Are you building a painkiller or a vitamin?

Are you building a painkiller or a vitamin?

Recently, I have had the pleasure of meeting with a LOT of founders. I mean several hundred over the course of four days at SXSW. While many of them were focused on solving challenges, many more were building “cool” stuff at the expense of being non-scalable businesses.

Disclaimer: I’m not here to tell you what to build, how to build it, or why to build it. I AM however, going to voice my opinion the minute you look externally for funding.

Problem:

Is what you’re building a “painkiller” or a “vitamin”? Meaning, is this a really cool thing to do or is this a “wow, how did we ever live without this”?

Imagine, for example Uber. In just six years, they have changed the face of urban transit and made suburban transit resemble larger cities. Imagine now life without it. Even in New York City, the game has changed. They are a quintessential “painkiller.”

Contrast that with a service you use several times a year and think is “cool” or “neat.” If it went away, how would it negatively impact your life? Would another competitor swoop in to take market share? Or would the service simply die? If there are no competitors, is it because you’re truly first to market? Or is it because the problem isn’t worth solving?

Solution:

Most founders, and especially technical founders, love to spend their time focusing exclusively on solutions. I spend the least time focused on solutions. As an early-stage investor, I know that your product will evolve significantly from your first customer. I want to know you’ve built something using advanced technology (specifically I look at artificial intelligence, machine learning, and natural language processing) to build a defensible position. However, if your pitch deck has 20 slides on the product and 1 on the market/sales strategy, I’m probably going to pass.

Market Size:

  • How big is your market?

  • Really, how many people can you sell to this week/month/year?

  • What changes your market size?

  • Are there synergistic effects that expand your market (partnerships, alliances, etc.)?

  • If the largest incumbent gets wind of what you’re doing and aims for your segment, how do you STILL win?

  • If you already have customers, is your LTV:CAC > 3:1?

Much has been written about future potential outcomes of VC investments, so I won’t belabor the point. Needless to say, if the market you’re attacking is small (total addressable market <$1Billion) you will have a hard time attracting VC dollars.

Team:

  • How is your team going to win against all odds?

  • What is your team’s “unfair advantage?”

  • What technical skills are missing from the team?

  • Is the team battle tested (have they founded companies prior)?

While this list isn’t meant to be exhaustive, hopefully it can be used as a first-pass “screen.” If you truthfully, honestly feel you’ve got this down, I’d love to chat.