← Coffee N° 5 with Lara Schmoisman
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Foreign.
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This is Coffee Number Five. I'm your host, Lara Schmoisman. Hi, you guys. Welcome back to Coffee Number Five. My coffee is ready, as always, and as always, I have a great guest. And today I wanted to bring you someone a little different than usual. We talk a lot about brands, we're talking about creating brands and we talk even about, about marketing, when the brand is created already or when you have the information what your brand is going to be. Today I want to bring you offer means welcome offer. And I just, we want to talk a little more about the research behind a brand and what do you need to have a successful brand? So offer, why you don't give us a little backstory story about you're in Australia. And thank you so much for waking up early, I believe, to stay with us, to, to talk to us and tell us a little more. How did you get to Australia? What do you do and what your focus is today?
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A
Well, first of all, thank you for having me. It's great to be here. I'm really glad to talk to you, Laura, about this and your listeners. So. Yeah, so. So I'm a professor, associate professor of marketing at the University of Technology, Sydney. I grew up mostly in the us, but I'm a little bit Israeli originally as well. So I've always been interested in startups. I did my PhD in California, University of California, Irvine, and had worked in universities in US in Israel, and I was actually in Israel last year as well, and back to Australia. So with that, different things in terms of research, you know, you get the good thing about academia. You do, you teach a lot, you teach, interact with great students, but then you get to research what you're interested in. And in terms of startups, the Israeli me is always interested in startups. Okay. So that's, you know, everybody in Israel is very interested in that. But then also when I've taught, I've always enjoyed students working in startups because what happens is you can teach them things such as, like, you know, I'm teaching MBA students or like advanced master's degrees. And for them, when you're teaching in the big companies, it's hard for them to implement what you're teaching because, you know, there's thousands of employees and it's hard for them to do the individual.
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And you have a board normally to report to and there are a lot of voices and a lot of stakeholders.
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Right. And so it's just, there's a lot of different people. But when you're teaching to startups or people who are working in startups or thinking of new businesses, they're ready to implement, you know, things you're, you're, you're, you're trying to teach them immediately and they can see the benefit even quicker. So that's kind of the background behind it. In terms of kind of my motivation, there's a personal side where I was interested in it and then there's, I see the teaching side and then the other last part is just on the research side is what's fascinating is that despite you know, how, how important startups are to the world, you know, they're global drivers of economic productivity, job creation, all this. Actually not that many people talk about the marketing aspect.
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B
Oh yeah.
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A
So when I'm talking about marketing not in terms of just you know, like a Facebook ad, but in terms of understanding your customers, creating a customer centric company, creating products, who the product market fit, how do you commercialize, acquire customers, et cetera. So, so there's just a lot of areas where people, it's just less known. So we know companies fail a lot of times, but we don't know how.
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B
I love, I love something else about you and that you didn't mention is that you focusing your research not only into the D C, also into B2B. Because when we say let's have an startup, everyone thinks about, okay, you're going to have a customer centric product. Hse many times your startup is going to be offering services. Business, business.
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A
Right. And so it's interesting just kind of mindset. Usually when you're coming up with these B2B products, it's something that you might have been in the industry even so you've been maybe working for this company. You realize there's a, there's a gap in the market. So you're trying to say, hey, I can do this or my team can do this better than what's offered. Whereas when you're B2C you're kind of experiencing this and you're like, okay, hey, I like this product, I come up with it, I'm a great user for it. And so that's how you develop it. So there is this little split on even our origins of startups, but there.
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B
Are also brands that they can have both. And I have some of us a client that I work in the beauty industry and we have the part of this direct to consumer but also we have the part that is to other doctor offices special path and that's the business business. So. And you have to have a completely different marketing strategy for those yes, and indeed.
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A
And on top of that, sometimes even if you're selling to a B2B, you need to sell to the end customers as well. Right. So think about even like you're telling to sell to a retailer but then sells it to customers. So you have to have this kind of dual mindset as well. So this is where one of the big challenges is for startups, right? And in younger, younger companies. And even I have to say, even new, you know, mature companies when they're coming up with new products is, you know, who are your target customers? You know, people often over focus on that one singular one without thinking of the entire kind of ecosystem, how you have to support.
