Lecture 19 - Sales and Marketing; How to Talk to Investors (Tyler Bosmeny; YC Partners)

Name: Lecture 19 - Sales and Marketing; How to Talk to Investors (Tyler Bosmeny; YC Partners)
Uploaded: 2014-12-02T23:53:30.000Z
Duration: 1 h 36 min 51 s

Introduction to Sales

In this section, Tyler, the CEO of Clever, shares his background and experience in sales. He emphasizes the importance of sales for startups and highlights the unique advantages that founders have in selling their products.

Tyler's Background and Experience in Sales

Tyler initially studied math and statistics and planned to work in finance.

However, he joined a startup at the last minute and was asked to do sales, despite having no prior experience.

He spent a couple of years learning about sales at this early-stage company before starting Clever with two co-founders.

Despite thinking that his previous sales experience would be irrelevant to building a product for schools, he found that it played a significant role in Clever's growth.

Importance of Sales for Startups

Clever is an app platform used by developers in schools, with one in five schools in America currently using it.

Sales have been crucial to Clever's success, and Tyler wants to share some strategies that have worked well for him.

As a founder, you are responsible for selling your product. It is not something you can delegate or postpone until later.

Passion for your product and industry knowledge are more important than previous sales experience when it comes to selling as a founder.

Changing Perceptions of Sales

In this section, Tyler discusses common misconceptions about sales and how many founders underestimate its importance. He emphasizes that founders need to embrace their role as the primary salesperson for their startup.

Misconceptions About Sales

Many people see sales as mysterious and believe it requires exceptional charm or closing lines.

Founders often prioritize product development over sales, assuming they can hire dedicated salespeople later on.

However, founders themselves need to take on the role of salesperson, as it is a crucial aspect of building a startup.

Paul Graham advises founders to focus on talking to users and building their product, which includes selling to potential customers.

Unique Advantages of Founders in Sales

Founders have a passion for their product and deep industry knowledge, which can be more valuable than formal sales experience.

Tyler shares an image of his co-founder doing sales calls in the early stages of Clever, highlighting that founders can excel at sales even without prior experience.

At Clever, one founder dedicated themselves full-time to sales because it was essential for the business's success.

The Sales Funnel and Strategies

In this section, Tyler introduces the concept of the sales funnel and discusses strategies for each stage. He emphasizes that these strategies are not abstract concepts but practical approaches that startups can implement.

Understanding the Sales Funnel

The sales funnel consists of different stages through which customers progress: prospecting, conversations, closing deals, and generating revenue.

Tyler wants to share strategies that have worked well for Clever at each stage of the funnel.

Prospecting Strategies

Prospecting involves identifying potential customers who would be interested in your product.

Only 2.5% of companies may consider buying from a startup with no users or revenue.

However, this limited pool presents an opportunity for startups willing to put in the effort.

Tyler recommends three successful prospecting strategies:

Utilizing personal networks

Attending conferences

Sending cold emails

Conferences as a Prospecting Strategy

In this section, Tyler explains how conferences can be an effective strategy for prospecting potential customers. He clarifies misconceptions about conferences and highlights their value for startups.

Conferences as a Prospecting Strategy

Conferences are often overlooked as a prospecting strategy by many people.

Tyler shows an image of popular conferences like CES or E3, but he clarifies that he is referring to smaller industry-specific conferences.

Attending these conferences allows startups to connect with potential customers who are interested in their industry or product.

It provides an opportunity to have meaningful conversations and build relationships with potential customers.

The Importance of Attending Conferences

Attending conferences where your target audience is present can be crucial for sales. By getting the attendee lists in advance and setting up meetings, you can make the most of your time at these events.

Attending Conferences

Going to conferences where your target audience, such as CIOs, gather is essential.

Obtain attendee lists beforehand and reach out to every person to schedule meetings.

Clever's early success was largely due to meeting their earliest customers at conferences.

