Roundtable Recap: September 30 – Investors Don’t Fund Broad Ideas

At today’s roundtable I had a disturbing experience.

One of the entrepreneurs presented a business idea that sounded like a business-to-consumer concept, but as I peeled the onion, it turned out that the business was really a business-to-business concept. I asked why the pitch was so confusing and all over the place, to which the entrepreneur answered: “I am trying to keep a broad idea so that when I talk to investors, they can decide which way they want to go.”

I almost fell off the chair.

Then, I got very agitated.

Here, I had an entrepreneur telling me with a straight face that he was leaving the most basic business decisions for the investors to make. Absurd, but most of all it scared me. It disturbed me no ends. I am still kind of rattled today trying to figure out how entrepreneurs can be given some basic lessons on startups and funding.

Folks, if any of you are out there with such naïve ideas, please understand that investors do not invest in broad ideas. And they don’t make critical business decisions on your behalf based on some nebulous concepts.

I will not go into the details of the specific discussion any further, but you can listen to it in the recording. Instead, let me talk about the other three businesses we discussed today:

First up was Robert Woltz with Application Services International, whose product EMPAS will provide an on-line low cost solution that benefits medical institutions searching for qualified, credentialed, and verified candidates. The medical field has a very high employee turnover rate, with 5 million medical professional employees leaving current positions each year (U.S. Bureau of Labor and Statistics – 37.5% per year). To replace them, employers spend $11,500 average per-healthcare employee acquisition Ccst (20% of the annualized salary + hiring incentives is considered customary for acquisition cost). There is no available simple or inexpensive way for employer and employee to find each other except through Monster-type services.

Robert has come up with a solution to this problem at 20% of the cost of hiring employees through Monster, and has several hospitals signed up to pilot it as soon as the product launches next month. He has a couple of hospitals who have agreed to pay ~$35,000 annual subscription if they like the product, and another dozen also lined up to try it. He is looking to raise money now, but I must say, his financing strategy made me cringe.

We have to work on that!

Then Lokesh Parakh discussed a consulting service that he and his five colleagues are trying to pull together in the prepaid card business, helping non-banking financial institutions launch card services in South Asia. In speaking with Lokesh and discussing his and his colleague’s backgrounds, I sensed that this is a group trying to do management consulting with little or no background. Whatever background they have is more suited to IT consulting, and I suggested that they become a value-added-reseller of a major card technology vendor and represent them in the South Asian market. Gemalto, the smart card world leader comes to mind as a possible vendor. It might be a much better alignment of skills.

Then Amit Gurung pitched a business plan to create a distribution channel for product companies trying to cater to the rural base-of-the-pyramid (BPO) market in India. Amit’s analysis is absolutely on the mark that there is a tremendous paucity of distribution channels for BPO products, but he did not present any information about how he was going to solve this problem. All I could assess that he is bound to face a chicken-and-egg problem – not having enough scale to attract product vendors to use their channel, versus not having products with which to build a customer base. How does he mitigate that?

Since I don’t know anything about the solution Amit has in mind, I just threw an idea out there . . .  why not become a retailer of the same basket of products that he wants to distribute? Buy from the vendors as all retailers do, and see if the chicken-and-egg can be mitigated that way.

I’m also thinking seriously about creating a private (paid) lounge for 1M/1M entrepreneurs who, like Amit, don’t want to share their ideas in a public roundtable. I constantly get requests for feedback from such entrepreneurs, and I recognize that this is an issue. However, it hasn’t been physically possible for me to offer free consulting to such large numbers of people thus far. Nonetheless, increasingly, this private lounge is emerging as one of 1M/1M’s biggest requirements.

For those planning to pitch their business during an upcoming roundtable, please use the Clarify Your Story appendix of my Positioning book to prepare your pitches. While many entrepreneurs find it difficult to answer all the questions in the CYS framework, I strongly recommend that you address the following items in your roundtable pitch at the minimum:
(1) A validated customer value proposition
(2) Detailed segmentation analysis and target customer definition at a fairly granular level
(3) A customer acquisition strategy that is pragmatic, and
(4) We also recommend that you present a succinct summary of whatever customer validation work you have done.
Your roundtable pitch should be no more than three minutes, and consist of four slides. No more. No less.

I started doing my free Online Strategy Roundtables for entrepreneurs in the fall of 2008. These roundtables are the cornerstone programming of a global initiative that I have started called One Million by One Million (1M/1M). Its mission is to help a million entrepreneurs globally to reach $1 million in revenue and beyond, build $1 trillion in sustainable global GDP, and create 10 million jobs. In 1M/1M, I teach the EJ methodology, which is based on my Entrepreneur Journeys research, and emphasize bootstrapping, idea validation, and crisp positioning as some of the core principles of building strong fundamentals in early stage ventures. In addition, we are offering entrepreneurs access to investors and customers through our 1M/1M Incubation Radar series. You can pitch to be featured on my blog following these instructions.

The recording of this roundtable is available here. Recordings of previous roundtables are all available here. You can register for the next roundtable here.

