I recently had the privilege of speaking with Samir Shah, operating partner with Cervin Ventures, which is a Silicon Valley based pre-Series A venture capital firm specializing in enterprise technology. Samir has a background that gives him unique insight into the world of tech startups and M&A.
Prior to joining Cervin Ventures, Samir founded the software testing firm, Zephyr, and ran it as CEO until it sold.
After seeing what makes for a successful (and attractive) company from the sell side, and what he and the team look for when investing in startups, Samir has distilled that knowledge and experience into a series of eight “one-liners” (think of them like maxims or rules) that should guide any entrepreneur as they build their business, as well as VCs looking for startups with potential to invest in.
These one-liners get into the heart of what separates successful businesses from those that crash and burn.
1. Is your business a feature, product or company?
Every business owner has to ask this question – and sometimes face a hard truth that could impact growth and/or a future merger or acquisition.
The way you answer, is to look at what you’ve created.
Have you come up with something that’s simply a feature that improves an existing product?
Is this a product that people will actually use? Be honest with yourself about the market potential.
Once you know the answer to these questions you can figure out how to sell that feature or product to another company. At that point your journey with this business is over.
Unless…
Do you actually have a company with the potential to create many profitable products… a sustainable venture that could continue to grow and could be bought down the road for a sizable amount?
2. If your business doesn’t make a dollar, it’s a hobby.
It’s essential to start generating revenue as early as possible. Too many business owners fall in love with their product before they’ve even sold one unit and delay bringing it to market to perfect it.
Perfect is the enemy of good. And, the sooner you get a product out to market, the sooner you get feedback and can make adjustments, tweaks, and improvements that will make it more attractive to your customers.
Apple is a great example. Their first version of any new product, while superior to other market options, is completely inferior to the versions they release a year or two later. Apps get released with major bugs that are later ironed out. There isn’t one app that hasn’t needed some fixes down the road.
It’s essential to note that the business doesn’t need to be profitable at this point, just that there is someone out there willing to pay you for your products. Build/improve from there, and revenues will lead to profits.
3. It rains dollar bills when their hair is on fire.
Take a long hard look at the product or service you offer. Does it fit a need? Does it solve a problem?
Your goal is to find the people who have that need because they will pay anything to have that problem solved. As Samir says, “How do you get to revenue fast? Real revenue, sustainable revenue comes from use cases where the customers’ ‘hair is on fire,’” i.e. they have an intense, urgent need.
A great example of this is IT security. Hacking has been a big deal for a long time… and always will be. Products in this niche have a high demand. They’re a must-have.
4. Don’t sell to them, make them buy.
“Selling is hard. Everybody is trying to sell something,” notes Samir. It’s true that people are hard-wired to feel threatened when “being sold.”
So instead of trying to persuade someone to buy, make it easy for your customers to find you and make your product or service as easy to use as possible, not to mention truly useful (see #1).
If it’s easier to buy from you than a competitor, and you’re the “path of least resistance,” you become the clear choice.
5. One good salesman is transformative.
Nothing happens until something is sold and someone has to do the “selling”. In the beginning, it’s the owner/founder, but at some point, someone else is needed in this essential role for a company to truly grow.
Probably the hardest person to hire is a top-notch salesperson. You almost never get it right the first time.
But you have to keep trying because nothing happens if you don’t sell.
To find this person, talk to mentors and colleagues, get recommendations. Sometimes your best salesperson is someone inside your firm who understands your product and believes in it.
Compensation does go up for these special people, and your search will take time. But it’s well worth it for how this one person can radically change your business.
6. Revenue changes everything!
It’s not enough to have a great idea or concept. Until customers pay you money… you don’t have a real business. Revenue is the lifeblood of any company.
And when you have money coming in, it changes how customers, your team, investors, and your competitors look at you. It also changes the perspective of potential strategic partners. Obviously, if you’re generating significant revenue, people will be more likely to want to work with you.
Think back to the Dotcom era. So many startups just burned through investors’ money without anything to show for it. They weren’t generating revenue, let alone a profit. And we all know where those companies are today.
Companies that make the leap to actually generating revenue have to be prepared for the next stage when they become flush. It’s counterintuitive, but more money can actually create more problems, as we’ll see in the next step.
7. A leaky bucket will ruin your business.
You’ve worked so hard to build the business and to generate revenue. Once you accomplish that goal, it’s tempting to “take a break,” so to speak. But when management gets sloppy, things can go south quickly.
Samir suggests thinking of your business as a bucket. Customers (and revenue) are pouring in at the top. But, if you have holes in the bucket, more money could start leaking out than is coming in.
You might put off solving small problems or inefficiencies that cost more to solve later. You could be hot in pursuit of new customers… but neglect your existing core customers, which prompts them to leave. Bugs could crop up, you could have problems with pricing, or a new competitor could emerge.
The point is, you have to always watch for leaks and plug them as soon as possible.
8. Always go back to the well.
Your greatest source of additional revenue is existing clients. And it’s much easier (and cheaper) to “sell” to them than convince new customers, who don’t know you, to come on board.
Don’t take your core customers for granted. Always consider if there is anything more they need from you. Is there more value you can deliver?
It’s tempting to think that you already have an account, so you’re free to focus on going after new accounts. But you risk losing customers. If you meet their new needs they’re less likely to go elsewhere.
Your Next Steps
Samir’s eight one-liners can help guide founders, entrepreneurs, and VCs as they build or invest in businesses. In the complex world of Silicon Valley and the tech industry, it can sometimes be easy to forget what makes for a strong, viable business.
The truth is that these rules apply to any industry. As you’ve seen, these are simple good business practices that you should follow for any business venture. If you’re involved in any sort of startup these should be rules to live by.
To help you keep Samir’s one-liners top of mind, you can download Samir’s list of one-liners and keep it posted as a reminder for you and your team.