A friend of mine reviews screenplays for a major movie studio. To be clear, she’s not the person who decides whether her studio will make your movie. She’s the person who decides what the person who makes that decision will review.
She was telling me the other day that many of the movie ideas she sees are just that – ideas. Someone may have an interesting premise for a movie but it’s not a plot. And a plot isn’t a screenplay.
Her view triggered my thinking about my business.
I manage a venture fund in Chicago. By comparison to the big ones, my fund is small. And in comparison to the guys and girls who run those funds, I’m young – 23. Probably because I’m younger, my fund is smaller and it’s off the beaten venture fund trail, the pitches I see are sometimes unusual.
And what my Hollywood friend sees in screenplays, I’m seeing in business pitches. That is, hopeful pitchers who have a premise not a product.
I know there’s a school of thought in the investment game (and especially when it comes to Internet technology opportunities) that market share is the goal and turning that into profit can wait. I actually heard a well-known leader of a big New York VC firm tell a young entrepreneurship team not to worry about how their app would make money. He said that could be figured out later. Users, he said, were what they should be focusing on.
Call it the
Resultly is a personalized shopping app that helps customers find things, share, get advice and, of course, buy. All in one spot. Investment-wise, they are the ‘Twitter model.’ Since launching two years ago, Resultly has successfully acquired hundreds and thousands of users but has no revenue. Nonetheless, they have generated interest – and money – from investors because they have a product and users.
Even in the early stages, when seeking capital investment, Twitter and Resultly were more than a premise. And investors bought.
But instead, I get pitched every day to invest in consumer apps which have no proof of concept, no revenues, and no user base. They just have an idea. Even if it’s a good idea, that fact that it’s not more than that is an instant turnoff to me.
One example, a health care business set out to disrupt the health insurance industry. To do this, they were looking for a pre development round of funding in the range of $700,000. Honestly, I loved the idea but they had no app, no users, and no revenues – just the idea. I didn’t invest.
A Software as a Service (SaaS) company did it better. As their premise, they aimed to help businesses accept bookings online from any device. But they had a product. By the time that they went to pitch, their company had over 12-months of revenue, and hundreds of clients. They bootstrapped, proved out the concept, and got the investment they were seeking.
The lesson is that asking me – or any investor – to get behind a business premise that hasn’t even yet matured into a product will be a hard sell. That’s because lots of things can happen between idea and marketplace and almost all of them, from an investment view, are bad.
Idea people, entrepreneurs, should ask themselves which they have. Do they have a premise or a product? What will they sell? When the time comes to make money with the idea, what, exactly will people pay money for?
If a business leader or entrepreneur isn’t sure what their product is, or they can’t differentiate between thought and thing, chances are they are not ready for a serious investment.
They may need to spend a bit more time chatting with marketing and sales people to really refine their idea into something someone will use or, ideally, buy. Only then do you have an idea which is developed enough for pitching and eventually taking to market – which is what investors in companies (and movies) are looking to do.