Cold Emailing for Sales Prospecting

Writing concise and effective cold emails is an important skill for sales prospecting. A simple email template can be used, introducing yourself, explaining what you're building, and requesting a meeting.

Cold Emailing

Writing concise cold emails is key; keep it short and to the point.

Use a template that introduces yourself, describes your product or service, and asks for a meeting.

Customize the email for each business you want to sell to.

Sending out multiple cold emails can yield positive results.

The Art of Listening in Sales Calls

When speaking with potential customers on sales calls, it's important to listen more than talk. Top salespeople spend less time talking and focus on asking questions to understand the customer's needs better.

Listening Skills in Sales Calls

When on a sales call, remember to listen more than talk.

Many founders make the mistake of wanting to showcase all features of their product during calls.

The best salespeople spend less time talking and ask questions about why the customer agreed to take the call and how they currently solve their problem.

Understanding the customer's problem and needs is crucial for successful sales.

The Power of Follow-Up in Sales

Following up with potential customers is essential for closing deals. It's important to have an unrelenting willingness to follow up and drive the sales process forward. However, it's also crucial to focus on qualifying leads and not waste time on maybes.

Follow-Up Strategies

Following up relentlessly is necessary for closing deals.

Use various methods like emails, phone calls, voicemails, and pricing calls.

Don't be discouraged by initial non-responses; keep following up.

Having a super-human level of follow-up can lead to successful closures.

Focus on getting a definitive yes or no from potential customers rather than having a long list of maybes.

Understanding Redlining in Sales

Redlining is the final step in the sales process where agreements are negotiated and finalized. While it may seem complex, redlining is a straightforward process.

Redlining in Sales

Redlining refers to the negotiation and finalization of agreements in the sales process.

It may appear opaque at first but is actually a simple process.

Redlining involves reviewing and making changes to contracts until both parties reach an agreement.

New Section

In this section, the speaker discusses the process of negotiating and finalizing agreements for startups.

Negotiating Agreements

YC provides standard template agreements for its members, making the process easier.

The speaker is excited that YC has agreed to open source their deal documents, making them available to everyone.

It is important to remember that the goal is to sign deals, get reference customers, validation, and revenue.

Spending too much time on document review and minor points can hinder progress. It's better to sign the deal and move forward.

Closing Traps

Founders often fall into the trap of trying to fulfill every feature request from potential customers before they commit.

Building a specific feature requested by one customer may not guarantee their commitment. There might be additional requests or reasons preventing them from using the product.

Two approaches to handle feature requests are signing an agreement with a commitment or waiting for more customer demand before building it.

Another trap is offering free trials. Free trials don't provide revenue, validation, or commitment from users. Instead, consider offering opt-out periods in annual agreements.

New Section

In this section, the speaker discusses sales strategies for startups and emphasizes the importance of scalability.

Early Sales Approach

Initially, sales efforts can focus on unscalable methods to acquire early customers.

As you gain experience, start thinking about which aspects of your sales process can be made repeatable and scalable.

Scalability Considerations

Cristoph Janz's blog post highlights different ways companies can build a $100 million business based on pricing models and customer numbers.

Startups should consider whether they aim to sell high-priced products with a high-touch sales cycle or lower-priced products with a more streamlined sales process.

It's crucial to align your sales approach with the scalability goals of your business.

New Section

In this section, the speaker discusses the importance of scalability in business and pricing strategies.

Focusing on Scalability and Pricing

The speaker emphasizes the need to think about scalability when starting a business.

Many founders make the mistake of not considering scalability and end up struggling or having to increase prices.

It is important to assess where your business stands after initial sales and determine if it is viable.

The speaker shares their experience in building sales for different companies, specifically focusing on the zero to one million stage.

This stage is often overlooked, but it is crucial for founders to understand and navigate successfully.

The speaker encourages founders to learn from their own experiences and believes that anyone starting a company can figure it out.