This segment is a part in the series : Roundtable Recap
. March 25 – A Mixed Bag Of Advice . April 1 – Bootstrapping Tips . April 8 – A Focus On E-Commerce . April 15 – Small Is OK; The Goal Is Profitability . April 22 – The Original Runners . April 29 – Finding The Right Direction . May 6 – Defining Value Proposition . May 20 – Validation, Validation, Validation . May 27 – Is The Venture Worth Your Time? . June 3 – Defining Market Segments . June 10 – Efficient Targeting . June 17 – Online Education Startups . June 24 – Three Startups That Can Hit One Million Dollars . July 1 - Get Your Pricing Model Validated . July 8 - The EJ Methodology . July 15 - A Market Of Late Adopters . July 22 - Bootstrap Using Services . July 29 - Startups In Malaysia . August 5 - Paying Customers =>Validation =>Valuation . August 19 - Niche E-Commerce Is Great For Bootstrapping . August 26 - 85%-90% Of Search Traffic Comes From Organic Search . September 2 - Find High Velocity Channels . September 9 - Open Opportunities In Cloud Computing And Rural BPO . September 16 – 5 Cloud Computing Opportunities for Entrepreneurs . September 23 - Do Not Spray And Pray . September 30 - Investors Don't Fund Broad Ideas . October 7 - Try To Get At Least $2M Pre-Money In Seed Round Valuation . October 14 - Professional Investors Do Not Invest In $20 Million Markets . October 21 - Bootstrapping Comes In Many Flavors . October 28 – Convert Potential Competitors To Partners . November 4 - Premium Lounge Sneak Preview . November 11 - African Tech Entrepreneurs Emerging . November 18 - Not Coming To The Rescue Of Victory . December 2 - Niche Marketplace Businesses Can Be Interesting . December 9 - Where Should You Raise Money? . December 16 - Top 10 Tech Trends To Watch . January 6 - Top 10 Vertical and Social Web Trends For The Decade . January 13 - Top 10 Online Advertising Trends For The Decade . January 20 - Personalization Remains An Open Problem . January 27 - Non-Dilutive Financing Through Revenue Sharing . February 3 - Indian Entrepreneurs Are Maturing . February 10 - When Keywords Are Competitive . February 17 - Indian Company Plugs Gap In Google’s Enterprise Solution . February 24 - VCs, Angels, Incubators, Accelerators – What Are You Doing With Your Rejects? . March 3 - Spotlight On The Northwest . March 10 - Spotlight On India . March 17 - Spotlight On Latin And Central America . March 24 - 75th Session Spotlights The Midwest . March 31 - Microsoft’s $100,000 India Startup Challenge Grant . April 6 - 1M/1M Announces Important Partnership With MAD Incubator, Malaysia . April 9 - 1M/1M Announces Partnership With TiE Chennai . April 16 - 1M/1M Partners With Indian Angel Network Incubator . April 17 - High-Octane Energy In Pune . April 21- Incubators Are Reaching Out To 1M/1M . April 28 - Guerrilla P.R. & SEO Most Profitable Customer Acquisition Strategies . May 5 - Ownership Matters . May 12 - Two Really Cool Companies . May 19, Making Money From Blogs . May 26 - Twitter, LinkedIn - Why Not Affiliates? . June 2 - 1M/1M And Incubators - What We Have Learned . June 9 - Silicon Valley . June 16 - Exciting Companies Lined Up For Microsoft Startup Grant Finals . June 23 - New Assessment Tool For Entrepreneurs . June 30 - Continued International Participation . July 21 - Crowd Sourced Funding Exchanges - An Emerging Trend . July 28 - Investors And Incubators Need To Look At Pre-Incubation . August 4 - How Do You Bootstrap Freemium Ventures? . August 11 - Menlo Park And The Silicon Valley Renaissance . August 25 - How To Use Twitter For Lead Generation . September 1 - Fall Call To Action . September 8 - A View Into Israeli Start-ups . September 15 - Do Your Homework First . September 22 - How Do You Catalyze A Region’s Entrepreneurship? . September 29 - From Poland To Argentina . October 6 - Dedicated To Steve Jobs, Reinforcing Mission To Restructure Capitalism . October 13 - FREE Is Not A Business Model . October 20 - Non-profits And For-profits . October 27 - Check Out Stanzr . November 3 - VCs Are Not Always Right . November 17 - Business Schools And Early Stage Entrepreneurship . December 1 - 1M/1M Premium Company Freshdesk Wins Funding From Accel Partners . December 8 - Three Open Opportunities For 2012 . December 15 - Web 3.0 And Social Dancing; Romania Emerging . December 22 - Free Apps, Ad-Supported Business Models => Dangerous! . January 5 - ERP Galore . January 12-13 - Spotlight On IIT Kharagpur, India . January 19 - Are Media Sites Fundable? . January 26th - Spotlight On Jacksonville, Florida . February 2 - YCombinator vs. 1M/1M . February 9 - Are You Fundable? . February 16 - What’s Happening In Turkey? . February 23 - Microsoft Israel To Offer 1M/1M Scholarships . March 1 - Strategy Gaps Need To Be Plugged . March 12 - Winners Of Microsoft Israel Scholarships . March 15 - Spotlight On 3 Day Startup Tel-Aviv . April 3 - Rendezvous In Bangalore . April 12 - More From Indian Entrepreneurs . April 19 - Tyranny Of The TAM . April 26 - A Rare Women-Only Session . May 3 - Some Wonderful Opportunities With Corporate Partners . May 10 - BlueSnap-Elance Contest Applications Deadline This Weekend . May 22 - Winners Of TechHub-A&N Media Battle Of The Startups Contest In London Win 1M/1M Scholarships