From idea to the investor handshake, Troy Henikoff
New Zealand’s entrepreneurial community recently received an invigorating boost when Troy Henikoff, Managing Director of Techstars Chicago, visited our startup capital.
Troy is a serial tech entrepreneur with a large handful of ventures under his belt, including the well-known company SurePayroll which was acquired by Paychex in 2011 for $115 million USD cash.
He’s also an investor, with 25 startups in his portfolio. The company he currently runs, Techstars Chicago, provides seed funding to startups from its network of over 75 VC firms, and expert mentorship from successful entrepreneurs.
What we’re getting at here is that, if there’s anyone who’s qualified to give advice on both entrepreneurship and investor relations, it’s Troy Henikoff.
Thanks to Creative HQ and NZTE, Troy was here providing Kiwi entrepreneurs and startup founders with workshops and seminars in an effort to spark ideas on how New Zealand can accelerate its startup scene.
All three of the workshop events were fully booked fairly quickly, but fortunately we were able to speak to Troy and glean some of his knowledge.
As one of the leading startup accelerators in America, Techstars sees a lot of people with (what they think are) billion-dollar ideas apply to the program. Troy says that he can’t tell right away if it’s an idea that will gain traction – no one can tell right away without first gathering data from the market.
“The whole lean startup movement, it’s all about getting out of the building, talking to customers, understanding what the customer wants, and using that data to determine whether or not you have that product-market fit,” says Troy.
That data needs to include an anonymous subset of users that are using your product daily to benefit them in a way that your competition is not, or to solve a problem that they have.
Contrary to popular belief, once you know that your concept has people talking, you don’t necessarily need to write a business plan.
Troy works with startups every day and he says he hasn’t seen a written business plan in 6 years. That’s because, back when technology was limited, creating software used to be very similar to constructing buildings.
[Tweet “Troy works with startups every day and he says he hasn’t seen a written business plan in 6 years.”]
You’d have to plan everything out very carefully, like in a blueprint. If you were making software for a client you would have to draw up screen-by-screen demonstrations of what the end product would look like.
That was all part of what was called the waterfall approach, which is idea, business plan ,execute, and market.
Today it is easier and cheaper to just build software and change it as you go along than it is to adhere to a strict business plan.
Incidentally, a lack of planning is the biggest mistake entrepreneurs make when it comes to their digital marketing.
“Going back to the construction analogy, if you’re building a building and you know that you need outlet spaced every three metres along the wall, you can specify that in the blueprint and it’s not very expensive to do because you’re going to have to put outlets in anyway.
“If the construction is done and the outlets are spaced every two metres instead of every three metres, and you have to go and redo that, it’s very expensive. You have to tear out plaster and drywall, and have electricians come in. If you had just done it right the first time, it wouldn’t have really cost you anymore.
“The same thing is true with search engine optimisation. When you build a website, if you just do it right the first time, it doesn’t cost you any more.”
Troy sees a lot of startups with beautiful websites built by graphic designers, but when Google indexes them, it doesn’t know what the website is about. Often the cost of altering the website is more expensive than the cost of building it.
After they’ve created their websites, we see a lot of startups throwing money at social media. Troy says that social media can be a huge driver in traffic and customers, but only if you’re using it correctly and if it suits your business. If you’re selling security software to banks, Facebook is probably a waste of time for you.
[Tweet “Social media can be a huge driver in traffic and customers, but only if you’re using it correctly.”]
“It totally depends on who you’re targeting and whether or not you have a good viral coefficient,” said Troy.
The viral coefficient is defined as the ratio of, for every person you bring into my system, how many people they will bring in.
If your viral coefficient is 0.5, that means for one every person you bring in, on average they’ll bring in a half a person.
That’s good, but you won’t experience exponential growth.
As soon as your viral coefficient gets bigger than one – even if its only 1.1 – it becomes exponential and your audience or fan base can grow very quickly.
Now that you have an online presence, a good concept, perhaps a few people on your team, and a list of what you need, you’re probably going to want to begin approaching investors.
There are a few investor meetup events in New Zealand. Before you go into one of those you’re going to want to have your pitch down.
Firstly, Troy advises that you talk about why there is a demand in the market for your product. Don’t talk about your solution. Talk about a problem that real people have, and how your solution can fix that problem.
“One of the things that I dislike is when people have a solution thats looking for a problem,” says Troy.
“It can be really good technology, it can do all these 27 things, but who’s going to pay for it? Who wants it? What problem are you solving for them? But it’s really cool!
“That doesn’t usually work. What usually works is that you’ve found a particular problem or pain that a consumer or a business has and you have solved it where you are saving them time and you are saving them money. There’s a clear ROI for the customer or consumer.”
Secondly you must demonstrate knowledge of the market.
Thirdly, you must sell to the investor. He needs to walk away from the conversation knowing why he needs to invest in your startup.
“People will do this great pitch, and they’ll talk about their market and the value they add, and then they’ll say, ‘So we need 300,000 dollars.’”
“‘So yeah, for what?’”
“What I want to hear is, ‘So, we’ve proven we have product-market fit. We’ve proven that the market really wants us. We have a go-to-market strategy, and if we take our knowledge and your $300,000, together, in the next 12 months we’re going to get 27,000 customers, and this much revenue.’”
That way it gives the investor the opportunity to make an informed, confident decision on whether or not to back you.
If you can squeeze that into a handshake and a 2 minute conversation, your success rate with investors is going to be higher.
If you have any questions for Troy, email him at firstname.lastname@example.org. Also make sure you follow Troy on Twitter. He has a reputation among the entrepreneurial community for tweeting about startups, entrepreneurs, investment…oh, and gorgeous sunrises.
Just another beautiful morning bicycle ride along the beach… pic.twitter.com/kvipjEVWM5
— TroyHenikoff (@TroyHenikoff) February 11, 2014