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B
Yeah, well, but you just mentioned about, they don't think about the marketing. What do you mean by that?
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A
So let's just start with the basics. Okay, so there's, there's different aspects. It's a really good question. So the first is just the very beginning of the, of a company should be, you know, what problem is your business trying to solve? What customer problem is your, is your business trying to solve? And I'd like to take credit for that, but it's really an Amazon saying, okay, so Amazon says, but in essence that's the number one thing of an entire business. What customer problem are you trying to solve? Okay. And a lot of times companies cannot answer that and that's already like a red flag. So for example, I've been asked before, what's the one question I would ask any startup ignoring the marketing part? And I say this, okay, so that's, that's step one, who, who's your customer? You know, what are you trying to solve? So you understanding their point points and then you're building this up, okay, what kind of products are they interested? What kind of things are the competitors offering and where's that market fit? And then after that you got to figure out also, how do I then reach out to my customers? So they got to know about us, they gotta be convinced to try our products, they gotta enjoy it, they gotta retain it. And then how can you grow exponentially by basically leveraging your current customers as well.
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Yeah, but also there are a few things out there. You make it really fast and it doesn't happen that fast normally for brands. But also it also takes money.
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Yeah, it takes also time. Time and effort of the other.
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B
Yes.
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Right. So if you're doing things like this, it's hard to even, you know, you're talking to your customers, for example, it's instead of developing a product, right. So you're having your time allocation is really challenging.
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B
Yeah. One of the things that I've been seeing over and over with clients and early stage clients is not thinking about who is their client and what their client's problem. When they're trying to think about the brand, they think about the brand, their self, the brand personality, the brand voice, which is great. And having a logo, a beautiful logo, beautiful colors, incredible social media, they even pay for influencers answers. But it's not clear what's their customer problem. And they are not understanding the customer journey. One of the things that also I noticed that many people go, let's go and find new clients constantly, but they forget about the customer retention and they need to be a plan for that as well.
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A
Yeah. So those are two very important kind of separate, well, the related issues. But we'll talk, we can split them up. But the first is in terms of. Yeah, you know, a lot of times this happens, especially on B2C side, you develop what you think is the best product out there. Right. And so like academic talk and science talk, they call it the best mousetrap. So it's like, you know, an old term like we created the fanciest mousetrap out there. Okay. But one of the problems is that you really need to talk to your customers and see, okay, what things do they like, what do they need this for? Okay, so these are the starting points of your business. And then on top of that, how, how do you get their attention? Right. And so on the B2B side you might have a more of a connection, but even then how do they buy products from, from other companies? And so you have to understand this kind of the sales mentality as well. So how do you develop the product? How do you then sell the product? And these are of course different stages and it requires that time and effort, which is, which is very difficult for early stage companies because you know if you're doing that, you're not doing something else and you're trying to make some money. Right.
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You need to hire an agency like us, so you can. That's what I always say that they are that founders, they're spending so much money in doing the same things themselves without having the expertise to do it that end up paying a lot a higher price, that.
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A
So on that note too, so just combining these two things as well. So not just on the product development side, but when you're, when you're trying to sell as well. What you mentioned, amazingly, Laura, was about the retention because your customers are sales agents. As well. Right. So the way you growth, hack and the way you build up a huge business is through your current customers. So these incentives that you provide them to also, you know, first of all, you have to of course have a good product and make them happy, but then you want to basically make them part of your team in a way that incentivizes them to speak on your behalf as well.
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B
Yeah, you want to create a community and there is no better market in the word of mouth.
