Duet Partners
Tel: +44 (0) 20 7416 6630 / Email: partners@duetpartners.com

Weekly Briefing Note for Founders 14/9/23

18th September 2023

This week on the startup to scaleup journey:

  • Founders rediscovering the art of 'value selling'
  • If your pitch doesn't hit the spot, there's rarely a second chance

Founders rediscovering the art of 'value selling'

Founder lore says that the driving force for entrepreneurial success is about following your passion. But any study of serial founders quickly demonstrates that this is far too simplistic a view. Many of the most successful founders started businesses across a wide variety of different industries. No doubt passion played a key part in taking on big industry problems or seizing latent market opportunities. But there is something else in the mix. Serial entrepreneur Scott Galloway, now Professor of Marketing at NYU Stern School of Business, has studied the entrepreneurial journey more than most. He says: "Don't follow your passion, follow what you're good at - what people will pay you for - then the passion will follow." His comments are aimed at first-time founders and the need for a high level of self-awareness before embarking on any high-risk venture. And these sentiments align with what investors look for in startup founders: They are able to combine some special ability with a passion for a subject. Why is this so powerful? Because the multiplying force of these two factors is required to overcome the enormous risks and uncertainties associated with the startup journey. And on the basis that "No startup makes any sense, otherwise it would already be there", founders, according to Galloway, must have what he calls 'risk aggression' and an ability to sell.

This 'ability to sell' is often an emotive point. Few founders would cast themselves as sales people. They would more likely claim to be technologists, innovators, visionaries, or marketeers. They may not have previously been in a sales role or be trained in the art but successful founders either have a natural aptitude for persuasion, or they will have teamed up with a co-founder that does. Whether conscious or not, this ability to persuade - to bend someone's thinking towards your point of view - is the very essence of the sales process. It's used to lure in early adopters and again when dealing with early investors - although there are some significant differences in application as we highlight below. In the customer scenario, successful founders quickly appreciate that they must persuade companies that their product or service will deliver real value. If you seek to understand and deliver that value, then you will 'connect' with the customer. This connection is the foundation of trust and is critical to future sales. In the boom years of 2020-22, many software startups convinced themselves that all demand was 'value-driven'. Now we know that it wasn't. In the squeeze for greater capital efficiency that followed, corporates aggressively cut back on any SaaS tool where the economic value had not been proven. The result: High levels of churn have decimated the valuation of many software scaleups over the past 12 months.

Against this brutal market shakedown, savvy founders and their sales teams are rediscovering 'value selling'. This is now vital for the conversion of new, big-ticket enterprise customers - as well as retention. Value selling in this scenario has 3 clear steps: First, understand the (perceived) needs of the company - not just the users - through a discovery process. This is based on active listening techniques and may include demos, evaluations, pilot projects, and other collaborative efforts. Second, shape and influence the buying criteria to lead to the unique solution that you are offering. In other words, you 'enable' the customer to articulate a high-value business problem (or opportunity) that your product uniquely addresses. You are not changing the product - you are changing how they define their needs. This is the essential art in value-selling to the enterprise. Third, ensure through regular measurement, that the economic value benefit is actually being delivered. (The subliminal messaging from this should also underline the high cost of change.) This is where customer success teams are now coming into their own. Effort diligently expended here will diminish the time and stress required to 'resell' the solution when spending cuts loom. Founders that master the art of value selling not only create high dependency customers but greater revenue predictability. This is what investors are now clamouring for.

If your pitch doesn't hit the spot, there's rarely a second chance

Capital raising has many similarities to enterprise sales. Both are big ticket items, rely on compelling value propositions, and require the development of trusted relationships. Before a proposition is put before an enterprise client there is a collaborative discovery process as we highlight above. The sales strategy is to shape and influence the buying criteria to ensure they uniquely match the value proposition. The end result from these interactions is a proposal that meets the customer's needs - which are often subtlety different from what they thought they were looking for in the first place. But the process of value proposition development for a VC couldn't be more different. Proposition development must be done before any investor interaction has even taken place. The discovery work must be undertaken in advance of the first meeting. In fact, if the very first approach doesn't hit the key reasons why this particular investor should invest, then a VC will barely give it any attention. This is a test. A warm intro might help trigger an initial response, but if the proposition isn't a fit for that fund then the end result will very likely be the same: No interest.

The corporate buyer's mindset is conditioned by the fact that a relatively small number of companies may be potential solution providers: They are often specialists in their respective fields. A VC's mindset is conditioned by the fact that there are literally hundreds of companies approaching them every month - and everyone is selling a commodity; equities. VCs don't have the bandwidth to evaluate every proposition. With their typically very small teams, they are looking for reasons to filter-out, not filter-in. As a result, unlike corporates, VCs expect founders to do their homework and set out, in the initial approach, why this would be great investment opportunity for their particular fund. Founders must not only ensure that the fund is a good fit, but they are approaching the right partner whose brief (sector, stage, geography..) aligns with the proposal being made. But the thought of undertaking this level of early discovery to enable personalised approaches for every prospective investor fills many founders with dread. And as the number of approaches required to close a round is now trending back up to where we were in 2018/19, this makes 'the test' ever more challenging. The result is that some founders are tempted to shortcut this essential work, gravitating to what is little more than a mailshot - with sadly predictable results.

The importance of proactive discovery is why investor research has become such a key part of the work we do at Duet. In 'How we find well-matched investors', we describe our own method for building a qualified target list for founders planning their campaigns. This includes identifying the partner in each fund that has the most relevant track record in the sector and with whom the proposition should most strongly resonate. Each partner's curated investment biography includes their full portfolio of deals, contact details, media profile, and their professional 'network'. This includes all the fund team members, board members and other portfolio executives with whom they are connected. This level of detail is invaluable for founders when they are, 1. Personalising the initial approach so it is not only highly relevant but obvious that the founder has really done their homework, and 2. Investigating who within their circle might be able to affect a warm intro. Unlike the enterprise, where proposition development is collaborative, VCs test founders to see if they are resourceful enough to build propositions in advance. Your pitch must hit the spot. If it doesn't, there's rarely a second chance.

Happy reading!

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