For those interested in joining an established startup, the speaker mentions that Clever is hiring.

The speaker also offers assistance and invites questions about sales via email.

New Section

In this section, the focus shifts towards raising money. Michael Seibel talks about pitching and investor meetings.

Pitching Your Company

Michael Seibel introduces himself as a YC partner with experience in starting two companies: Justin TV (sold to Amazon) and SocialCam (sold to Auto Desk).

He aims to demystify the process of creating a pitch by breaking it down into four key elements.

30 Second Pitch

The first element is a concise 30-second pitch that explains what your company does.

It should be simple, straightforward, and easily understandable even without prior knowledge or context.

Using basic language is encouraged, such as explaining how Airbnb allows renting out extra rooms in one's house.

Two Minute Pitch

The second element is a slightly more detailed two-minute pitch for those who are more interested in your company.

This pitch is suitable for potential investors or individuals you want to work with.

Michael emphasizes the importance of keeping pitches concise and avoiding unnecessary information.

Less talking often leads to better outcomes, as it reduces the chances of saying something that might not resonate with the audience.

When to Fundraise and Setting up Investor Meetings

Michael briefly mentions the importance of timing when it comes to fundraising, suggesting that many companies get this wrong.

He also touches on how to set up investor meetings but does not provide further details in this section.

New Section

In this section, Michael Seibel continues discussing pitching techniques and provides guidance on creating a compelling pitch.

Crafting an Effective Pitch

Michael reiterates that improving your company is the best way to enhance your pitch.

He advises founders to focus on three key aspects before a meeting: their 30-second pitch, a role play of what meetings actually look like, and wrapping up with Q&A.

30 Second Pitch (Continued)

The first sentence of your 30-second pitch should explain what your company does in simple terms that anyone can understand.

It's important to assume no prior knowledge from the listener and use basic language.

Market Size

The second sentence should address the size of your market. Researching industry data can help determine market size and impress investors with growth potential.

Traction

The third sentence should highlight any traction achieved by your company. This could include sales numbers, revenue figures, or user metrics.

If you haven't launched yet, emphasize how quickly you are progressing towards launch.

Overall Summary:

This transcript covers two main sections: focusing on scalability and pricing in business (timestamp: 0:17:32) and crafting an effective pitch for fundraising (timestamp: 0:19:17).

In the first section, the speaker emphasizes the importance of scalability and pricing strategies in building a successful business. They discuss the common mistake of not considering scalability and how it can lead to challenges or increased prices. The speaker shares their experience in building sales for different companies, specifically focusing on the zero to one million stage. They encourage founders to learn from their own experiences and offer assistance for those interested in joining an established startup.

The second section focuses on pitching techniques and investor meetings. Michael Seibel provides insights into creating a compelling pitch by breaking it down into a 30-second pitch and a two-minute pitch. He emphasizes simplicity, market size research, and highlighting traction achieved by the company. Additionally, he briefly touches on timing for fundraising and setting up investor meetings.

Overview of the Startup Pitch

The speaker discusses the importance of being able to explain your startup in a concise manner and provides tips for creating an effective pitch.

Crafting a 30-second Pitch

Start by conveying that your team is moving fast and thinking like a startup.

Clearly communicate what your company does in three sentences.

Use this basis to initiate a conversation about your company.

Components of a Two-minute Pitch

Unique Insight: Share something that the biggest players in your market don't understand or do well. Crystallize it into two sentences for an "ah-ha" moment.

Business Model: Be clear and concise about how you make money, whether it's through advertising, direct sales, or other means.

Team: Highlight any impressive accomplishments and emphasize technical expertise. Mention how long you have known each other and if everyone is working full-time on the business.

Big Ask: Know the details of your fundraising plan, such as whether you are raising on a convertible note or safe, the cap of the safe, amount of money needed, and minimum check size.

Final Tips for Fundraising

The speaker provides additional advice for successful fundraising.

