Everyone an Entrepreneur
This week I paid a small sum for the privilege of doling out advice to an entrepreneur. My Lyft driver heard I was enroute to Capital Factory and decided to pitch his start-up to me. He was talking to investors, he said, asking for money to build his initial product. He drove for Lyft between meetings rather than to go home or to Starbucks. The brief session clearly illustrated two fundamental gaps in his approach to launching his business.
This self-described “third-generation car guy” spent a few minutes describing his potential business to me. It had an offline and online component. He started with the offline component because that was simpler. It changes the way that car buyers find out how much a dealer will give them for their car. The company would have a mechanic inspect the car and solicit bids from dealerships. No longer would the seller need to drive to each dealer to find out how much his trade-in would fetch. Then there was the online version, which supported passed information back and forth between buyers and sellers in real time. There was some sort of mobile app angle as well, which didn’t quite add up.
He had no elevator pitch. Rather than a compelling and succinct story of pains relieved, problems solved, and value added, he gave me a generic and meandering description. I shared these observations with him, and tried to let go the image of him talking with a potential investor, unable to articulate his vision in under two and a half minutes.
What was his value proposition? That people could have the inspection done once and get bids from a network of dealers. What was the pricing model? Dealers will pay for it. What was the value proposition for dealers? It’s not just lead gen. They will pay for transactions, not for the leads. How much? A lot. Subscription model? No, per transaction so it’s low risk for the dealers, and the dealers I talk to all say they want it.
All he needed was money to build the system, he said. Could he prove it? He was sure that dealers would sign letters of intent to use the system. Would dealers actually sign up in advance of delivery? What were the minimal components of his system? Could he fake it with email and phone delivery? All the basic elements of a Wizard of Oz MVP were there. He had to shift from wanting money to build it to demonstrating traction without building it.
Once again I shared these observations with him. Maybe the idea would fly, but he needed to prove it first, before building it, and ask for investment based on that proof.
Mind the gaps
The two gaps in this entrepreneur’s approach are so fundamental that I doubt he will see his idea through to success. First, he lacks an elevator pitch. Second, he has not demonstrated traction, yet he wants investment to build his solution. Will this business idea fly? I don’t know, but certainly not unless he closes these two gaps. I do not believe he will, and I hope he proves me wrong.
Posted by William Baxter on Aug 24, 2015