferences, likes and dislikes. Ice-cream analogy continues to work. If you know someone hates vanilla, you wouldn’t try to hard-sell it to them, right? So, you are better off figuring out if your proposition fits. Of course, there are some that invest in a very broad set of topics, but even in funds that invest very broadly you often have people who specialise in or like a particular sector, stage, etc. There is no harm in asking “what sector/stage do you mostly invest in? what are your typical criteria for an investment?”.

Show me the money!

Small detail — you may want to check if the investor has money to invest. With angels it´s impossible except by asking directly. It’s different for VCs — no institutional investor will tell you they are not actively investing, but you can ask about the vintage of the fund, which tells you where they are in their investment cycle (typical investment period is 5 years). Later in the investment period many funds shift to later stage investing and get more selective since they only have very few “slots” for new investments left. You can also ask how many more new companies they plan to invest in from the current fund. Once the investment period is finished, they can’t invest in new companies until they raise a new fund. So in that situation they will be looking at companies for the future, which can be very soon, in a while or never, depending on their fundraising fortunes.

There is a bunch of other things that you need to know — such as typical ticket size (investment amount), recent investments (when, how big, what kind of companies), etc. Easy to check or ask.

I will do a separate post on innerworkings of venture funds on my blog www.notostartupbs.com

To meet or not to meet?

What if you find out that this particular investor doesn’t have the money now or for some other reason would not invest? Do you still talk to them? Yes. Why? Because they can be an investor later. Of course, if they are a total misfit to you and you can’t see them investing in you ever — then probably not. Or if you have 5 solid term sheets already (but in this case let them know that that is the reason, this would allow you to come back in the next round with a good starting position).

Checklist

□ Get a term sheet!

□ Get a term sheet! (in case you missed it first time)

□ What is your next goal and therefore step?

□ Do you know their investment criteria (sector, stage, size, vintage of the fund, etc)?

□ Do you understand their decision making structure, official and not, including actual decision makers, influencers, investor internal dynamics, etc?

□ Do you understand their personal motivations, what drives them?

□ Always — who else seems close to converting into a believer and making a move?

□ Can you explain what investor gets from this investment? (Dah! Returns. But can you show how it could be achieved, e.g. who could buy your company?)

P.S. I am putting together a simple guide for startups under the working title “No to Startup BS”, which I see as a collection of practical tips. I’ll publish them and I am keen to collect questions that folks would like to get real answers to. Read more and/or ask your question at www.notostartupbs.com

Andrey Kessel

Andrey is a senior commercial executive transforming companies, be that in growth or turnarounds. Business development/sales, growth, restructuring and repositioning, interim management, downsizing, setting up and running operations, helping companies articulate what they do for fundraising or customers. 25+ years with fast-growing companies, work with c.100 companies, multiple exits via M&As and IPOs, c. 40,000 business plans reviewed.

Excellence in Action: Implementing ‘First Class Business with First Class People’ for Sustainable Success

Written by: Michael Hirt

What does “first class business with first class people” mean in concrete terms and how do you put it into practice? It’s about setting high standards for the business you do and the people you do it with.

Of course, as a starting point, you have to take yourself by the nose and make sure your own services and products are “first class” and, of course, your own behavior.

Then it’s about living and radiating this philosophy in your public image, in your market communication, in sales and in every contact with other people, so that other people who are aligned in the same way become aware of you, find you attractive and ideally actively get in touch with you.

What is it about in detail?

First class business

• High value creation for the customer
• Profitable for everyone involved
• Win-win relationships
• Dealing at eye level
• Fair dealings with each other
• Live and let live
• Long-term, reliable cooperation
• Positive contribution to customers and the planet
• Joint growth and development
• Proactive and open communication

First class people

• Entrepreneurial
• Results-oriented
• Focus on joint value creation and opportunities
• Pragmatic and action-oriented
• Courageous
• Morally integer
• Handshake quality
• Reliable
• Fast response times
• Honest
• Long-term orientation
• Relationship orientation

“First class business with first class people” embodies a commitment to excellence in both business operations and interpersonal relationships. For entrepreneurs, this mentality is crucial as it sets the foundation for sustainable success and positive impact.

Entrepreneurs can utilize this mentality by:

1. Setting high standards: Establishing high-quality products/services and ensuring integrity in business dealings.
2. Living the philosophy: Demonstrating excellence in all interactions, from public image to customer communication.
3. Creating value: Prioritizing customer satisfaction and fostering win-win relationships.
4. Maintaining integrity: Upholding ethical standards and fairness in all dealings.
5. Fostering growth: Embracing proactive communication and long-term collaboration for mutual development.

To embody this mentality, entrepreneurs should integrate these principles into their business strategies, operations, and personal conduct. This involves consistently delivering high-quality products/services, maintaining ethical standards, fostering positive relationships, and continuously striving for improvement.

By embodying “first class business with first class people,” entrepreneurs can build a reputation for excellence and attract like-minded partners, customers, and opportunities.

Our lifetime is limited and precious, we should strive for the highest in ourselves and those we work with.

About the Author

Michael Hirt has trained and coached executives, managers, and salespeople throughout the world in the art of negotiating. As a ghost negotiator he advises and accompanies his clients in difficult negotiations.

He brings a wealth of 30 years of experience from different roles and many negotiations: investment banking transactions, mergers & acquisitions, commercial contract negotiations, B2B-sales, proposals and contract negotiations with principals, lawyers, internal legal departments and purchasing departments.

He masters both high concept negotiating approaches and street level tactics. He has first class law degrees from Vienna University (Austria) and McGill University (Canada), graduated from INSEAD with an MBA “with distinction” and attended the Harvard Business School (LPSF).

Written by: Gabriel Barcaru

What key attributes should you look for when evaluating startup potential?

In evaluating startups, it’s essential to prioritize certain criteria before delving deeper into exploration. The methodology centers around assessing key metrics related to individuals rather than solely focusing on the idea or business concept. Individuals are pivotal in shaping the trajectory of startups, as these ventures entail journeys of growth and exploration. Qualities such as a positive mindset, discipline, analytical acumen, and emotional resilience are highly valued. While other skills can be developed over time, these foundational attributes are crucial for success in navigating the challenges of startup dynamics.

What are some common early-stage mistakes that startups tend to make?

In the initial stages of a startup, it’s common for entrepreneurs to be fuelled by their passion, which can lead to actions based on their existing knowledge and beliefs. While diving into action may provide a sense of progress, founders should exercise caution. Without proper guidance and unbiased judgment, they risk depleting resources and becoming entangled in a challenging growth journey. This can lead to anxiety and impulsive decisions. Venturing into uncharted territories without prior experience should be done with the support of experienced advisors.

What trends have been noticed in startup directions recently?

While there isn’t a particular direction that’s universally advised for startups, there are noticeable trends. Many startups are prioritizing solutions to substantial human and societal issues, often leveraging technology to facilitate their initiatives. Those contributing to advancements in artificial intelligence and digital technology are often viewed as highly investible and future-proof. Moreover, over the past decade, both B2B and B2C startup models have evolved, offering increasingly sophisticated solutions tailored to address market and consumer needs more effectively.

Which industry do you find more successful to operate in based on the current landscape?

