I just got off the phone with an entrepreneur that hit all the right points… 

- Followed up on a small idea to figure out if there were any customers for his service—turned out there were more than expected.

- Worked with other startups to figure out proxies for the set of most demanded features and compatibilities—and made a plan to offer them. 

- Got up and running right away—and on the cheap—to start testing the service.

- Crashed the service several times with early alpha users, leading to improved product.

- Almost as immediately, went out and started talking to all of his potential competitors, finding out where this service was on their roadmap.  Even found a way to derisk competitive threat by thinking about ways to work with them.

- Now that he’s done research and has initial customer validation, he’s raising just enough to get to the next milestone—to figure out what his business strategy will be out of a limited set of scenarios that he’s narrowed down to.  This will be dictated by real metrics like cost of acquisition, sales cycles, margins and capital requirements.

Color me impressed. 

A lot of times, when I see a startup’s advisory board, it’s a skippable slide.  You’re a vertical search for Play-Doh and you have some guy that owned a toy store for 20 years as an advisor.  That’s a yawner because their are probably 50,000 people just like that guy around.  It’s nothing special to get him involved, and while he has some domain expertise, it’s not so unique that he gives you an innate advantage—nor can he get you any doors opened that you couldn’t get yourself.  Now if you had the inventor of Play-Doh or the Chairman of the Play-Doh corporation, that would be something, because now you’re talking about people who have relatively unique experience and the ability to command unparalleled influence and respect in the market. 

When I first started Path 101, I made a list of who would be the ultimate people I’d like to get involved in the company as angels or advisors.  The founders of any of the big job boards were tops on that list, so I immediately looked up what they were up to now and did my best to network my way to at least a conversation with guys like Richard Johnson, who was the Founder of Hotjobs. 

That turned out to be important, because the more people I talked to in the jobs space, the more people wound up asking me if I had ever spoken to Richard and what he thought of the company.  Had I answered that I had never met him, that would make it seem like I didn’t have the ability to make the connections I was going to need to push the company forward. 

Investors do that all the time.  They leverage their network for second opinions and to try to provide help to portfolio companies.  I’m often sending companies that I meet to the best networking contacts that I can think of—but in reality, even though it rarely happens, I’m always thinking that the folks I send them to are connections the company should have already made. 

So, if you’re a startup in the fashion space, you should have already talked to the founders of Gilt—and actually that’s probably where I should have gotten the recommendation to meet with you in the first place.  When successful industry folks send me a company, in a way, it already derisks the competition question.  It means that the big gorilla in a space probably doesn’t initially see you as competitive, but that you’ve got something that people who should know what they’re talking about believes will get you to success. 

So who’s your ultimate “Who’s Who?” list of people you’d like to get involved in the company either as advisors, investors, or just champions?  Don’t wait until you raise money or even have your product launched to have a dialogue with them.  They’re undoubtedly the best people you can possibly get feedback from on the viability of your idea, what the customer pain points are, and what will sell in your market—and whether or not they might ever want to buy you or eat your lunch.  I’m going to eventually go to them anyway for due diligence as well, so best that they know and understand your story firsthand—and that you’ve sold them on it.  Also, if in fact you do get them on as angels, it provides the company with a nice validation on the market side.

So who’s who?

Here’s a list of the types of people you should be checking off:

• CEOs of companies that you want (or need!) business development relationships with
• CEOs of companies that you’re in possible competition with (Hey, you never know)
• The very top of the heap of pundits and thought leaders in your industry, including top industry analysts
• Financial backers of the most successful company in your space
• Original founders of the most successful companies in your space

Also, convincing top industry folks to champion your cause should conceivably be a helluva lot easier than driving $10 million dollars in revenues or signing the business development deals that will get your product the distribution it needs.  If you can’t sign up an advisor to a deal where they get a little equity in your company for a quarter call and a quickly returned phonecall, how are you going to ever hire that rockstar developer away from Google or sign that tipping point deal?  It speaks volumes if you’ve already hustled and hacked your way to the right people versus sitting on the sidelines without having tried.  You’ve not nothing to lose and everything to gain!

I’ve now had my Kindle for a couple of months and I’m really liking it.  The battery life is amazing, purchases are seemless and fast, and the screen is easy to read from.  I’ve probably done more reading in the last couple of months than I have in the last year.

There’s something consipicuously absent from the Kindle, though—other people.  Reading and shopping from the Kindle is a disappointingly closed and solitary experience.  I can’t see what other friends of mine are reading from Amazon.  I can’t tweet my latest purchases.  I underline portions of books, but those clips just sit dormant on the device, completely unsharable.  What I’d really like to do is share all my book quotes on Tumblr. 

It shouldn’t be too surprising, though.  Despite purchasing Shelfari, Amazon has severely lagged behind the social game.  Despite the company’s blowout financial performance, you have to imagine the company is leaving even more on the table by not pulling its users into the service through social networking.  It could lock in loyalty to it’s fantastic Kindle hardware with network effects with a few simple features—like letting users opt in to sharing purchases.  The closest it ever came was letting Facebook post Amazon purchases through Beacon—and that didn’t turn out so well.  Perhaps they were left a bit bruised from that experience?