Timing for Fundraising

Investors prefer to invest based on traction, so it's better to raise money when there is evidence of growth.

Being Prepared for Fundraising Conversations

Understand the terms related to fundraising, such as convertible notes and safes. Be knowledgeable about the cap of the safe, amount needed, and minimum check size.

Use appropriate jargon when discussing fundraising but avoid using excessive jargon throughout the pitch.

How to Flip the Equation in Fundraising

In this section, the speaker discusses how to change the power dynamics in fundraising and become stronger as a startup.

Flipping the Equation

Start thinking about how to flip the equation in fundraising.

Typically, startups ask investors for money, making investors strong and startups weak.

Aim to create a scenario where you are strong and investors are weak.

To know if you're strong:

Investors are asking to give you money.

You're talking about your startup with others and getting the word out.

Launching and Growing without Raising Much Money

Have a plan to launch and grow without needing a lot of money.

Many startups can bring their product to market with very little funding.

Avoid putting investors in a position of power where they control everything until they provide funding.

Gaining an Advantage

Show that you have done significant work even before launching.

Highlight that your team is fully committed and has quit their jobs for the startup.

This demonstrates dedication and commitment, giving you an advantage when traction is not yet visible.

Angel Investors and Fundraising Confidence

This section focuses on angel investors and gaining confidence during fundraising.

Angel Investors

Adopt an attitude of having many potential angel investors interested in your startup.

Confidence in Fundraising

Plan for needing less money early on.

Show that your team is fully committed, working fast, and dedicated to success.

Having a team member dedicated full-time to fundraising can be beneficial but should not distract from other important tasks.

Setting Up Investor Meetings Effectively

This section provides tips on setting up investor meetings in an effective manner.

Warm Introduction

Seek a warm introduction from another entrepreneur or a previous investor.

The credibility of the person making the introduction plays a significant role in whether the investor will take the meeting.

Think in Parallel

Schedule all investor meetings during the same week.

Avoid dragging out the fundraising process over several weeks.

Signaling Availability and Focus

When emailing investors, mention that you are busy building for the next few weeks but can meet afterward.

This shows that you are not desperate for money and signals that your startup is actively working towards its goals.

One Team Member Dedicated to Fundraising

Have one team member who is fully invested in fundraising full-time.

However, ensure that fundraising does not become a distraction for the entire company.

Mock Pitch Introduction

The speaker introduces a mock pitch session and explains its purpose as a learning experience.

Mock Pitch Format

The format of the mock pitch may not be entirely realistic but serves as an opportunity to learn and demonstrate key aspects of pitching.

The speaker has extensive experience raising funds and will incorporate various elements into the mock pitches.

First Mock Pitch: Communication Platform

The first mock pitch focuses on a communication platform for businesses and consumers.

Product Description

Building a communication platform to enable collaboration between businesses and consumers on one unified platform.

Similar to WhatsApp or Snapchat but tailored for business use.

Clarifying Product Usage and Market Size

This section involves clarifying product usage and discussing market size during the first mock pitch.

Consumer Use Case

Consumers use the messaging product to communicate with businesses directly.

Market Size

How is this coming together?

The speaker discusses the potential of messaging companies and their market value, mentioning WhatsApp and Snapchat as examples.

Messaging Companies are Big Opportunities

Messaging companies like WhatsApp and Snapchat have significant market value.

WhatsApp was sold for $19 billion, while Snapchat is experiencing rapid growth.

The speaker believes that there is a huge opportunity in this industry.

Traction and Numbers

The speaker provides an overview of their traction and user base but avoids going into specific details.

Traction and User Base

The company is live and has thousands of users in the Bay area.

They have engaged with hundreds of businesses, but specific names are not disclosed.

The speaker emphasizes that they are still in the early stages and prefer to remain stealthy.

Insights from Consumer Interactions

The speaker shares insights gained from consumer interactions with businesses through their messaging platform.