We are industry-agnostic — which means we can support any startup from any industry. But the ones that benefit more from our capabilities are the ones operating in the B2C arena. Compared to the B2B models, where most of the time there is a system or a process that makes decisions, in B2C business models, people are the ones that make purchase decisions. Here is where you can find the value add by measuring human behavioural metrics, understanding why people do what they do, and helping startups transform growth from a costly trial-and-error exercise to a predictable and measurable journey.

What are the top traits that startups should have to be more appealing to investors?

Investors put their money in people and their ideas if the growth is realistic, measurable, and scalable. We meet founders from 20 years of age to 60 years of age. Honesty is one of the things we respect the most when we meet them. Being honest helps others to build trust. Another focus is on scalability — scalability is not about handling the present opportunities but also future opportunities; it is about analyzing risk as well, without requiring significant rework of the entire business system.

Do you have any piece of advice for startups that are trying to navigate the current environment and introduce themselves to investors?

Startup businesses and their teams must have a scalable business model and a simple, functional strategy to be ready to meet their investors — they should master the pitching, and negotiation, have a well-structured deck, and understand their ideal investor profile. Founders should have answers for their legal compliance, business model, competition, market, marketing, sales, operations, and risk. When meeting their investors, founders should be ready to balance the need for capital and the offer and negotiate for a win-win situation.

About the Author:

Gabriel Barcaru is the founder and one of the managing partners of BRIDCON, a business and management consulting company based in the UK.

In this article, Gabriel is sharing insights into the significance of the people involved in startup journeys and the purpose of the startups. As a business mentor, strategic advisor and investor, Gabriel addresses the top traits that start-ups must have to attract investors.

Written by: Winnie Jiang, Claire Harbour, and Antoine Tirard; previously published in INSEAD Knowledge

Businesses need to do more to level the playing field for socioeconomically disadvantaged workers.

Growing up playing in the mud around Manila’s rice fields, Joy was blissfully unaware of the fact that she was poor. Her father was a farmer and her mother a bank worker, enduring an existence they hoped their daughter would escape.

It was only when she received a scholarship to a top university in Manila that Joy realised just how poor she was. Despite this obstacle, she found the more she mixed with fellow scholarship and international students, the more her confidence bloomed. As her self-belief prospered, it kindled her ability to dream.

When Joy was selected to join Nestlé’s management trainee programme, she had to take on a part-time job to support her extended family. In her second company, Mondelez, she finally felt free. After a foray into multi-level marketing left her saddled with debt, Joy dusted herself off and returned to corporate life with renewed confidence.

Currently an MBA candidate on full scholarship at INSEAD, Joy is still plagued by imposter syndrome. But she keeps her head high and takes it all in her stride. Even if she doesn’t know what her next destination will be, Joy knows she has “arrived”.

An invisible hurdle

People like Joy, who have had less access to money, opportunities and cultural capital, face multiple workplace barriers.

Socioeconomically disadvantaged workers often face discrimination in the recruitment process or exclusion from promotions and advancement opportunities. When they do get a foot in the door, they report experiencing harassment and discrimination because of their social status.

Workers from humble backgrounds have a huge invisible hurdle to clear and there is little assistance to help them get on or move up the corporate ladder.

While global organisations are finally paying attention to gender, racial and ethnic inequalities in the workplace — and to a lesser extent sexual orientation, disability and age — little is being done to address social diversity.

A recent study found the chances of landing a managerial role are 32 percent lower for people from lower social classes compared to people from higher social classes. The same study found the odds of becoming a manager are 28 percent lower for women than men and 25 percent lower for African-American than white workers.

People-oriented leaders

But individuals from disadvantaged backgrounds have proven to make better leaders because they value interdependence and community over independence and self-sufficiency. This is a key finding in a working paper by Winnie Jiang and Amy Zhao-Ding on underprivileged female Chinese founders. The majority of participants in this study became people-oriented founders with a keen interest in empowering their employees.

Born and raised in rural, underdeveloped areas in China, the women interviewed did not possess the social, cultural and educational resources needed to start a business on their own. Nor did they ever envision themselves becoming business owners.

After they were given the opportunity and support to start their own businesses, these women either came to identify themselves as founders or gave up on their dream.

In the beginning, participants exuded excitement and hope as well as anxiety and self-doubt when imagining themselves as founders. Those who fixated on the potential negative outcomes became paralysed by fear and, as a result, were unable to fully identify themselves as founders.

However, the majority were able to abate their negative emotions, focus on self-improvement and respond with positive emotions such as a sense of competence and confidence. These individuals developed founder identities and transformed their sense of self.

Ultimately the success of these female founders depended on whether they were able to constructively regulate their negative emotions, especially fear of failure and self-doubt. The same is true for Joy, whose confidence helped her rise above her circumstances.

Addressing social disparities in the workplace

What if school curricula from the early years were to focus more on building confidence of each individual? We believe that, by the age of 14, every pupil should be able to tell their story with pride, regardless of origin, and to build on the facets of that story that make them a unique and powerful individual.

What might happen if universities went out of their way to recruit outstanding students from difficult backgrounds? What if higher education establishments took career development more seriously and connected hundreds and thousands of brilliant individuals with work opportunities that suited their needs and true selves?

More pragmatically and immediately, we should be aspiring to facilitate awareness and understanding of the business world for those from disadvantaged backgrounds.

For business leaders, these are the five actions you can take to resolve social disparities in the workplace:

1. Become a mentor of less socially advantaged youth, whether through your organisation or local community.
2. Break the bounds of traditional recruitment, look to a broader talent pool in your recruitment and challenge entrenched recruitment models organisation-wide.
3. Reach out to local high schools to expose the opportunity of working in your organisation and its inclusive approach.
4. Get to know your team members at a deeper level, including their personal stories.
5. Create formal and/or informal DEI-focused mentoring initiatives within your sphere of influence in the organisation. Ensure participation from all minority groups and encourage both mentors and mentees to listen and learn.

Beating the social odds is no easy feat, and the scars may never leave those who dare to dream. At the end of the day, we all need to be a little more observant of how those around us may be struggling to fit in and make an effort to open our arms and our minds.

Read an extended version of this article.

About the Authors

Winnie Jiang is an Assistant Professor of Organisational Behaviour at INSEAD. She studies the dynamics of meaning-making at work, work as a calling, career mobility and transitions, and personal and professional development.

Claire Harbour is a global talent expert, focused on coaching and consulting across borders, and stirring up disruption.

Antoine Tirard is an international talent management consultant, trainer and coach to large global organisations.

Edited by: Katy Scott

Written by: Elie Shuggi

Over the past two decades, the term “Product Market Fit” (or PMF) has become one of the more prominent marks of a start up’s success, but it’s not only start-ups that are focussing on PMF, more established businesses on their own transformation journeys also look at PMF as a way to define success.

Although there are varying definitions of PMF, the general theme is one of strong customer advocacy and product “stickiness”. If your customers love your product, and hang around, then you’ve reached product market fit. Easy, right? Not so fast.

Finding PMF is hard, really really hard. Companies spend untold sums of money, time and effort with the aim of achieving this milestone.