Still, you have to believe that a well thought out social strategy could cement Amazon’s place in the hearts and wallets of consumers and it boggles my mind that they’ve done so little in this area.

While I never did really stop seeing new deals, even when I was out of VC, now that I’m back in, I’ve really ramped up the deal flow engine.  I’ve been enjoying the meetings I’ve had over the last few weeks, but some of them have reminded me what I routinely see missing from most pitches. 

Here are the things that nearly every early stage investor needs to bet on that are too often missing:

1) Strong sense of the key milestones – Entrepreneurs often ask what metrics they need to get to in order to get an investment.  I often turn that question around and get them to tell me what the important milestones are.  Having 100,000 users may not be the right metric for everyone, and it also depends on stage.  A TechForward, a First Round Portfolio company, the team needed to find out whether or not consumers would buy into the idea of paying to protect their electronics purchases from obsolescence—and they needed a very small amount to prove it.  They knew exactly what metrics they were looking for—percent upsell—and how it was going to inform the business strategy—and whether or not there was actually a business to be made. 

Milestones are a waterfall—and having them as goals should inform product, marketing, financing, etc.  If you tell me getting to 25% penetration is critical mass, that’s what I’m going to judge your ability to execute against, and that’s how I’m going to evaluate the appropriateness and risk of the financing.  If you can’t identify a set of metrics that you’re driving at, there’s probably a zero percent chance that you’ll reach them.

2) Implementation of a product strategy – Especially at the stage that First Round is looking at deals (as early as a Powerpoint), we all know that the current product, as designed, is no doubt going to need a lot of work.  The idea will change.  So how is anyone supposed to know whether or not these future changes will not only be for the better, but that they’ll be implemented in a focused way that drive key milestones in the right direction?  You may think that search box needs to move, but how do you know?  More importantly, how do I know that you’re not going to spend the whole financing moving the search box around when it turned out that being on mobile was more critical to your success?  Do you have a roadmap?  How do features make it to the roadmap?  Moreover, how do features get removed from the roadmap, because chances are you’re not going to be able to do all of these things.

More so than any other aspect of the business, the thing I see early entrepreneurs tend to drop the ball on most—myself included—is product strategy.  I’m not saying you have to know all the answers, but you should at least know what your landing pages are trying to accomplish, where they’re going wrong, and what steps you’re taking to identify the solution.  I like to know that, even if you haven’t figured everything out, you have a process around product—so this way I can bet that you have the tools to figure it out.

3)  A theory on customer acquisition – You may not even have your product out yet, but having a reasonable sense on how people are going to discover it—past the buzz around your launch, is necessarily.  Just tell me how the first 10,000 users who aren’t your friends find it—and if it’s viral, tell me why people pass it on other than “because there’s an invite friends link.”  Zoominfo, for example, probably made a bet one day and said, “50% of people on the web do a vanity search at least once a year—and we’ll probably have 25% of those people in the US in our database to start, and 2% of those people, if we rank high enough, will come and claim their profile, which amounts to X number of users.”  

These numbers may always need to be adjusted, but at least you’re starting with someone you can measure against and identify where the issues are.  If your strategy is to reach out to all the bloggers in your industry and get them to write about you, that’s pretty much what every other startup is going to do—and anyone who has done it will tell you the results will likely be underwhelming. 

4) A financing strategy that gets you *somewhere* – For whatever reason, there are psychologically satisfying numbers out there that people seem to latch onto when raising money: $250k, $500k, $750k, $1.5mm, $2mm, etc… Nice round numbers.  Unfortunately, too many people pick one of these numbers based on the confidence they have in their ability to raise and quality of their network, versus picking an amount that actually gets you somewhere.  When I say somewhere, I really mean one of three outcomes:  getting critical mass (whatever that is for you) or at a product milestone that makes you venture fundable, starting to get revenues, or cashflow positive.  When someone asks you, “What does this money get you?” they really want to know that it gets you to some amount of users, coverage of certain platforms, first enterprise customers, whatever it is… just something more mission critical than “18 months”.

5) Specific value creation- The easiest way to show value creation is to say that each customer is worth X dollars in revenue.  Pair that with the cost of customer acquisition, and net net, there’s your business.  I don’t care if these are wild ass guesses—at least make some attempt at showing that at customer N, your business is worth X.  Would it hurt to make an attempt?  Sometimes, the value creation is in the network effects.  That’s fine, too… what do we think that network is worth?  I’m not saying you need an Excel spreadsheet, but very often I talk to entrepreneurs who have never even thought about these numbers and wind up realizing that the market their going after, even if they were a huge success, just isn’t very large.  Back of the napkin is totally fine.  If you’re running a music startup that helps people find experts to help them learn an instrument, saying that, each year, x number of people try to find a music teacher, the avg lesson is $20/hour, they stick with it an avg of 5 hours, then figuring out the price of lead gen for X number of $100 lifetime value customers goes a long way to figuring out how big this market can be.