Insights from Consumer Interactions

Consumers are actively sending messages to businesses through the platform.

Businesses are responding to these messages, which was not initially expected by the team.

This interaction between consumers and businesses is seen as a positive outcome.

Business Model

The speaker explains their business model, which involves charging businesses a monthly rate. However, the exact pricing has not been determined yet.

Business Model

Businesses will be charged a monthly rate for using the messaging platform.

Currently, they offer free access to a few hundred companies as part of their initial strategy.

They anticipate that businesses would be willing to pay around $10,000 to $15,000 per month for their services.

Team Composition

The speaker discusses the team behind the company and their plans to raise funds to expand the team.

Team Composition

The company has five founders, with only one currently working full-time.

They are in the process of raising funds to bring the rest of the team on board.

One of the founders has a bio PhD but has also learned coding, while the speaker is a Python developer.

Analysis of Previous Pitch

The speaker reflects on a previous pitch that did not go well and highlights some mistakes made during that presentation.

Analysis of Previous Pitch

The previous pitch was considered weak due to several mistakes made by the presenter.

It is crucial for the presenter to ensure that the audience understands what their company does.

Being vague or evasive about numbers can negatively impact investor interest.

Providing insights and unique market knowledge can make a pitch more compelling.

Presenters should be able to explain why they are suited for their business and drive meaningful conversations.

Second Attempt at Pitch

The speaker acknowledges the shortcomings of their previous pitch and attempts to deliver a stronger presentation.

Second Attempt at Pitch

The speaker introduces their messaging product, which allows users to send messages related to specific locations.

They highlight examples such as sending messages about issues in stores or asking for directions in airports or supermarkets.

While they have mobile apps available, they recognize that getting consumers to download them can be challenging. Instead, they encourage texting directly from businesses' calls-to-action.

They share insights from their launch phase, including significant weekly growth rates in acquiring businesses and unexpected message types received.

Understanding User Messages

The speaker explains how user messages on their platform go beyond feedback and often involve inquiries about business-related matters.

Understanding User Messages

Initially, the company expected user messages to primarily focus on providing feedback.

However, they discovered that more than half of the messages are unrelated to feedback and instead ask questions like job availability or store hours.

Users prefer texting the business directly because they perceive it as an easier communication medium.

Clarifying the Purpose of the Platform

The speaker clarifies that their platform is not just a suggestion box but also a means for users to message businesses directly.

Clarifying the Purpose of the Platform

While initially perceived as a location-based feedback tool, the platform has evolved beyond that.

More than half of the messages received are not related to feedback but rather inquiries about various aspects of businesses.

Users find it convenient to text business owners directly for information that may not be readily available through other sources.

Conclusion and Reflection

The speaker reflects on their second pitch attempt and acknowledges previous mistakes made during conversations with investors.

Conclusion and Reflection

The second pitch was an improvement over the previous one, addressing previous shortcomings.

It is crucial to ensure that investors understand what the company does from the start.

Providing clear numbers and insights can enhance investor confidence.

Presenters should actively drive conversations instead of letting them flail aimlessly.

Do you have any reservations available tonight?

The speaker asks if there are any reservations available for the night.

Reservations Availability

The speaker inquires about the availability of reservations for the evening.

Tell me about what you guys have right now.

The speaker asks for information about the current state of the business.

Current Business Status

The speaker requests details about the existing businesses, mentioning that they have sold to around 350 businesses from San Jose to San Francisco.

They explain that they initially built their product for large enterprise players like Starbucks and Walmart but shifted focus to small and medium-sized businesses (SMBs) due to challenges in closing contracts with larger companies.

The speaker highlights that SMBs receive a significant volume of private messages compared to public reviews on platforms like Yelp or Google.

They mention that they don't have a clear answer regarding how they make money but discuss two potential paths - targeting SMBs or selling their product as a feedback tool to large players.