Whether it’s start-up investors using PMF as a trigger for another round of funding, or a change agent building the next revenue stream in an enterprise business, how you measure PMF is incredibly critical. The pressure on product, innovation and engineering teams to deliver PMF can be intense, and as a result, teams sometimes lower the PMF “bar” so they can reach PMF faster.

I’ve seen companies measure PMF through surveys, Net Promoter Scores, attrition rates, or simply time spent in product. These are all excellent data points however I feel like they’re akin to asking airline passengers about meal service and legroom, very important feedback, but academic if the plane can’t take off because it’s too heavy.

Genuine, holistic Product Market Fit needs to measure a Product’s results against its ultimate outcome and for the vast majority of Products, that means commercial success and the use of financial metrics.

Much like a plane requiring more lift than weight to take off, Product Market Fit is reached when the revenue generated by a product is more than the cost to acquire and service that revenue.

I.e. Revenue >= Costs (Sales + Marketing + Support + Operating)

For example, if a SaaS product brings in $1,000,000 a month, and the combined cost of sales, marketing, support and operations is $999,999 you’ve reached Product Market Fit. 🙌

If this seems overly simplistic, that’s because it is.

It’s also important to note that a product shouldn’t have to cover overheads, fixed or sunk costs to achieve PMF although over time; scale, new features and optimisation should mean margins become large enough for a product to drive overall profitability.

Although I’ve explored other approaches over time, I keep coming back to this definition for any Product whose primary objective is to be commercially viable. Why? Because it’s universal, doesn’t require a deep understanding of Product development and, when you follow the thread, is ultimately the goal of every product strategy or metric used. Just as importantly, it provides the most objective way to make trade-offs between customer delight, technical feasibility, and financial return.

Want to make customers happy? Excellent, build what customers want and they’ll pay more and stay around for longer. But what if what they want is really expensive to support? Well, how much more are they willing to pay?

Should we build a widget for our number one customer because they’ve asked for it? Interesting… will they leave us if we don’t and will they pay us more if we do? Could we sell it to other customers? What’s the opportunity cost of having our team work on that widget vs our other opportunities?

The discussion and debates Product teams need to manage are often fraught with politics and can even get personal (and collapse) if business leaders don’t create safe and authentic spaces to have them. Strong personalities pushing self-interest and the chronic prioritisation of quick-wins over longer term roadmaps can lead to a wayward Product direction and ultimately failure.

However, objectively distilling these debates into a financial equation can help de-personalise decisions and align stakeholders and businesses to their north star. Once again, a holistic Product Market Fit defined through financial metrics can make this happen.

Revenue >= Costs (Sales + Marketing + Support + Operating)

Don’t get me wrong, positive surveys, NPS scores and attrition rates are all very important, however, in my experience, they don’t equate to Product Market Fit.

I’d love to hear from fellow product leaders. Do you agree? Disagree? Is there a definition of Product Market Fit that’s worked for you?

About the Author:

Elie Shuggi is a seasoned Digital Product and Technology leader that has successfully scaled start-ups and transformed large scale enterprises both in Europe and Australia (where he resides). He is currently the Chief Product Officer at TrafficGuard, a digital ad-fraud prevention tool for marketers.

Written by: Andrea Monti

The impact and sustainability startup ecosystem is becoming more and more a dynamic and rapidly evolving landscape, where technology and innovation are driving positive social and environmental change. The Impact Investment market was recently estimated at 1.2 Trillion: the industry has evolved significantly and continues to mature in a world that has not fully recovered yet from the COVID-19 pandemic and is still fraught with social tensions, climate crisis, and inequities (economic, social, gender and racial).

Let’s remark here what we mean for Impact Investments: Impact investments are investments made with the intention to generate positive, measurable social and environmental impact alongside a financial return.

Looking at the investment in startups only, while in 2022 they decreased less than investments in traditional startups, estimates for 2023 are showing more similar negative trends between Impact investments and “traditional” investments in Ventures (source Dealroom):

Notwithstanding this, few events are showing more and more opportunities and demand signals for inspired, Impact entrepreneurs, and the outcomes of COP 28, where nearly every country in the world has agreed to “transition away from fossil fuels” — the main driver of climate change — are there to show that change is possible and might be embraced together, globally.

In this context, from one side we should worry because of slower impact investments, in times when Sustainable Development Goals are slipping out of reach: none of the 17 SDGs is on-track to be achieved by 2030.

On the other hand, though, billions of new funds have been raised in last two years, and a lot of dry capital is still available. On top of that, Impact entrepreneurs’ ability to achieve different funding sources than VC might be above average in the next years, thank you to public programs and other sources of fundings. See for example what is happening in Climate tech:

That’s another reason of why also “traditional” Investors are looking more and more into Climate Tech companies and Impact Tech Ventures in general: Impact Tech Ventures make profits, while, solving some of the big challenges of today’s world, so the dichotomy of impact vs. non-impact could soon be no more valid.

But is investing in Impact Start-ups different?

Not necessarily. Investors have specific thesis and objectives they want to see obtained by the targets they invest in:

• For individuals and LPs of a VC fund, equity investments are usually the most risky part of their portfolio: they accept some risk in exchange of returns above other asset classes, whether they are impact or non impact ventures;
• Investors have a specific vision about the industry they are investing it, to boost it or gain from its current growth: if an Impact Venture is disrupting that industry, it could be a good target;
• Angels also might have a “social” objective: make them feel that they are contributing to society with tech and Impact.

So why should we care about Impact Ventures?

Startups play a crucial role in driving innovation and solutions to social and environmental challenges. They are often at the forefront of developing new technologies and business models that address these challenges while also generating financial returns.

The impact and sustainability startup ecosystem is poised for continued growth and innovation. The convergence of impact investing and ESG investing is creating a more holistic approach to responsible investment, where both financial returns and positive social and environmental impacts are considered.

As investors, policymakers, and entrepreneurs work together, the impact and sustainability startup ecosystem has the potential to play a transformative role in addressing global challenges and building a more sustainable and equitable future.

Additionally, the learning and improvements in measuring the Impact produced make Impact startups more and more credible: accurately measuring and tracking the impact of investments is essential for both impact investors and ESG investors, and the development of standardized impact metrics is crucial for consistent and comparable measurement.

By embracing these practices, the impact and sustainability startup ecosystem can continue to advance and contribute to a more just and sustainable world and attract even more funding.

I had the privilege of working with some of such changemakers, and they are at the forefront of financially sustainable businesses creating long lasting Impact, here is some name to look at:

• TotalCtrl’s vision is to revolutionize the food industry by eliminating food waste, increasing food traceability and ensuring a circular food system. The company has developed an award-winning technology (35 awards in 4 years) replacing the use of pen & paper to get control over food inventory (bridging the cap between procurement and sales).
• Earthly connects businesses to high-quality nature-based solutions that remove carbon, restore biodiversity & support local communities. The company’s platform uses data and machine learning to help businesses reduce their carbon emissions and improve their sustainability. This could help to address the climate crisis and create a more sustainable future for everyone.
• SatSure is a company that is developing a new way to monitor and manage crops using satellite imagery. The company’s platform uses AI and machine learning to analyze satellite imagery and provide farmers with insights into their crops. This could help farmers to improve crop yields, reduce water usage, and increase profitability.
• Inuka Coaching is a company that provides personalized coaching services to individuals and teams to help them achieve their goals. The company’s approach focuses on helping people develop their strengths and overcome their challenges through a combination of coaching, mindfulness, and self-awareness exercises.
• Digipharm facilitates outcome-based healthcare contracting using Blockchain, AI and associated technologies, providing solutions for healthcare providers and patients to improve access to medical services and improve patient outcomes.
• Munidigital is a company that provides digital solutions for municipalities to improve their operations and services. The company’s platform offers tools for citizen engagement, online payments, and data analytics to help municipalities become more efficient and responsive.
• Revisely is an AI-powered writing assistant that helps professionals improve their writing by providing real-time feedback and suggestions. The tool analyzes grammar, style, and clarity, helping writers to produce clear, concise, and error-free content.