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A
Right. And so there's, there's been a lot of them like Hotmail was like this. Okay. So I've had conversations with one of the, the founders of Hotmail who, who told me he invented the word viral marketing. And I looked on Wikipedia and I guess he is okay, but he was talking about. That was one of the main things is you're using your current customers. Okay. And Dropbox use the same thing. They use incentives. Again, they basically gave people more space on their, on their hard drives or sorry, their, you know, on the cloud systems to incentivize them. And there's many other examples such as this, that since you're using them to grow and the key here is that you're using them to grow to a next level. And just kind of one other thing, just bringing it back to about the, about the, how to do the marketing as well and you know, challenges. So one of my research, we got data from an online evaluator called Ecuadam. And that company, basically startups who are just curious about their, their valuations went to this website, put in a lot of information about and got a valuation. Okay. And so I was able to access this information, not just their evaluations, but the information they put in, except for the, the company names, which was private. Okay. And so what we looked at is we found that out of, in, in the early stage, okay, that early stage B to C firms are more likely to do marketing, but they're not doing it right. And so actually their valuation ended up being worse than doing this marketing. And the opposite was happening with the early B2B where they were not doing it right. They were less likely to do marketing in general. And there's a broad definition of this, but either any way we classified it, they were just less likely to do types of marketing, but this was much more effective for them. So those early B2B who were doing marketing were much more successful, but there were just few of them. And the early B2C were more likely to do it, but less successful.
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B
Exactly. Because they do it mostly without Strategy and marketing without strategy is like tripping on your shoelaces. Basically it's going for a while your shoelaces untied.
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A
So it's a very good one. So we, I interviewed something like 20 something, 25, you know, different startup founders, but also investors, VCs all all along the board. And I remember one startup consultant said that basically early B to C, a lot of times they run a Facebook ad of poor quality, it doesn't get them the results and they say, ah, we're done with marketing.
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B
Exactly.
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And that's because they didn't think of the other steps involved. So they run a bad quality. It takes away their resources, takes away their money, and it doesn't lead to the outcome they want.
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B
I consult businesses several times a day. I talk to new businesses and I see the consistent problem is everyone tried a form of marketing, but nobody tried it consistently. Marketing is not something that you can stop. You need to start and do it, do it well and then read the metrics. Because sometimes, first of all, you learn so much from the metrics, but you see what works and what doesn't work. But there are many ways to have conversion, but you have to have a plan for that. Maybe your conversion. You cannot expect that someone will come in from an ad to your website and buy the first time. That's crazy talk. And so let's. So the conversion can be. Is the person giving you an email mark? Email address, is giving you a phone number? Are you giving them an incentive to be become a customer? Where is your brand awareness? Who is using your product? Like nobody will. I have a few cases of seed brands that the only ones creating social proof were the owners of the brand. I want trust as a social proof. Of course you're the owner of the brand. Are you going to talk well about your brand?
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A
Right. And so this is a big challenge. So first of all, you made me smile because my main research prior to even startups was on metrics and I'm writing a book on digital marketing analytics about the metric trail and how you have to think through your strategy. And this is more on the digital side, but it's a class I've taught basically for 15 years since social media was really catching on and so I had to create my own content and stuff. So but the metrics are critical because you have to have these indicators what you're doing well and more importantly, what you're not doing well. Right. And so you don't take it as a lesson, I should stop. But you should basically take it as a lesson is this is things that.
- [14:29]
B
I need to fix sometimes it's also not even what you did right or wrong. Maybe there was an algorithm change and if you don't know that, you don't know what you're measuring.
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A
Yeah. And that's a, it's a huge deal. And also the measurement itself, Right. Sometimes it takes longer. Right. And so these are long effects and so you can think about just even things that you should be measuring too. So for example, in this, in this book I, I'm writing, I talk about like five major metrics that you should be using. So one is just the simple awareness, how people are aware of it. Right. And that's just the starting point. There's a lot of flaws with this. Okay, okay. But you do need to know how many people are know about you. Right. So if you're a new brand new startup, that's your main challenge is no one knows about you, right?
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Yeah, it's all about brand awareness and brand recognition.