How do you actually make money?

The speaker discusses potential revenue streams and compares message volumes received by SMBs with traditional review platforms.

Revenue Streams and Message Volume

The speaker explains that SMBs receive a higher volume of private messages compared to traditional review platforms like Yelp or Google.

They mention that while they don't currently have a clear answer on how they make money, there are two potential paths - targeting SMBs who may be willing to pay $50 per month or selling their product as a feedback tool to larger customers who typically spend millions per year on regular feedback tools.

What is your distribution strategy and tell me about the team?

The speaker discusses their distribution strategy and provides information about the team.

Distribution Strategy and Team

The speaker mentions that selling to SMBs is challenging due to the low lifetime value minus cost per acquisition (LTV-CPA) formula, which makes it difficult for them to succeed in that market.

They explain two potential solutions - going upmarket by targeting larger companies like Starbucks or partnering with consumer-facing companies like Yelp, Google, or Facebook to integrate their messaging product.

The speaker shares that they have had conversations with Google and Facebook and are scheduled to meet with Yelp. Their goal is to have a message button available whenever someone searches for a business, thereby gaining broad distribution.

They express their vision of becoming an infrastructure between consumers and businesses through messaging. If this approach doesn't work, they plan to sell their product as a feedback tool to large players.

The speaker briefly introduces the team, consisting of three technical founders who come from a retail background. They mention previous startup experience and highlight their ability to build everything themselves and handle sales.

Can you tell me a little about the team?

The speaker provides additional details about the team.

Team Description

The speaker reiterates that there are three technical founders in the team who come from a retail background. Two of them previously worked together on another company, while one is an ex-Google engineer.

We're raising 500,000 and 8.5 million convertible note.

The speaker discusses their fundraising plans.

Fundraising Details

The speaker mentions that they are currently raising $500,000 through an 8.5 million convertible note round.

They inform the listener that $250,000 has already been committed by specific individuals and that Mike with Floodgate is willing to fill the round.

They express their interest in having the listener's firm join the round due to their retail experience.

I think this could be pretty big.

The listener expresses interest in the business opportunity.

Listener's Interest

The listener acknowledges their interest in the opportunity and mentions the need to discuss it further with other partners on their side.

They express that they believe the venture has potential for significant success.

We are closing a round this Friday.

The speaker informs about the upcoming deadline for closing their funding round.

Funding Round Closure

The speaker notifies the listener that they are closing their funding round on Friday.

They suggest taking time to consider and discuss internally, mentioning availability for further communication before Friday.

Some key points here...

The speaker provides feedback and highlights important aspects of the conversation.

Key Points and Feedback

The speaker emphasizes the importance of telling a narrative that makes sense to people, highlighting how narratives were present in this conversation.

They mention that insights were shared, providing new information about the market.

The collaborative nature of the meeting is noted, where it felt like a conversation rather than an interview.

New Section

This section discusses the importance of follow-up after a meeting and emphasizes that anything other than a check or wired funds is considered a no.

Follow-Up and Deal Heat

Putting pressure on potential investors by creating deal heat, which means generating demand for your round, can help drive up the price.

Due diligence on investors is crucial to ensure they are the right fit for your company.

Entrepreneurs should not overlook the importance of thoroughly researching and vetting potential investors.

Knowing when to stop fundraising is essential as some founders may become too focused on fundraising rather than building their company.

Fundraising Does Not Equal Success

Fundraising does not guarantee success, and it is important not to equate fundraising with overall success in business.

Many people mistakenly assume that successful fundraising automatically translates into a successful company.

Building a company requires more ambiguity and effort compared to simply raising funds.

New Section

The speaker shares their intuition about why some individuals prioritize fundraising over building a company due to their previous experiences with applications and achievements.

Prioritizing Fundraising Over Building

Smart individuals who have excelled in academics and careers may view fundraising as another application process they can easily navigate.