About the Author:

Andrea Monti is a Director at the Founder Institute and ambassador at Top Tier Impact. He is a passionate advisor and change-maker in the Impact Tech ecosystem

andreamonti.info

By: Jeff Schaffzin and Sanjit Singh

Part 1: Introduction to the Marketing Roadmap

By: Jeff Schaffzin

Introducing ICPs and Personas

While a company progresses towards launching their first product, their marketing organization should be diligently working to ensure the successful rollout of that offering. Prior to commencing development, the company should have defined their initial Ideal Customer Profiles (ICP) as well as their personas.

As the name suggests, an ICP is a fictitious description of a hypothetical company / companies on which to focus your marketing efforts. In early stage companies, these organizations would be recognized for their high potential lifetime value (LTV) and would be less likely to churn, or leave your brand for one offered by a rival.

Some key attributes to consider when developing your ICP include:

• Industry (B2B)
• Company size (B2B)
• Business model (e.g. B2B, B2C, SaaS)
• Estimated revenue / budget
• Geographical location / region
• Pain points
• Tech stack (B2B)

These ICPs are often developed based on their level of pain as well as their willingness to acquire an offering to address their challenges. Depending on the stage of development, it’s important to experiment to validate this.

After defining your ICP/ICPs, you should also identify your personas. For the purposes of this document, a persona documents the ideal individual(s) who would either buy your product or even be involved in the purchase process, like an influencer.

Personas are defined by thoroughly researching key details of an individual such as:

• Demographic information — the “who” you are targeting (e.g. age, gender, income, level of education)
• Geographic information — the “where” (e.g. state, region, country)
• Behavioural information — the “how” (e.g. purchasing history, beliefs)
• Psychographic information — the “why” (e.g. lifestyle, social status, activities, interests)

This information is gathered through various sources like surveys, focus groups, landing pages, and other outlets to define a composite, or 360 degree, “view” of an individual.

Determining Product-Market Fit

Once a company defines their ICPs and personas, the results can be used to validate the proper market for your offering. This is also known as defining one’s “product market fit”. If a company fails to establish this, it will struggle to stand out from its competition. Typically companies go through four milestones to determine this:

1. Proof of Concept — when support is gained from internal stakeholders, this is when one part of a complete system is developed. Typically companies will have multiple POCs to test different components of the offering.

2. Prototype — when questions are answered such as how it will be accomplished, how it would look, as well as how it will be used. This usually includes some or all of the following:

• Wireframes / screens
• Product specifications
• Planned featuresd
• User flows

3. Minimum Viable Product (MVP) — when the Minimum Viable Product is actually created which determines the answer to one crucial question — “Would consumers buy this product?” Typically this takes a three stage approach — build→measure→learn where iterations are used to improve the product’s functionality

4. Product Market Fit (PMF) — when you have an offering that addresses the need of your ICPs / personas. Depending on the complexity of the product, product market fit can be determined by something as simple as a survey given to a sample of your target customers, though this may happen as the company continues to evolve.

Product-Market Fit (PMF) has multiple definitions depending on who you ask. For example, Brad Felds suggests that year-over-year growth rates to be more useful than specific amounts. These include (in reverse order):

• > 100% YoY growth = high valuation / 10x revenue. You have absolutely achieved PMF.
• 50%-100% YoY growth = holding steady / healthy valuation. You are making solid progress towards PMF.
• < 50% growth = tripwire, bells, and whistles. Warning!
• < 20% YoY growth = investors…help!
• < 10% YoY growth = no semblance of product-market fit

Product-Led Growth vs Sales-Led Growth

As a company continues to evolve, its leadership team has a number of important decisions to make. One key decision, especially for SaaS companies, is related to their go-to-market strategy. This strategy helps you shape not just your product and customer experience, but your business and sales processes as well.

One popular approach is a Product-Led Growth (PLG) strategy. As the name suggests, a PLG-centric strategy uses your product to drive business as well as revenue generation.

Using such an approach typically offers customers a self-service model — one where prospects experience and learn the products on their own through free trials or even a “freemium” offering. A freemium product is one where a company offers basic features for free and are heavily incentivized to upgrade to paid versions of their product. This approach is ideal for companies at the Product-Market Fit stage as it can boost growth and build your brand while providing ample opportunities to collect user data as well as opportunities to get a larger audience to test your product. Companies like Dropbox and Slack (now owned by Salesforce) use this method to bring their products to market.

There are a number of benefits associated with using a Product-Led Growth approach. These include:

• Larger Top of Funnel (TOFU): Companies that use a product-led growth strategy often attract larger numbers to your product who sign up via landing pages to start their trial. That being said, it’s important to remember that having a high acquisition rate does not ensure high retention so the product needs to be engaging enough using mechanisms like in-app messaging or a guided tour to aid in upselling to a paid version of your offering.
• Lower Customer Acquisition Cost (CAC): It’s hardly surprising that the cost of using various marketing channels to attract, nurture and convert users continuously increases over time. When you couple that with the fact that customers typically don’t enjoy being sold to, using a freemium approach provides a frictionless acquisition strategy that also helps with experimenting with and tracking different marketing strategies.
• Higher retention rate: By providing your consumers the ability to actually be “hands on” with your product, they can quickly discover the value versus a more sales-driven approach. While this can be a strong benefit, it also forces a company to constantly innovate to motivate these individuals to actually purchase an enhanced version of the product.

On the other hand, companies that offer more complex products and target enterprise organizations likely use a Sales-Led Growth (SLG) approach. When companies leverage SLG, customers are guided via a formal sales process such as what’s described below.

There are a number of benefits associated with using a Sales-Led Growth Approach. Some of these include:

• Simplified onboarding: Since a sales-led approach requires the use of someone like a Sales Development Representative (SDR) or Business Development Representative (BDR), prospects are guided through the functionality of the product, avoiding potential issues which may arise when using a product-led (self-directed) approach.
• Facilitated large-scale (“enterprise”) sales: When using a sales-led approach, companies can leverage their sales teams to target larger groups of users or even different groups inside the same company. When done effectively, this can make selling to larger organizations much easier — especially if they have similar needs.
• Improved engagement / feedback gathering: Due to the interactive nature of a sales-led approach, sales teams are able to gather feedback much more effectively as opposed to waiting for individuals to provide feedback. As a result, a company’s marketing and product organizations can make the necessary changes and share the results faster than through a more product-centric approach.

