Some problems in business can be solved with money; many cannot.
When you’re pitching to an investor, one of the best things you can do is to show how the important problems facing your business are those that can be solved with money, because money is what they’re providing.
Even if you’re not pitching this is a useful exercise, because if you’re good at the things money can’t buy, you’ll remain competitive even when confronted by a well-funded competitor.
So it’s useful to separate what aspects of your business could be improved with money alone from what you need to address with time, attention, and intelligence.
Finding good people is almost impossible. I have this blog, a nice Twitter following, attention in my local community, and social “favors” I can call in, and it’s still almost impossible. And the thing about good people is they always have options: Existing job, other excellent offers, the freedom to not work for a while, etc..
If someone handed me a million dollars it wouldn’t help me find an awesome person; they’re just scarce.
Once I find someone, however, then money helps a lot, because I could satisfy any salary requirement, handle relocation, provide a signing bonus, lease a car, or whatever else is necessary to make money “not the issue.”
So if you’re raising money and you don’t have your team assembled, the investor knows that handing you $200,000 won’t change that. But if you have the team, but they’ve had to work in their spare time because everyone needs a day job to pay mortgages, that’s a good reason to raise money.
Marketing of most sorts can be solved with money. Money means you can spray ads everywhere. Money means you can try 20 different campaigns even if most utterly fail. Money means you can try 50 titles/descriptions/landing pages through AdWords until you find one that converts decently.
One big exception is anything that requires authority, like blogging and other social media stuff. You can’t buy authority. You can’t buy that kind of attention, where people listen because they want to listen, not because they’re interrupted, where they interact with you because they respect your opinion.
Social media marketeers (like mouse-katteers but with larger Twitter followings) have already beat this point to death; no reason to repeat it. But if your business requires the modern “tell-your-friends” social-media-style punditry to succeed, you’ll have to do that without money. If it’s just a matter of pouring more marketing dollars in the top so you can crank out more revenue in the bottom, that’s a machine investors like to power.
And so forth
You see where this is going, so let’s accelerate:
- Writing more code, faster, yes. Knowing what to write, no.
- Acquiring more leads, yes. Know how to convert them, no.
- A prettier website, yes. What text to put on the website, no.
- Leeway to make mistakes, yes. Philosophy of learning and using mistakes to improve, no.
- A QA team to improve quality, yes. Knowing when a bug isn’t important enough to prevent shipping, no.
- Time to outlive a recession, yes.
The pattern: Concepts, behaviors, knowledge, and process cannot be fabricated with money, and possibly cannot even be accelerated. Once you know what to do or, more likely, you know how to learn quickly, then money becomes an accelerant.
Supposing you’re about to raise money, in light of this discussion what should your pitch include?
- Emphasize how spending money will improve specific things which, today, are broken or missing only because money is lacking.
- Show proof of your ability to master the things money cannot buy — your ability to learn, change, and improve.
- For those things money can accelerate, and for which you’ve spent a teeny amount of money, show how well you’ve done with that. It’s easy to imagine more money bringing more results.
- For those things money can’t solve and which you haven’t mastered, bring it up before the investors do and have a plan, which in itself proves you’re cognizant and thorough. If you don’t have a clear, plausible plan, don’t raise money yet.
- Specifically, don’t raise money if you haven’t assembled the core team.
Let me make point #2 tangible.
I cannot count the times I’ve heard someone proclaim how adaptable they are. “I’m in love with A/B testing.” “I’m not afraid to admit when I’m wrong.” “I listen to my customers.” “I’m a big fan of Eric Ries.”
Yeah, you and 60,000 other people. I’m supposed to be impressed?
Since everyone and their dog is now an expert in Lean Startup, you need to demonstrate, not regurgitate platitudes. Tell me about how and why your pitch changed when you vetted your idea with potential customers. Walk me through a screenshot of your app, revealing the customer feedback that lead to each part. Show me your company dashboard with the numbers that matter, explaining why each number is there, what you expect those numbers to do, and what you do when they don’t go as expected. Tell me about your first idea which turned out to be wrong but lead to the second, and how much easier it was to sell the second. Tell me what happened when you tried different price points, and why you settled on the current one. Show me which part of your landing pages improved with A/B testing and which required old-fashioned creative thought. Tell me in your customers’ own words why they’re willing to pay you for any of this.