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A
Right. And then the second one is then it gets into conversions. Right. You get into that, that kind of, you know, the actual sale. So you're, the first part, the awareness is to acquire customers. The second is that you're actually status, you're, you're retaining them or converting them. And then the third one is this willingness to recommend. And you can think about net promoter score, you know, but willingness ranking is just a simpler version and it's in essence how satisfied and willing to retain are they and that's really critical. So these are important things to then measure because this is a great indicator of how, how much people are liking your product and are they willing to go out on a limb for your.
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Product to tell others in that case having a subscription. If you say a D2C, you can have a subscription model for retention.
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Right. And so it's perfect. And then on top of that you can then add, try to add these, you know, facilitate these basic growth hacking that they will do referrals for you. Right. So they do referrals. So if they're willingness to recommend, then they'll be doing the referrals and then you can grow your, your brand brand out more. And just as a, I talked to one venture capitalist, one of the leading people in Australia and I was asking him about his investment strategy and he said the only thing they look at is customer devotion. Customer devotion. And he, I was like, I asked him to explain it a little bit more. But in essence, how much are those, those customers going, you know, using your product Slash willing to talk to everybody else about it.
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Yeah.
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And he's like, if you don't have that, it's not as important.
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B
Well, it's the same about talking to a. Actually I was talking today to a brand that they have no reviews, they have zero reviews of the product. How are you going to be converting if people are not talking about your products? It's one of the first thing you see. Like even you go to Amazon and the first thing you know, if you don't know the product, you're gonna go for the reviews.
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A
But there is a challenge, right? So I completely agree. This is one of the things. And I'm looking at this in some research. I've been looking at different websites and startups and trying to build out, you know, how effective are these? Not just reviews, but testimonials. Testimonials is a key one as well. But the challenge for custom for companies is they feel awkward asking for this. Right?
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B
Yeah.
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So you feel like, I mean, I always like, you know, in terms of just my teaching, it's not like I want to go with my students, be like, hey, review me. Well, right. That's very awkward. It's not a conversation. I think actually from, in my case, it's illegal. But I don't want to ask people to.
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B
In Amazon you cannot ask people either. But there are other ways to do it. There is a gentle ways to, to nudge people in having reviews or like you can, I mean there are a lot of flows for that and there is ways and ways to say it or also there are a lot of programs like refer a friend and you get $10 off and your friend gets a dollar off.
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A
Right. And so, so actually I wrote a book right after, during, like it was during COVID but it ended as well. And so I looked at these different things, you know, thank you so much. It was on basically post pandemic business strategies.
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B
Okay.
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A
And it was a customer centric lens. And one of the examples was about the referral marketing. And so the company was here in Australia and it was about sleepy toys for, for babies. And this, this company was basically a couple moms who were just, who were doing this and realized, you know, we have this good product to help kids go to sleep. And they built their entire organization basically referral marketing, encouraging these moms to, it was, it was mostly moms, okay, to share basically to all their friends that hey, this is a good tool. They share it with their playgroups, etc. And they, their business just boomed from this and the support part was then they had like a communications the. In terms, if you had like support, customer support. They tried to talk, you know, direct with those, those women in terms of like how they would use that language. So it was very casual because they understood their customer, they really understood their customer and they're trying to build that trust and connections. And then they realize that by these referrals they were part of the team too. So now you go on your limb that, hey, I want to promote this. But now you're part of their team too, because now you have a little bit at stake as well.
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B
Yeah.
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So these are other ways of doing it as well. Because to get out that challenge of just bluntly asking, hey, can I review it?
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B
I was very interested in something you mentioned before about the part of business to business that is a completely different strategy. And many times you need to present in shows, you need to be, you have to have other points of contact with your industry leaders. But sometimes it's challenging for the companies to decide where they need to go. But sometimes where they need to go is outside the box, not where all your competition is.