Part 2: Introduction to the Sales Roadmap

By: Sanjt Singh

Business Development

No discussion of growth is complete without a mention of business development. Founders often overlook this approach as they contemplate their Go-To-Market (GTM) strategy. Business development is the activity of pursuing strategic opportunities by cultivating partnerships or other commercial relationships, or identifying new markets for its products or services.

So, for example, a large company in your space with a complimentary product might be a good candidate to distribute your offering. This scenario might be a strong win-win since you have a hot new product they lack and they have hefty sales and marketing muscle that you lack. Before pulling the trigger, just remember to weigh the pros and cons and carefully define all aspects of the partnership. So pursuing business development opportunities helps you build multiple sales channels to help you grow faster.

The Handoff

Congrats! You’ve set up the basics of your marketing pipeline and now have leads coming inbound to your website. This is the official “handoff” point from marketing to sales.

Inbound — Speed to Lead

The next thing you need to do is ensure that every inbound lead automatically triggers an immediate notification to a Sales Development Representative (SDR), alternatively called a Business Development Representative (BDR), or to you if you haven’t yet hired an SDR. A critical metric that you’ll want to monitor for this step is how fast your SDR responds to the lead, aka “Lead Response Time” aka “Speed to Lead”. It is very important to keep your Lead Response Time as short as possible and definitely less than 5 minutes. Why? Because sales conversions increase by 391% if you respond in the 1st minute and decrease by 80% if you wait longer than 5 minutes. Also, 78% of prospects buy from the first responder.

Book a Sales Appointment!

Inbound

When responding to a lead inquiry, an SDR’s goal should be to book a sales appointment for an Account Executive (AE), or “closer”, any lead that is suspected to be worth $3K+ ARR and to send all other leads to a self-service pathway (see earlier discussion of Product-Led Growth (PLG). Why? Because unit economics generally don’t pencil out when you involve an AE if the annual revenue is less than $3K. Ensure that SDRs are properly trained in the art of booking a sales appointment. Here’s the crux of this art: the SDR needs to resist the natural temptation to start answering questions and instead focus on booking the sales appointment. You may ask, “Why should the SDR not answer the prospect’s questions?” The answer might seem counterintuitive. It is possible to answer just enough of the prospect’s questions to put them in a position where they feel like they have enough information to make a buying decision when, in all likelihood, they do not. For example, the prospect may ask about price and the presence of one or two features. Your SDR answers their questions to which they respond “thank you” and hang up. Then they visit Competitor A who does a full discovery of their needs and timeline, shows them how they can meet each one of those needs, and books a follow up call with their key decision makers. Knowing this, are you happy with the way your SDR handled this prospect or with the way Competitor A handled this prospect?

Build and Use Your Network

What do you do if you don’t have enough inbound leads to meet your goals? Don’t worry as this is often the case for early stage companies. Also, if you’re pursuing large enterprise accounts then they often won’t drop into your lap conveniently as an inbound lead.

The best solution to start with is by intelligently using your network. First, ask yourself, “Have I connected on Linkedin with everyone I know?” If you’re in an incubator, you need to connect to everyone in your cohort, Slack group, mentors, and advisors. Second, you’ll want to get a subscription to Linkedin Sales Navigator. Once you’ve maximized your 1st level connections on Linkedin, that means that you’ve dramatically increased your 2nd level connections. Since the average number of connections for someone on Linkedin is 750. So this means that every 10 people in your 1st degree connections yield 7500 2nd degree connections. We’re now going to leverage these connections to make sales.

The first thing we need to consider is whom to pursue with this approach. In an earlier discussion, Jeff wrote about finding your Ideal Customer Profile (ICP). If you’re pursuing companies (B2B), then your ICP would include firmographics, i.e. filters for target companies, and personas, i.e. filters for target people at your target companies.

You can set your filters on Linkedin Sales Navigator (see illustration above) to search for target people at target companies who are 1st or 2nd degree connections. 1st degree connections are easy — you simply reach out to them directly. If they are 2nd degree connections, you can ask for an introduction from your 1st degree connection. This is also the best way to connect to your target investors. There is nothing better than a warm introduction!

Outbound

Another solution to insufficient inbound leads is by utilizing outbound methods such as “cold” Linkedin outreach, “cold” email outreach, and “cold” phone outreach. “Cold” means that you have no warm introduction so you’re approaching them from out of the blue. Some might put this method in the category of marketing and others might call it sales. As with many growth methods, the line between marketing and sales has increasingly blurred over the last few years.

If using Linkedin, you would simply follow the same process I outlined earlier only without the benefit of a warm introduction. If using email, you can utilize tools like Outreach to manage this process. Phone outreach is the least optimal since it’s become quite difficult to reach people directly, especially post-pandemic. When approaching people over Linkedin and email, it’s best to follow a “cadence” where you write a series of 8–10 messages over the course of a month or two. Also, it is best not to start by trying to sell your solution, but rather to spend the first 80% of your messages to provide thought leadership or educational content that would be of interest to your prospect. Then you can send a note giving them a chance to schedule an appointment if they would like to have a deeper conversation about solving some of their problems.

Like Marketing, Sales is a big topic so I’ve only covered the basics here but feel free to check out my free YouTube channel, free TikTok channel, or Sales for Startups course that includes 1-on-1 coaching sessions.

If You Need Help With Day-to-Day Execution

We hope that this roadmap playbook has been helpful. If you still need help, both of us have “fractional” practices and can help you with developing strategies or leading day-to-day efforts. Feel free to reach out to us using our contact information below. We wish you all the success!

About the Authors:

Jeff Schaffzin

• Fractional Chief Marketing Officer & Corporate / Product Strategist
• Genysys Group (Silicon Valley)
• LinkedIn

Sanjit Singh

• Fractional Chief Revenue Officer and Fractional COO
• Boltt
• LinkedIn

Fundraising — what do you need to convince investors of?

Written by: Andrey Kessel

Startup fundraising is a super broad topic, which is impossible to cover within any reasonable number of words. So, my goal here is to give you a couple of practical takeaways for your fundraising pitch.

Step 0 — mental warm up

First job — pull yourself out of day-to-day tasks. Yes, they are the scary mountains that keep you awake at night. But many of them are totally meaningless to people who see your idea for the first time. They are light years behind you in the understanding of your segment, proposition, features, etc. And some of them are really comparing apples and oranges (“I invest in IT and biotech”). Your job is not to communicate everything — it is to present a convincing-looking apple or orange in an understandable way. Try to step two levels up from what you normally do every day.

So, what do you need to convince investors of?

It’s very simple and boils down to two things:

• There is a big (ideally massive) opportunity in what you do
• Your team is positioned well (ideally uniquely) to grab this opportunity

That’s it. Send them the bank account number and, depending on a country, the money will arrive in 1–3 business days. That is — after you spend months trying to find the investors who understand you and then convincing them of these two things…

An important addition — before you can convince them, you need to learn to explain. And explain simply — they say “your grandmother should understand it”. In first meetings, investors are notoriously short on time and have super fickle attention, so they are not so different from most grandmothers. OK, “grandmother” may be a bit of a stretch, but a “normal” friend or a sibling should be able to get it.