When you demonstrate that you can do these things, what you’re really saying is that you know how to think, how to overcome roadblocks, how to figure out what to do.
All things money can’t buy, but exactly the things which, when combined with money, make companies most likely to succeed.
If you’re not raising money, you still need these skills, exactly because you don’t have the money to waste!
Things money cannot buy are still the most valuable things.
Let’s continue the discussion in the comments: What else can/can’t money buy?
44 responses to “Startup Exercise: What can’t be solved with money?”
Money cannot buy excitement about what you do. Money cannot buy your far reaching ideas and plan of execution. Money cannot buy your plan B, if something goes wrong. And, of course, money will never buy you happiness and experience.
Brilliant insights! It’s hard for startups to realize what an investors perspective is.
One small point. Some markets require money to get social media authorities to endorse your product. In other words, unless you pay, they will not give you the time of day. And you probably need someone on your team they know and trust to even listen to what you have to say (even though you are willing to pay!).
If you have to pay someone to convince them of your great idea..
Really good points. What struck me was: “Tell me about how and why your pitch changed when you vetted your idea with potential customers”
I’m keeping all my PPTs – I am up to version six and the minor versions are not so very minor. I figure we’ve saved hundreds of thousands of dollars already.
Well put. Saying that you’ll “pivot” (a word I’m quickly tiring of) is not nearly as difficult as actually changing your product and it’s message to meet the needs of a different market. A proven adaption is a strong indicator of ability.
What about owner compensation? If you have that perfect idea, but it will just take 6 months to get to a revenue level where you could live off of it, will money fix that? Or, perhaps the other question to consider is: how much does that 6 months get elongated if you try to bootstrap and moonlight this startup rather than making it your primary focus?
What text to put on the website, no. Are you saying that this cannot be bought/traded? If so I don’t agree. Its vital to clearly communicate the purpose of your product, its benefits and how it works. A good branding strategist can provide all of the above and yes, will often work for a convertible pro note, blood, free product (if applicable) or similar.
Learned a lot from it …. so relevant for us as we also try to raise funding and build a gr8 product and a gr8 company.
Wow… please more of these exercises please. That’s real training.
Perhaps you’d consider tackling employment applications and interviewing and other ways to attract, an vet, good people (who are indeed exceedingly rare … on my website employment application I ask the question “why are manhole covers round” and most the time the answer I get is “because the hole is”.
10/10. I’m not the type to print out posts and pin them up, but this one is an exception to the rule.
As a bootstrapper, I agree with your overall philosophy. To play devil’s advocate, however, I think money can buy more than you think when combined with some founder street smarts. For example, if you’re having a tough time hiring and you have money you can enlist specialized tech recruiters to speed up the process. Money can help hire the expensive, top talent bootstrappers have a hard time affording. People that are smart enough to help the entrepreneur answer the hard questions like knowing what to write, how to convert leads, what text to put on the website, etc. Obviously the founding team should know this stuff too, but hiring top talent via deep pockets can help accelerate the learning curve.
In my personal experience, just answering one of the hard questions like “how to convert leads” can take weeks to properly test and answer. There are hundreds of these types of questions when starting up. So the right team can help you answer the questions faster. And money is one of the best ways to jump-start the team. Instead of hiring bottom-up and having to fully manage sales, marketing, product, programming, etc you have the cash to hire top-down and let the initial team build out their areas, vs. doing this all yourself. This concept probably deserves an entire post of it’s own. I think a lot of bootstrappers struggle with which way to build out the team, especially when budgets are limited. I know I do!
I think the process of learning how to build a team is something a startup has to learn. Money cannot teach the process, it can help you hire the person who can help in process.
The articles here are consistently good, but this is probably the best I have seen so far this year.
I think one item people often under-estimate the value of is industry knowledge. Having competitive research is nice, but knowing the competition and their history really only comes from being on the inside.
This might be part of what you are alluding to when you talk about having the right people, but I think it deserves it’s own bullet on the list.
I read this post through twotter and came here to exress my views. very said about what money can’t buy. It cannot buy the passion. It cannot buy the zeal.
And that si what is very important when you hire people to work in startup.
There was a very nice post from one of the Quora engineers that keeps them motivated and he goes on to explain that the passion to change the world is what makes them tick 60 hrs a week!!
