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List of deal breakers – this is why startups are not given money

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What ideas and startups are capable of attracting funding? And in what cases would investors choose not to take risks? Evgeny Lakhmanov, investor and mentor, co-founder of the co-founder of the co-founder ELTEAM Builder (sphere of interests: mobile, SAAS solutions) shares his personal list of deal breakers – critical factors in evaluating a project.

Perhaps an expert opinion will come in handy to validate your business idea.

Comprehensive vision: audience – value – product – “best”

– When evaluating an idea or product, even at the basic level of their development, I would recommend focusing on a set of these four criteria.

Evgeny Lakhmanov.  Photo from personal archive
Evgeny Lakhmanov. Photo from personal archive

First of all, many projects very often have little understanding of their target audience

  • It’s already a good idea if the team has at least a high-level vision of the audience. For example: all companies that have a department for purchasing mobile traffic
  • But few people go down to the level below. For example, not all startups understand: if resources are limited, you need to work only with a very narrow segment, in which some kind of pain or task is manifested best. And most likely these customers will be willing to pay to solve the problem.

Value… Until now, the classic situation is very common when a client comes to buy a door, and he is told about its fire resistance, about the class of protection against burglary, the number of locks, the thickness of the metal. Ask sellers: “Why should buyers know about all this?” – many will immediately be confused.

It is important to remember that the value of the product is what the customer receives in the end.

A person does not buy a drill, but a hole in the wall – the vast majority of startups still do not understand this!The best. “ This is a set of clear characteristics: what are you better than what you do differently and how you get a competitive advantage. For example:

  • You can target a different niche than your competitors. Satisfying the needs of the audience is better than some general product
  • Work with the same audience, but deliver the product through other channels that no one thought about before.

Yes, when you have small ambitions and want to earn a little, or when the market is growing at a fast pace and there is enough space for everyone, you can make a product similar to your competitors. There are a lot of such examples, just from an investment point of view and mentoring it is not interesting.

Therefore, I would advise you to figure out what your product can be better, higher in level three times compared to the existing ones.

The product has no successful counterparts

I am alarmed by such ideas or projects (unless, of course, these are disruptive innovations). Although I admit that venture capitalists will disagree with me.

The point is that venture capitalists are often “sharpened” for a speculative model. Their goal is to sell the project to a strategist or other financial investor on time. For example, I do not know how to play such games, so I build projects that are profitable in the foreseeable future.

And I see that my thoughts are confirmed in the market. Mentors and investors are more and more interested in projects that will turn into operating profit in 1-2 years and will be able to scale.

Therefore, in the place of startups, I would wonder: do you really need to think so much about something unique.

There is a huge amount of money in the world today – accordingly, there are a lot of entrepreneurs who have long come up with products and services that in one way or another cover the main problems of the inhabitants of the planet. Now, when developing a product, the main question is how and in what way it performs tasks better than existing counterparts do. And this is a key advantage when it comes to the “best” criterion.

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The project is difficult to scale

Scaling is multiple growth. For companies with service business models (eg web studios, ad agencies) this is difficult to do. Successful work there depends on the contribution of specific individuals, on a large number of daily communications. Many investors avoid these things – these success factors are difficult to scale.

The founder / team has no market expertise

Yes, yes, it happens!

Not so long ago, I spoke with a team that wants to create an app for relaxation and stress relief. The plans are to occupy 20% of the market. The idea of ​​the product is to create a new way of emotional relief with the help of specially selected audio compositions and videos. The guys shared their idea with friends, they said it was cool, etc.

I asked the founder how many years he worked in the field of psychology in order to understand the needs of users? How deeply did you immerse yourself in scientific research? In response, I heard: “I read a couple of books, and then in practice I came to the idea myself.”

Well, this is clearly not enough! This means that the team does not have domain expertise. It is not clear how they determined that the product would be in demand.

If you make a product for a certain industry, but you yourself have never worked in it, and there is no person with such experience in the team either, then the product will obviously be developed shallowly.

The entrepreneur is not ready to devote all his working time to the project

Last year I had a request for mentoring. Already in the process of the first communication, I heard literally the following: “This is my 2nd project, which I am conducting in parallel, and it is not the main one. And in general I do this not for myself, but for my brother. “

In such a product, there is no comment: the founder will clearly not give it due time.

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At the same time, there are entrepreneurs on the market, teams that have invested their own savings in creating a product, left hiring for it, and, for example, have been developing for a year. In this case, of course, we can talk about a completely different, high level of involvement.

Yes, there are times when, in addition to developing his own project, the founder also works in hiring, in his main job. Because he has a family and needs to be fed. This is a normal situation. If I see that a person is on fire, is enthusiastic and everything rests on everyday issues – you can invest in him. So that he can immerse himself in the project completely.

The entrepreneur is not ready to learn

Unfortunately, this happens. These are, as a rule, founders who say: “We already know everything, we only need money.”

The value of investments is not so much in money (this is already a hygienic factor), but in the knowledge and methodologies that are brought into the project.

I think the troubles of these entrepreneurs depend on two factors:

1. Narrow horizons… I used to be in the auto business, and then one day I got into a conversation with a budding entrepreneur from the same segment. We talked about promotion, even got an idea to help him with marketing. But he said that he himself can do everything. Say, everything is simple: I went to Google Adwords, set up a campaign for contextual advertising in the advertising office – that’s all marketing.

I tried to tell you what marketing really is. But I realized that this person would not learn. It will exist to a certain level, and then it will not jump. In this case, there can be no talk of development on an international scale at all.

I call this a tunnel in thinking that you don’t want to expand.

This is unconscious incompetence, lack of curiosity, unwillingness to learn anything. Yes, a mentor, an investor can show a “panoramic picture”: help founders or teams see more. But on condition that it responds: there will be motivation to listen and do something.

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2. People who have read the wrong books or articles. They believe that a leader should always be confident, exude cheerfulness, and never show weakness. And therefore they never admit that they do not understand something. On the contrary, such people “blow up”, close when you try to help them with valuable thoughts.

An entrepreneur is incapable of running a business

The leader is the person who will move the project forward. If the team does not have such a visionary, then this is all – the finish line.

Let me give you an example. The team, consisting of two founders, had an interesting project, from my point of view. But it all ended when I asked: “Who will be the CEO, who will” drive “the idea? In response – silence … Then the guys replied: “And we thought it would be you.”

As a result, the right person was not found, I had to close the topic.

A visionary is a person who needs most of all, who has a vision of how the market will change, how an entrepreneurial idea will follow.

He will constantly push the team, look for ways out of difficult situations, new opportunities, with his enthusiasm to promote the idea not only to the market, but also inside the company – to “infect” all employees with it.

In startups, by the way, the mistake of combining the roles of visionary and operational manager is often encountered. These are conflicting positions, they are poorly compatible. Therefore, at the first opportunity, you need to disconnect them.

If you still have questions about project evaluation or want to share your idea, write to Evgeny Lakhmanov at [email protected]

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Fidenge Pecold

My profession is a journalist, but my hobby for 8 years has been studying Forex investing and trading. During this time, I managed to gain extensive experience in investing and trading cryptocurrencies and double my capital in the Forex market. To be the author of this magazine, the site owners invited me to participate in one of the 2020 trading webinars, and I will try to reveal the most relevant crypto market news for you.

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