Opportunity

It used to be “we need a billion-dollar market”. These days many VCs treat single digit billion-dollar markets as chicken feed and want tens of billions, if not more. Most often you can’t change the market you are in. But, by reframing things you often can show much bigger numbers — and they would be true. One of my most memorable moments is when a team of very senior execs realised that their market size is not $3bn, but $800bn. What followed was a minute of silence with an almost audible sound of a penny dropping and a question “does anyone think that this is not true and we are not addressing this larger market?” Nope, nobody. They indeed were addressing a much larger market, but never framed it this way before. All of a sudden, they were working on a potentially much bigger company. I bet a thought of the value of their shares crossed a couple of minds at that moment as well.

Opportunity is not only about the size of your market. It also includes things like market trends, customer need, willingness and ability to pay, and whatever else makes sense. It’s a combination of these things that points to a simple truth — “there is a lot of money waiting to be made in this”.

We can grab it

While this point is conceptually as simple as they come, it can take any number of shapes.

One mandatory component is demonstrating that you, as a team, have what’s needed to execute on a plan, adjust it when required and ultimately get to a good result. This includes very obvious things such as experience, relevant expertise, knowledge of the market, ability to execute, your history, etc. To believe in success, one has to believe that the team can pull it off. “Class A team with class B technology will beat class B team with class A technology every time” is a common cliché. Mostly true.

In early stages you are unlikely to have a perfect team, but you should know what the gaps are and how you could plug them. That’s where having some advisors, current or potential board members, that have deeper expertise than you could be helpful. The message of this is two-fold: 1) we are benefiting from their expertise and 2) very credible people (e.g. execs from the industry with many years of experience who built big companies) believe in us. If you have some angel investors from this category — all the better. Many VC funds will make reference calls to these people to gauge how real their interest and involvement really are, so this has to be real. I’d also argue that it actually has to be real for your own benefit — there is no point surrounding yourself with ballast, especially at cost of equity, which is the most likely compensation in the earlier stages. Of course, sometimes you have to be creative in earlier stages and do what you need to do. But real is always better — you are, after all, building a company for yourself, not a beautiful front for investors.

Another common thing is to say “we have someone who will join when we raise the money”. Acceptable, but far from ideal in my view. “Why has this person not started doing something already, are they not enough of a believer?” is a question that begs to be asked. “This person is with us part time and will join full time after the round” sounds better to me if you go this route. Assuming they really do something.

And an obvious point — investors need to believe that you are the real thing. Most will want to see substance, not airwaves. They are buying the team as much as an idea, if not more. So, they may probe to confirm that you have done your research, understand the market you are in and have a plan. So, remember key facts and numbers, think of possible questions and do some Q&A, in your head, on paper, with your team, whichever way works for you. At the same time remember that definitions of “substance” and “airwaves” are different for different people. You can’t please everyone, some will not get it, others will fall for some semi-obvious nonsense.

Beyond the team this part of the story can consist of just about anything and is very specific to a particular company. Here you often hear about “competitive advantage” — if you had a dollar for every time you will be (or already have been) asked this question, your round would probably be half-filled. And they usually want it to be “unique” or “unfair”. Despite this looking as classical MBA speak, there is a point to it — and a very simple one. Rephrased “(unique/unfair) competitive advantage” means a plain “why you? why not others?”. Some popular answers include:

• IP (intellectual property): Very common and liked theme. There is a reason why deeptech made a comeback after many years of B2C internet domination. “This technology comes from 10 years of research by a world-leading expert in X in university Y” sounds good, no? In truth, most likely it is a good thing for a company that has exclusive access to it. IP comes with other challenges and doesn’t work everywhere, but often it’s a way to have an advantage
• Something unique or unusual: (non-IP). A way of doing something, some assets, algorithms, data, know-how, etc. “We have been trying this for a while and by now know exactly how to do it and accumulated a zillion terabytes of data to build models on, here’s proof. Competition will need X years to catch up”. Also — not bad
• Insider market understanding: “We know the market as nobody else does. We know the issues, understand the customers and their needs, have relationships with buyers, know how to solve their pain points. Nobody/very few others do”. Essentially back to the unique way of doing things based on grey hair or insider information that in public markets may even be illegal, but in typical information asymmetry of private markets is a clear positive
• Execution: “We can execute better than the others and have a better plan”. Much less liked by many investors since it’s not “structurally unique”, i.e. can be replicated by others. I am not saying execution isn’t important — it is paramount and without it nothing will come into place, but as a sole competitive advantage it’s more challenging than some of the other things, especially in earlier stages. If that’s all you’ve got, maybe think of how you will execute differently/better than others, why it is a good thing and gives you the edge?
• Team: “We have a great team with all skills, knowledge, experience, etc needed”. In most cases not good enough. Believing that the team can do it is a necessary, but not a sufficient condition. It could be different if the team is unique and hard to replicate. “We came up with a practical application of relativity theory and have Albert Einstein full time as our Chief Scientific Officer” kind of thing is clearly different and would impress many… Just make sure your Albert Einstein can actually join calls and really is your CSO.
• Market position: This could be a good argument, but it depends. It’s very hard for startups to achieve dominant market positions in most existing markets or in markets with low barriers to entry. Even in many new markets it’s hard — that’s why most successful B2C startups needed to raise so much money. To win they need to buy market share and once they are in the top X, they are cruising amongst winners. From an early investor perspective, it’s a very expensive, dilutive and dangerous play. But some like it and this thesis works well in many later stage situations. On the flip side, many successful companies operating in new or changing markets managed to get to a dominant position while the market was small (and hence not interesting for the big players) — and then grew to behemoths with the expanding market. That’s one of the textbook ways to succeed.

Whatever it is — the story needs to stack up and not only do you need to believe it yourself, you need to be able to convince others. One CEO I know used to say “So far I haven’t found anyone who thought it was a bad idea, although I continue looking”. Nice to be building a company like this…

Who is the investment pitch for?

Having spent a part of my career as a VC, I know that industry from the inside and am fairly sceptical of it (with some exceptions, to be fair). I always say there is not much value in a fundraising process except for the cash, if it comes. But in truth, there is another aspect which is rather important — fundraising helps you to better understand and articulate what you do, why it’s interesting and sometimes rethink how you do it. And you also get a lot of feedback from people who see many companies. Of course, some of them have no clue, never had and never will, some feedback is nonsense in its purest form, some are simply using you for their own learning — but sometimes some golden nuggets of real value can surface. Plus, you develop a fluent autopilot for explaining your idea.

Therefore, working on your investment pitch is as much for your benefit as it is for investors and cash. It is a (well hidden) opportunity to strengthen your company while going through a myriad of useless meetings and the boredom of presenting the same slide deck for a hundredth time. Positive thinking through a nonsense process, eh?..

Checklist

• Does your story paint a big opportunity?
• Did you explain why your team/company is uniquely positioned to grab this opportunity?
• Optional: does the story seems to stack up to you? (Of course it does. But really — does it?)
• Did you test it on someone who hasn’t heard it before?
• Mandatory, step 1: do others understand your story?
• Mandatory, step 2: do others believe your story?
• Are you explicitly capturing and thinking about feedback from meetings?
• Bonus: have you received feedback from someone with experience in fundraising?