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A
So this is where it's really important for you to understand your customers who's making those decisions. So the other part about it too is B2B is very personal. It feels very personal to sell your products because B2C, you're kind of, you know, you can post it online and you're not as engaged with those customers. Whereas B2B, you know, you're going to, a lot of times, you're going to your friends, you're going to your contacts first being like, this is how I created the product. So I think this is the, the flow. So there's that extra personal. We have that, that pressure that you're kind of, you're nervous, right? And so one of the things is sometimes you wait maybe too much to have that, you know, a perfect product versus a very good product because of that, that, that personal stake. In terms of, you know, everyone, everyone in startups has this problem where, you know, you're, you're obviously running out of cash. But B2B side, you have also that personal reputation. Okay, so then how do you decide?
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B
In B2B, it's very important how you adapt your language and how your narrative, how you communicate, because you're not communicating necessarily for an audience. You normally communicating with a lot more educated audience in your space.
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A
So they're very knowledgeable. And you have to understand there's different segments too. So the people who might use Your product, maybe not the decision makers but the could be the influencers. So you can think about it that way is like who are the users of your product for a B2B who are the influencers in terms of making the decision and then who actually is the decider? Okay. So that's kind of one of the first things to do and then you know, B2B, it'll depend on your product. Exactly. But you should try to target obviously all three. Right. And so you have a limited budget but how are you going to develop it is a challenge. But that's where this market research goes into and basically talk to, to people, you know, starting off, you know, hire an agency, etc. But you need to have that understanding of who's that decision maker and how do you reach them. So trade shows are great because people are there, but it's hard also to reach that decision maker sometimes.
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B
No, but also is. I always say trade shows are great but the follow up of the trade shows is a lot more important.
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A
Yes, that's a, that's a good one because you get the really good, you get leads and then. Yeah, and the other part about a B2B is sometimes your sales are so big that you really don't. The success rate can be much lower. You can have a 1% conversion.
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B
It's your company ready for that. Yes, company. Can you deliver those big sales because then you go. You spend a lot of money in these trade shows because trade shows are not cheap and normally you need to travel, you need to travel with the team. You have to have a setup. It has a huge impact in your budget. And are you ready to deliver if you get an order? That's my question. In each market there are different entry level places and I always think that I will be scared to go and work with a big retailer at the beginning you need to have proof of concept. And also because this is very linked to operations, do you have the operations set up to deliver?
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A
So this is absolutely correct. So kind of going tying this to some of my research too. So I've been embedded with an angel network here in Australia for a couple. So I've got access to basically their decision making documents. When startups apply like meeting notes, due diligence process, all this and individual emails as well. And one of the things they look at is this ability to scale. So can you scale? So let's say basically as you mentioned, you need the social proof, you need customer validation and we'll talk about that in a little bit. But let's say you get this order, can you, can you ramp up rapidly? And they look at this as one of their decision points. And if the answer is no, they don't, you don't even enter the consideration set. You're gone at that point because they realize that's how you're going to make the money. Right. Is that making that efficiency? So when you go to this trade show, you get this leads, you have to reach out to all the leads. You have to have this good customer relationships with them because you also don't know what will happen down the line. And then. Yeah, can you deliver? And if you fail to deliver at that point, it's kind of hard. It's a catastrophic.
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B
Absolutely. And I would like to ask you your take on influencer marketing.
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A
So it depends. So, okay, so it's a very broad area. Right. So it just depends what you're, you're interested in. Right. So influencers. Okay, so let's take the B2C side. Like if you're in like a hedonic, like a product that in terms of customers enjoy, then influencers is typically more successful. Okay. For B2B side though, what's interesting is people don't think about it because you think about influencers are like, you know, like the Kim Kardashians of the world. But there are influencers in terms of, in terms of companies and in terms of, you know, in their industry. So my students, I always say like I probably am an influencer of what you'll do in business in terms of digital marketing, for example, because that's my area, you're taking my class and you're listening to me. So you don't always have to go for the influencer who's flashy. Right. There's also like micro influencers. There's, there's lower level. But really is does that influencer get to those decision makers? Okay, especially in the B2B. Yes.
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B
But also is what do you think that the perception of the consumer is with the influencers? That now they need to show that this is sponsored content because they got paid for it. What is the perception from the, the final consumer?