But money can buy you confidence. When you are bootstrapping for months and years, somebody puts money into your startup and it re vitalizes you.
When you had been running business without any paid customer, the first paid customer brings back the confidence ,”yes we can do it”.
Great tips. You have summarized all the important components a successful business must have in one single article. For me the most valuable sections are ‘Now therefore…’ & ‘And so forth’. Thanks for sharing your ideas Jason!
Brilliant post! Thank you, I will be sharing this.
This is a really great post. It is going to be really hard to hire people with everyone getting funding these days. Being a good recruiter is going to be the name of the game.
Great article, You are definitely right about the importance of the team, without people that are hungry to succeed as well as an ability to work together to reach that success with few problems, money will not help any part of your business succeed.
As well I liked what you said about Marketing in this article as well. This type of authority only comes with time, effort, and real content. You need to be able to produce a viable social networking product in order to express your worth in this spectrum
here is an article of the pros and cons of different marketing strategies when there is a lack of money and you need to make the right choice now,
Great Article and great timing , helped me refocus on the tasks on hand!!!
Great Article and great timing , helped me refocus on the tasks on hand!!!
Great article and good timing to help me focus in the tasks at hand!
Another great post. Sometimes I wonder how do you find time to come up with topics and with all the great content of these posts… keep it up!
Topics == doing my startup and talking to other founders all the time.
Time == wait until inspired, then knock out some drafts. Easier to find time here and there to edit. Then keep posts in the buffer so there’s never a deadline.
Reading this has reminded me that whether you are investing sweat or hard cash (or going for investors money) the same fundemental questions need to be answered.
I would argue that when starting up a new venture or even when launching a new product/service within an existing business; you owe it to yourself to think of yourself as the investor as well the entrepreneur.
You have X dollars (or the equivalent in time) and presumably want to make X bigger. The question is always, is this the best place for me to invest it or could I make more elsewhere.
I believe Warren Buffett used that principle to determine where to invest. Savvy investors are doing the same.
So the question is “Are you doing it?” or are you going by gut.
I know my preference and thanks for the reminder to follow it.
What money can and can’t buy is an interesting philosophical topic. My mom gave me a good book on the question called Money and the Meaning of Life by Jacob Needleman. Recommended: http://www.amazon.com/Money-Meaning-Life-Jacob-Needleman/dp/0385262426
Oh mon Dieu, vous êtes une personne génie et un bon photographe i comme votre grace images.
Ah, I love reading your posts, Jason. I completely agree that money can’t buy the intangibles of an awesome team. You also make an excellent point in the section about showing proof and giving examples during a pitch. It’s not hard for smart founders to make their company and vision sound great, but I imagine a good investor can (and will) quickly find holes in that greatness if it isn’t backed up by relevant examples and a depth of knowledge.
In terms of needing money for marketing, as the co-founder of a bootstrapped company I will say that there are a lot of cheap ways to both reach an audience and gather useful feedback. One approach that has worked for us is developing a rapport with niche bloggers. It can seem like more effort than it’s worth, but these relationships bring in buckets of feedback and can help to build a solid foundation with your core audience.
Thanks for putting this info out into the world!
I find one of the most difficult things is knowing when exactly you should do your second round. We have traction, revenue is up and to the right, and I would say I could identify what I would do with the funds from the second round per your list of “acceptable items” – but we certainly don’t have it ALL figured out.
How much do I really need figured out, and how does that affect valuation?
Great question and not one that can be answered simply and without more of an interview. Of course it depends on many things like: The particulars of your financials, what exactly you’ll do with the money, why you believe that money now will result in a valuable company, what you see as the goal of the company in the next 12 months and in general, the market you’re in, etc..
Hit me up by email (see “Bio”) and maybe I can help.
P.S. “Valuation” is important but so are terms, who the investors are, etc..
Yes,money is quite importmant,and in many conditions,it works,and make something become easy.But money can not solve every issue is the truth!enjoy read your posting,it make me thought more about the society and life!thank you.
I’ve always had more respect for the companies that are able to become big after starting small than those that start with millions in the bank already.
Interesting and very thought provoking article. it is true that money cant buy everything
Its very difficult to start a company if u dont have funds and even if u have funds u need to think very well what your plan is and u need to think very well about compettion and a way to manageyour venture :)
dont forget about the money hehe and pay employees