I’m always on the lookout for the next big thing. As someone who’s been in the IT channel space for more than 20 years, I like to keep my pulse on what’s happening, staying in touch with what’s new and exciting.
But not every new startup is worth my investment dollars. As someone who has built, scaled and exited my own companies, and now advises startups on how to attract and prepare for investors, I need potential investments to show me something special. (Spoiler: Very few measure up!)
So what is it that I’m looking for? To be honest, it’s not rocket science. These are all things you can work on and perfect. That said, they’re critical to attracting investors, and ultimately your success.
Here are my top 5 must-haves when I’m looking for a company to invest in:
- Product strategies and messaging that are clearly differentiated from others in your category.
- A sales enablement program focused on helping your channel partners grow.
- A comprehensive understanding of your sales model and key metrics.
- Executive teams that know their numbers inside and out.
- 100% commitment to the channel.
Deep-Dive Top 5
Pretty straightforward, right? Not always. And not many startups or emerging vendors get it right. So let’s look at each one more closely.
- Clear Differentiation – Imagine you come to me as a company focused on security awareness training. Great! It’s a growing sector in the IT space. But there have been more than 500 such companies pop up in the last year alone. So guess what? If you want me to invest in you, you have to tell me what you’re doing differently. What makes your product or service unique? The number one problem I see is vendors struggling to articulate why they’re special. You need to have a solid grasp on what’s different, and be able to explain it. If you can’t, you might want to seriously think twice before going any further.
- Invest in Sales Enablement – Your company needs to understand your customer (ie., your MSP, or your MSP’s customer, depending on your sales model. More on that next). If you don’t invest in teaching an MSP about your product or service, and why it can solve their problem and/or meet a need, you’re not going to be successful, period. Instead, you’ll see low adoption and a high rate of “churn” – what we call customer turnover. Lots of interest one day, and none the next. As an investor, this is alarming, and tells me that things only look good on the surface.
- Sales model and metrics – Are you a “sell to or through” solution? Knowing where you fit determines how you go about marketing yourself. “Sell-to” opportunities involve selling your product or service directly to the MSP. They may or may not want or be able to monetize your solution. These often become COGS (Cost of Goods Sold) to your channel partners. “Sell-through” means MSPs can use your product to sell a more comprehensive service to their customers. Your model will affect your overall sales and marketing costs and profitability, and may have a major impact on your channel partner’s profitability. Understanding where you fit is critical for “must-have” #4.
- Understanding financials – For me to invest, I need to see that you’ve got a firm grasp on your numbers–and how those numbers affect what you do and how you operate. You need to take into consideration that there will always be a percentage of your partners that churn, meaning you need to be connecting with more MSPs than you’ll actually need. You need to know your development costs, and know how much development is needed before being market-ready. And you most definitely need to know the value that you bring to the channel. What are you adding to the space? What makes you attractive to MSPs? To customers? I love this quote from Mark Patricof, founder of investment firm Patricof & Co., in Forbes: “Know exactly what you want to spend your money on. Don’t tell me how long it will last; tell me what you want to prove. The most impressive entrepreneurs communicate the value of their businesses through numbers.”
- Commitment – This one is kind of a no-brainer. Channel partners can tell in two minutes or less whether a vendor is fully committed to the channel. Right or wrong, nothing is more important to the channel than commitment. Trying to have your cake and eat it too by selling direct to an MSP and to their potential customer base is forbidden, and shows disloyalty to the channel.
The Bottom Line
Simply put, I’m looking for solutions that stand out. Only about 10 percent of the investment pitches I hear are worth a second look. But when I encounter those 10 percent, it’s pretty exciting.
That said, even if you hear a ‘no’ from me, it doesn’t mean it’s hopeless. I’m here for you! I can work with you to help clarify your goals and purpose, and prepare you to approach investors. I can help you determine your start-up strategy, and help you look towards growing and scaling.
And most importantly, I can help you stand out from the very large, very mediocre crowd. If you can do that, you’re already way ahead of the pack.