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A
So it's interesting with influencers because, you know, I think people have always known they were getting paid and so they're kind of customers are over overlooking that. Anyways, okay, so they are seeing it but I think overall there's a tendency kind of to discount it. So it has to be in a more organic way in terms of, you know, not just a straight, straight promotion, but you have to See them doing something with it that, that they enjoy to build that trust because in reality you're just using it for trust anyways.
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B
Yes, there is this evolution now of social content that I believe TikTok brought to us and now that is with. I mean you're in Australia so probably are not talking about this much lately, but we have TikTok shop in the US that is con social content poster about an influencer and then they get a rev share on the cell. How do you think the game changer for the industry?
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A
I think it's a, I think it's a very important and I mean it hurts for example Facebook and different, different companies that way. But in terms of just. I think it's a really good option for companies. But again you have to know your customer as well. Like it's good for awareness. It's hard to drive that into sales. And this is where you need the metrics to measure is this effective? Because in the end the influencer is almost like a choice of where your, your actual market and communications strategy is. Where are your customers? Does this really matter to them? And so the choice of even the type of influencers and all that. Well go into how does your audience make the decision? How do your customers make that decision? Will it influence them? And so you're hoping influencers do have influence. Right. But it's kind of a challenge in that sometimes companies overflow. Oh sorry. Over rely on this. Whereas there's other methods that, that could be more effective and I think for younger companies especially that the basically using your, your own customers as the referral is, is usually the best way because they think it's authentic at that point.
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B
How important it is because I know for me but I would like to have your thoughts on this. It's important to have an omnichannel strategy.
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A
Oh it's, it's, it's critical. Right. And so this is again a challenge for, especially for new businesses because how much can you do on your own and manage this? But basically now customers are everywhere using everything and they think about the last time you purchased, let's say you went on a trip, how you researched, you know, things on your phone, on your laptop, on your tablet. So then you maybe go to a store, you see some advertising. Right. So there it's basically all these different things that influence you at different aspects and that's where you kind of knowing again that customer journey, the customer progression, what makes people, you know where. How do you then push them down the funnel to the side and purchase Your exact product. And so the Omni Channel is very important because of that. You're basically going to where your customers are, which is a very important, you know, key, key marketing thing.
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B
Absolutely. At the same time I believe that it can save you money being on Omnichannel. Like for example, if you put your efforts on SEO, you're gonna get a lot more organic traffic than and having to put all your traffic in paid media.
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A
Right. And sometimes you need to do a little. And the point about Omnichannel is you can do, you should do both. Right. And you should do different things. Right. So you do a little bit of paid, kind of skip the, you know, exactly. Leapfrogging the rankings. But you need to have the generic and the, you know, the SEO and other elements as well.
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B
Yeah. And you know, I do believe I'm a email marketing believer. SMS marketing, those things really help to create that connection with your sir.
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A
Yeah. So I think that, you know, you can think about it as the email and SMS are really important for the containing the satisfying and retaining those customers. Right. You want to develop that nice connection, the emotional connection and then kind of enhance that relationship going forward.
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B
Yes. But also there are strategies that then you can use to retarget those, those customers. If you have the information, the information is power and with that information you can reuse it to feed them or to find them in other places.
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A
Right. That's per. Yes. Very, very well stated. And what, what companies need to think about too. So I, I completely agree of using the SMS and email and again but think about your customers. So you don't want to overload them as well. So you have to fine tune. This is where you need to really again talk to your customers. How much, how many emails do you want? Right. Because the, the one thing you don't want to do as a company is over email as well. So. But you don't want to under email.
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B
So they don't know there's a balance. And also depends on the time of the year, but also goes along with the strategy. And for example, when you send emails, you don't send emails to everyone. That's why we create segments and you need to create. It's all based on the strategy that you have. It's not that easy that a strategy.