P.S. I am putting together a simple guide for startups under the working title “No to Startup BS”, which I see as a collection of practical tips. I’ll publish them and I am keen to collect questions that folks would like to get real answers to. Read more and/or ask your question at www.notostartupbs.com

About the Author:

Andrey is a senior commercial executive transforming companies, be that in growth or turnarounds. Business development/sales, growth, restructuring and repositioning, interim management, downsizing, setting up and running operations, helping companies articulate what they do for fundraising or customers. 25+ years with fast-growing companies, work with c.100 companies, multiple exits via M&As and IPOs, c. 40,000 business plans reviewed.

Written by: Gerard Escaler

In market environments characterized by constant change, innovation remains a primary catalyst for growth and progress. Companies continue to face a wide variety of challenges on their path to growth, including increasing pressure to remain competitive to deliver value to shareholders whilst also remaining relevant to their customer base. To deliver value and enhance differentiation, business and marketing leaders continually seek out novel ways to meet the evolving needs of their target markets.

Traditionally, Marketing and Innovation have been viewed as separate functions within an organization. However, this view is evolving, with forward-thinking companies now discovering an additional source of competitive advantage in the linkage between these two areas. This symbiotic relationship is evidenced by real-world examples of those that have harnessed this constructive collaboration to achieve remarkable success.

A Traditional Separation Between Marketing and Innovation

In a traditional business paradigm, Marketing and Innovation are compartmentalized into separate functions. For example, a multidisciplinary innovation team may be mandated to focus on research and development of products, services, or processes, whilst the marketing team may be tasked with promoting these innovations or creating related campaigns to drive internal and external awareness. This division of labor, while efficient in many respects, can hinder the full realization of the potential synergies between both functions.

A Counterintuitive Perspective

To understand the connection between marketing and innovation, we need to adopt a different lens. This necessarily involves looking beyond the segregation of roles and instead focusing on potential opportunities for innovation where the Marketing function can contribute. Through various consulting projects, I have found that opportunities for innovation reside in the overlap between Marketing and other functions. For example, Marketing and IT can collaborate on dashboard analytics for market intelligence or digital transformation projects to optimize customer experience; Marketing and HR can collaborate on employer branding and professional development; Marketing and Finance can collaborate on pricing strategy and management information systems; and Marketing and Risk can collaborate on customer due diligence and know your client initiatives.

Below is a representative sample of typical areas where the Marketing and Innovation functions not only overlap, but where they can also mutually reinforce their overall impact to the wider organization:

Marketing Technology and Artificial Intelligence

In recent months, businesses have grown increasingly reliant on marketing technology and artificial intelligence (AI) to contribute to innovation programs, despite some concerns about their implementation. In particular, AI offers businesses unprecedented tools to enhance their ability to innovate.

Firstly, marketing technology and AI enable businesses to gain deep insights into customer behaviors and preferences. Through advanced analytics, machine learning algorithms, and predictive modeling, companies can pinpoint emerging trends and unmet customer needs with remarkable precision. This data-driven approach provides valuable inputs for innovation, helping businesses develop products and services that are more likely to resonate with their target audiences, thus reducing the risk associated with innovation efforts. Similarly, effective marketing research and customer feedback mechanisms also provide invaluable insights to drive product and service development. Companies that actively seek and incorporate customer feedback can finesse their innovations to meet specific needs, ensuring higher market acceptance and adoption.

Amazon’s “customer obsession” philosophy lies at the core of its innovation strategy. They not only respond to customer feedback but actively solicit it, encouraging customers to share their ideas for improvements. This two-way dialog between customers and Amazon fuels continuous innovation, leading to breakthrough features such as Amazon Prime and Kindle.

Secondly, marketing technology and AI enhance the efficiency and effectiveness of marketing campaigns, allowing businesses to reach wider and more diverse audiences. The ability to automate repetitive tasks, personalize content, and optimize advertising strategies is a form of innovation in its own right. It enables companies to allocate more time and resources to the ideation and execution of groundbreaking innovations, rather than defaulting to routine marketing processes. This liberation from the mundane fosters an environment where creative thinking flourishes, ultimately leading to more innovative solutions to address both existing and emerging market challenges.

In this digital age, data and analytics have evolved into pillars for innovation, with many companies leveraging big data to identify trends, understand customer behavior, and uncover unmet needs. This begins with marketing initiatives, such as analyzing customer feedback, monitoring social media conversations, and tracking website analytics. Netflix, for example, uses data analytics to inform their content creation decisions, leading to innovation in its streaming model. By analyzing viewers’ preferences and watching habits, they can produce highly tailored content that resonates with their audience, consequently boosting customer satisfaction and retention.

Customer-Centric Innovation

Conventional wisdom suggests that innovation starts with a unique idea, usually generated internally, that has the potential to drive the business in a new direction. However, a growing number of companies are turning this notion on its head by focusing on customer-centric innovation, whereby they actively involve customers in the innovation process, soliciting their feedback and ideas. These, in turn, are factored into internal decision-making and then potentially integrated into strategy.

One example of this approach involves LEGO, the well-known, Danish company, renowned for its innovative toy constructs. The company created an online platform, LEGO Ideas, where customers can submit their own designs. If a particular design receives sufficient support, LEGO reviews it for possible production. This process has not only led to unique product innovations, but also continues to foster customer engagement and loyalty for LEGO.

Collaborative Ecosystems

Innovation need not be purely an internal endeavor. In fact, it can thrive within external or collaborative ecosystems as well. Over the past two decades, companies have partnered with external stakeholders, such as startups, research institutions, and customers, to harness collective intelligence and expertise. These partnerships often emerge from marketing and outreach programs.

Procter & Gamble’s Connect + Develop program is a prime example of this approach. The company actively seeks external innovation partners to co-create products and solutions. By collaborating with a diverse network of collaborators outside of their company, they can tap into a broader pool of ideas and resources, accelerating their innovation efforts.

Feedback Loops and Iterative Innovation

Marketing initiatives can also provide ongoing feedback loops for product and service refinement. Through A/B testing, social media engagement, and customer reviews, companies retain the ability to gather real-time data on how their innovations are performing and adapt accordingly. This iterative process of innovation can result in continuous improvements that better meet customer needs and market demands.

Airbnb’s early success could be attributed to its iterative approach to innovation driven by its marketing strategy. The company rigorously assessed and refined its platform based on user feedback, and its marketing tactics built upon those improvements. Over time, they created a marketplace that more closely matched travelers with unique accommodations based on their specific needs, a concept that revolutionized the travel industry.

Branding and Emotional Connection

Powerful branding can transform an innovation initiative into an emotional experience for customers. The brand becomes a promise of quality and innovation, instilling trust and loyalty among consumers. This emotional connection not only drives repeat purchases but can also influence customer advocacy.

One of the most iconic examples is Apple, whose marketing and branding strategies have transformed its products into objects of desire. The brand’s association with innovation, sleek design, and cutting-edge technology extends beyond its product portfolio. Apple’s marketing reinforces the perception that owning an Apple product equates to being part of an exclusive club of innovators.

Case Studies in Unconventional Innovation

Innovation can be strategic (as a result of planned decision-making), incremental (evolving organically from pragmatic experience), or serendipitous (emerging opportunistically). Throughout my career, the organizations I have worked with have benefitted from one or more of these approaches. Irrespective of how a company arrives at the decision to implement an innovation pilot, the Marketing function could be a good starting point for idea generation.