- [30:09]
A
No. And that's where at the beginning you have that segmentation, the targeting and positioning of of the customers as well. So you're coming up with that plan based off your customers. You know, you're developing different segments, you have different loyalty basis as well. And so, you know, and so when one mistake companies often do though they do come up with these strategies. They overdo about demographics so they over segment, for example, let's say men versus women, okay. Whereas the more effective things are just like how often do they use the, the product, right? You can tell a lot more about that. How often are they purchasing? Okay, you can have different parts about, you know, their, their interests where it's much more effective than demographics.
- [30:50]
B
But also I think it's not important also to understand who is your customer and not all your customers are going to be customer for the same product. So what customer buys what? And then you can tell the patterns of if this person buys these, okay, maybe I can remind them every few months that they will need it again or I can remind them that they have an extra discount if they haven't. Or we can suggest another product that it goes really well with that. With that.
- [31:23]
A
And so. Exactly. And this goes into something you mentioned a lot earlier, Lara, which is like your current customers, right? Because I've talked to some very successful companies that you know, were at one point very new and then they hit that really scaled up version and one thing they kept focusing on was those new customers. And I started asking them, for example, they thought that their products were like a one time use and so they kept growing by one time users. I was like, wait, you have an entire market of users who you're not going back to. And so think about those possibilities of connect, reconnecting with them, having offers and different things like that. Where they were while they were doing amazing, they could have done so much more at that point by one of.
- [32:04]
B
The worst thing that you can do is abandon your customer. You have a customer and you stop sending them emails, they will forget about you.
- [32:13]
A
Yeah, no, definitely. And you know again, there's always that fine line how much you email or how much you do in sms. But the key is that you want to do it in effective ways, right? So you kind of have this emotional connection with them that they like your company. Especially if you're new, you can sell your story a lot of times it's very important. And then they make them feel part of one of, part of the team kind of thing, right. And then they get involved and then you can, you know, keep trying to say, okay, here's how we're doing what we're doing to help you and help us grow as well.
- [32:44]
B
I have another question for you that you mentioned before that you are talking with a lot of angel or equity Firms. What is more important when you think that you pitch to someone to get money is about the brand story, your consumer story. What are the. Because you're not going to get the attention of a lot of attention. You need to hook them. What's a way to hook an investor?
- [33:14]
A
So I basically developed this model and Scott go for the review process and academics takes five years or something for the review process. So by the time it actually comes out it might be a little bit different. But what I call is a triple check validation. So, so investors basically look at three big, big picture things, right? First is they screen startups out based off what I call business validation. Okay. And basically it's a lot of different components, but in essence do you have a credible business? It's what they're looking at. Okay. So for example, I mean obviously there's your product, will it work? You have an, is your IP protected? But then it gets into things like understanding customer. Do you have a commercialization strategy? Okay. What's your branding strategy, etc. Okay. So there's a lot of different elements. So if you don't have that, they're not even going to give you. You might get the due diligence.
- [34:02]
B
But I cannot tell you how many brands I can come to me and say well we are raising money. I say but how do you raise money when you don't have your marketing in place?
- [34:14]
A
And so let me get to the second part which is okay, so you can't, if you don't have marketing, you're not going to get to that second part. Now you have to have a minimum, right? So in terms of, you have to have these ideas, this, what's your value proposition? How are you unique versus your competitors, customers, the acquisition strategy. And really the key one though, so that's the first one is that business validation. Then you get to the second stage where you're, you're. That final investment decision is basically a combination of customer validation. Okay. Which is do you have purchases? Okay. And not just that, are your customers satisfied? So you need to have evidence of.
- [34:48]
B
How many purchases it will certify. Because let me tell you another story. I'm all about storytelling today and I have, I've been talking to a cons, someone who has a startup and she told me I sold 60 and I was, that's great. Who did you sell to? And well, friends and family. No, you didn't sell 50. Those are not your consumers. We don't even know who your consumers are.
- [35:16]
A
And so this is so the number there's no set number because it also can change for B2B versus B2C. But it needs to be the evidence that you can consistently can sell. Let's put it this way. And if sometimes companies are not at that stage, so you can have negotiations with a very prominent customer, which is really hard to do, but giant change, but that can kind of jump start your process. But when you get that, basically what I found is that you're guaranteed if you have that business validation. Okay. And you can prove this customer validation again with positive reviews, not negative. If they reach out to the customers and they say eh, it's kind of eh. Or they reach out to an expert in that industry and say I don't know what this means, then you're doomed. Okay. But if you have positive, then you, then you have a very high likelihood of getting seed funding. So in the one I observed, I had a small sample because I was able to get these details. And you know, angel investors are, they don't, they don't invest in too many, but out of these companies, everyone. And again a small sample in terms of like 20, 21 companies. But the ones that had the customer validation and the business all got seed funding. Okay.
- [36:21]
B
Yeah.
- [36:21]
A
And then the last part is do you have other investors who are interested? And so that can help amplify your, the seed funding round as well. But really the key part is make sure you're competent in different areas. Okay. So I've developed this checklist and key questions asked, okay. About all these different aspects. Okay. That this is what companies are, what angels are looking for and this is also what companies need to have. But then you have to have that customer validation that's really critical. And without that, if you don't have the customer validation, they're very hesitant to give you funding. And so you can think about, we've all heard of like, you know, these big open, generative AI firms and all this AI that which don't have as much customer, but for them, they have a lot of prominent customers or they have some kind of connection. For most businesses, okay. The vast majority, this is where you have to have that customer validation to succeed.
- [37:10]
B
Yeah, absolutely. And also you have to have all your paperwork in place, make sure that your taxes, you align right. Your, your company is set up correctly. Otherwise they're going to be asking you.
- [37:20]
A
For all that they're looking. And one, one surprising thing also from, from just that research, by the way. So, so you have all these different things again, the IP protection that you can scale up, you have A good growing market. There's different aspects in this business validation, but one thing that's less concerning to them is actually your valuation. And so they don't get in too many arguments with companies. There's like a set range in essence. So I think they kind of know and what they look at is, okay, if you don't have customer validation, we're not giving you your full seed fund. Let's give you a bridge round to grow a little bit more. Try either to develop your product more and to get those customers, but in essence, without that customer validation, you're stopping yourself. So. So in the sample I saw, they wouldn't give. They basically would give companies like a hundred thousand dollars if they didn't have customer validation. But if you have customer validation, you're getting the 300 to a million in terms of just the seed funding.
- [38:11]
B
Let me ask you a question. And so if these companies in, when they give you this budget, what they give it based on to use for what? Because I've been here and over and over, I wish I would have more money marketing.
- [38:26]
A
So it's a very important one. And so to scale up, you have to have marketing. And so I think one of the key things that I found is even going to the companies having a marketer helps and not just someone who does, let's say the, like the Facebook ads or whatever. Someone who really understands the nuances in terms of like, understanding the customers, the developing the value, proposing so building from the ground up and the sales. So both. And so just as a side of the different product projects. All right, research project, we. We tested out what founder backgrounds are most likely to get funding. And so there's always. Almost always a scientist. So kind of ignore that one for a second because they're. They're on the team no matter what. But when you have a scientist and a marketer, your odds shoot up by. It was like it was almost double the amount if you had a marketer and a scientist, then compared to a different background, like a scientist in some other one.
- [39:18]
B
Oh, and so I should go.
- [39:20]
A
So you have that if you have three. And if you have three people, the third person to add is a financier, by the way. So then if you have a marketer, scientist, and finance, then then you're really set.
- [39:29]
B
Well, that's good to know. Well, thank you all for so much for being here today and for having early coffee with me.
- [39:37]
A
I really appreciate it. Thank you for having me. And I hope.
- [39:41]
B
Yeah, I mean, and for you guys, I hope that you got a lot of data today. This is unusual. So take everything and I'm sure you can. We're going to get more information in the chapter notes about offer and how to read to him. But thank you so much again and I'll see you guys next week with more coffee. Number five. Find everything you need at larashmoisman.com or in the episode notes right below. Don't forget to subscribe. Was so good to have you here today. See you next time. Catch you on the flip side. Ciao, ciao.