Following are three companies who have mastered the link between marketing and innovation and capitalized upon it to achieve success:

InnoCentive — Open Innovation Ecosystem

InnoCentive is an open innovation company that enables organizations to crowdsource solutions to their unsolved problems (framed as “Challenges”). Through its network of over 380,000 problem solvers, who are external to their organization, the company arranges competitions to provide ideas and solutions to pressing business, social, policy, scientific, and technical challenges and provides sizable awards to contest winners. In 2020, according to its own website, Wazoku Crowd completed its acquisition of InnoCentive, expanding its platform with “a leading crowdsourcing and open talent community” to enhance idea management and innovation. InnoCentive’s approach to open innovation has been taught as a case study at various universities, including Harvard Business School, Columbia University, and Massachusetts Institute of Technology, among others. It demonstrates the value of developing a collaborative ecosystem and seeking solutions outside of an organization’s internal talent pool.

Starbucks — Product Innovation through Customer Feedback

Starbucks, the ubiquitous global coffee giant, exemplifies the integration of marketing and innovation through its “My Starbucks Idea” platform. This initiative invites customers to submit their ideas for new products, services, or store experiences. Starbucks not only listens to its customers but also implements many of their suggestions. This approach has led to innovations such as the introduction of new beverages, alternative milk options, and the creation of a mobile ordering and payment system. The “My Starbucks Idea” platform has not only generated customer engagement but has also served as fertile ground for innovation that aligns with customer preferences.

IKEA — Collaborative Ecosystem for Sustainable Innovation

IKEA, the Swedish furniture company, has adopted a forward-thinking approach to innovation by collaborating with external partners and organizations. One notable example is their partnership with social enterprises and startups to drive sustainable innovation. Through initiatives like the “Better Shelter” project, IKEA has leveraged the Marketing function to promote socially responsible and sustainable solutions. By engaging in projects that address pressing global issues, IKEA has not only driven positive change but also enhanced its brand image. This sustainable innovation aligns with the values of their environmentally-conscious customer base, reinforcing their position as a responsible and innovative brand.

Key Challenges and Considerations

While the linkage between marketing and innovation is undeniably potent, it is not without its challenges. Below are a few related aspects for further consideration:

• Over-reliance on Customer Feedback: While involving customers in the innovation process is valuable, companies should strike a balance. Over-reliance on customer feedback can lead to incremental changes and prevent groundbreaking innovation. In addition, there are innovations that customers are not well-suited to predicting — consider the first Sony Walkman or the first portable CD player — so this should be only one tool in a repertoire of many for innovation.
• Data Privacy and Ethical Concerns: The collection and use of customer data for innovation should be conducted ethically and transparently. Mishandling data can lead to privacy breaches and erode trust.
• Maintaining Brand Authenticity: Companies should be cautious not to compromise their brand’s authenticity or dilute their innovative image when collaborating with external partners or pursuing unconventional marketing strategies.
• Risks and Experimentation: Unconventional approaches to innovation often involve risk-taking and experimentation. Companies should be prepared for the possibility of failure and have mechanisms in place to learn from such experiences.

The symbiotic relationship between marketing and innovation is more critical than ever in the current business environment. By adopting atypical approaches to developing innovation strategy, companies can harness the power of marketing to drive and amplify their innovation tactics. Marketing not only creates awareness and demand for innovations but also provides a valuable feedback loop for refinement and ongoing improvement. As we move forward, it is essential for businesses to embrace the interconnectedness of marketing and innovation, breaking down the traditional silos that separate them. By doing so, companies can position themselves at the forefront of their industries, responding nimbly to change, and delivering greater value to their customers. Unconventional innovation is not just a path to success, it is now the new normal.

About the Author:

Gerard Escaler is an Advisor for Loyal VC and the Chief Marketing Officer of Lyrium Venture Partners Limited. He also serves as the Co-Director of the Founder Institute’s Philippines chapter, the world’s largest pre-seed technology accelerator. Gerard holds a Chartered Marketer certification and received his Executive MBA from Kellogg School of Management at Northwestern University. He also holds a Postgraduate Diploma in Digital Business from Columbia Business School and MIT Sloan, where he was a Global Ivy Scholar.

3 Financial Aspects of Innovation — Part 3

Written by: Jeroen de Kempenaer

Monitoring an innovation portfolio from a financial perspective

Very often, innovation portfolios are looked at only through the innovation content ‘lens’. Is attention being given to the right technologies, to the right markets etc. Financially, projects are assessed on an individual basis. “Are we willing to spend X on this project?”

Only rarely the financial portfolio ‘lens’ is being used. Are enough projects being started, is the right amount of money being spent at the right moment in the innovation funnel? Not from innovation content perspective, but purely from a financial portfolio perspective, the best management of investments and risk.

I would like to demonstrate the power of this approach through a simple model. It is loosely based on risk adjusted NPV. What is the value of a project taking into account the innovation and development risks? The model needs a few parameters:

• Assuming the organization has a stage/gate model for innovation. How many stages does it have, i.e. in how many stages (with decision making in-between) is a product developed. Let’s assume 4 stages after idea generation.
• How many of the ideas will make it into actual product launch? Or what is the chance of a project passing a gate decision? Let’s make it easy, let’s say 50% at each of the 5 gates. That means for every successful launch, you originally started with 32 ideas.

So if you want to launch 1 product with an NPV at launch of € 1,000, the risk adjusted NPV (NPVra) of 1 project after ideation is € 62.50. A first useful finding: do not overvalue ‘young’ innovations! A second one is the number of innovation projects. To launch 1 new product every period, your pipeline will be 63 projects.

To complete the model, a few more parameters are needed:

• After each successful stage, the NPVra will increase, because the risk has decreased. How much should you be willing to invest in a project to realize that NPVra increase? Based on the parameters chosen, I would recommend something like 1%, 2.5%, 5%, 7.5% and 10%.

That may not sound much, but be aware that you have to fund a whole portfolio. And that the NPVra will go up. So the budget for an idea is € 0.63 and for pushing a project through stage 4 is € 50.

If you do all the numbers, this should come out:

This means that for 1 launch per period, with an NPV of € 1,000 at launch, you should reckon with an innovation budget of € 270, and an idea development budget of € 20. Now look at your portfolio. Are enough projects being started, is the right amount of money being spent at the right moment in the innovation funnel? Perhaps the financial portfolio approach can substantially increase the output, financially and otherwise, of your innovation funnel.

I hope that this little series of financial viewpoints on innovation has been helpful in drawing in your financial people, or if you are in finance yourself, you have gotten a better feel for the financial aspects of innovation. If I have been unclear, which is very well possible, please do not hesitate to contact me. In any case, have fun innovating!

About the Author:

Jeroen de Kempenaer is a Senior at Philips Engineering Solutions which he joined in 2014. Engineering Solutions, with some 1,000 technical and consultancy staff, provides technical, business development and consultancy services to Philips and 3rd parties. Jeroen’s activities range from supporting Boards of Directors in setting up innovation portfolio management, to functional design and business modelling of novel devices. Industries worked in, include medical devices, vaccine manufacturing, health institutions, applied science research, food-manufacturing equipment.