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Think Big. Move Fast.

Josh Kopelman has a good post this weekend about the friction between free and one penny when charging consumers for goods that can be delivered digitally (e.g. articles, video, music, information etc). As he points out, price elasticity is not constant as price changes, but rather there is a huge step function (downward) in demand between prices of free and one penny.

A good example of this is the downloadable casual gaming space. The industry has standardized to a price point of around $20 for the unlimited version of a downloadable game. On average the industry realizes conversion rates of about 1% between the free (limited play) version and the pay version. Why do they not charge less and make it up in volume – after all variable costs are close to zero? Emperical testing has shown that price elasticity is relatively low once someone has decided to pay to play a game. The key friction point is between free and one penny.

Josh provides some different examples in his post which I recommend reading.

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Thanks to a glitch in my Netvibes reader, I got exposed to an old but very useful post by David Cowan on “How to NOT write a business plan“. It sparked me to post on how to get the most out of your pitch to a VC.

The overriding point is that your intention in a first meeting is not to fully explain your business. Its just to get to a second meeting.

You are likely to have around 45 minutes with the VC after pleasantries have been exchanged, laptops booted up and projectors connected. That isn’t long. Resist the temptation to fully explain the intricacies of your technology, or to explain everything you’ve done. Instead, focus on the big “hooks” that will get an investor intrigued in what you’re doing. Most slides take about three minutes to cover, so try to keep your presentation to ten slides, and leave yourself fifteen minutes for questions, and to learn a little about the Venture firm that you’re pitching.

Ten slides doesn’t sound like a lot, but its an excellent discipline that will force you to really crystalize what you’re doing. Its also all you’ll have time for. Its very unlikely that your business is so special that you can’t do this. Its usually more of a comment on you than your business!

David’s post suggests what the 10 pages should be, which I’ll summarize here (but you should read his original post which goes into more detail):

1. Cover slide with complete contact info, and a tagline.
2. A mission statement (that is specific, achievable, but not yet achieved).
3. Team background, including key hires yet to be made.
4. Nature of the problem you address. Emphasize the pain level and the inability of incumbents to satisfy the need.
5. Product overview, including benefits.
6. Elaboration on the technology or methodology you have developed to enable your unique approach. If appropriate, mention patent status.
7. Early customer or distribution progress: traffic, revenue, number of customers/users/whatever, logos, testimonials, other key metrics.
8. Sales strategy. Show the expected channels and cost of customer acquisition.
9. Market size and competitive landscape.
10. Earnings Statement, historical and forecast (including total future financing requirements)

(The Appendix can be as long as you want but shouldn’t be a key part of the presentation – just used to answer questions)

For an internet company, I’d also suggest a live demo. If you’re an internet company seeking a Series A or later and you don’t have a site up (at least in beta) then I’d advise waiting until you do. The technology for most internet sites isn’t that hard or expensive, and its well worth getting something up so that a potential investor can better visualize the product and user experience.

Keep focused on your objective, to get a second meeting, and you’ll find yourself much more “on message” during your pitch.

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As a venture capitalist, I often get the question, ‘Is it people or market?’

My answer is ‘Yes.’

There’s no doubt that great markets facilitate the building of great companies. But as we saw during the bubble, great markets can facilitate the development of some not-so-great companies as well. When talking with aspiring entrepreneurs I try to emphasize that finding the big idea or the big market shouldn’t be their first priority.

Building the right founding team should be.

In a recent Fortune interview with Jim Collins, author of “Built to Last” and “Good to Great,” he commented:

“Our research shows a somewhat negative correlation between pioneering a great idea and building a great company. Many of the greatest [companies] started with either no great idea or even failed ideas. Sony started with a failed rice cooker. Marriott started as a single root beer stand. Bill Hewlett and Dave Packard’s great idea was simply to work together – two best friends who trusted each other – while their first four product failed to get the company out of the garage. They followed the ‘first who’ approach to entrepreneurship: First figure out your partners, then figure out what ideas to pursue. The most important thing isn’t the market you target, the product you develop, or the financing, but the founding team. Starting a company is like scaling an unclimbed face – you don’t know what the mountain will throw at you, so you must pick the right partners, who share your values, on whom you can depend, and who can adapt.”

A great team in a bad market can still build a successful company, perhaps at small scale. More often, like Sony, Marriott and HP, a great team will change course as they learn that their initial market is a difficult one, and they will find their way to a bigger and better opportunity.

A second rate team can also build a successful company in a great market. But they will find themselves facing increasing competition and the company may not stay successful for long.

There’s no substitute for being part of a great team. Resist the temptation to settle for second rate co-founders or employees, or for divergent visions. The extra time to find the right people to work with is always worthwhile. I firmly believe that teams of great people, firmly bound together by shared ethics, vision and values, will always find a way to be successful.

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Viral marketing has evolved from word of mouth to a much more scientific endeavor in the online world. Based on my previous posts and some additional thinking about the subject I’ve defined seven mechanisms that companies have used to successfully …

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There is lots of coverage today of the acquisition of Insider Pages by CitySearch. My first job in the internet industry was at CitySearch, in 1996, and some of the lessons I learned about how difficult it can …

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As a venture capitalist, I’m interested in investing in companies that could be big one day, that could get to at least $50m in revenue.

Here are three ways to get to $50m in revenue as an online media business; …

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I recently heard about a company that has been in “Stealth mode” for four years. That is certainly on the extreme range, but I’ve noticed an increasing number of companies in stealth mode, as can be seen by seaching on

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Through Mashable, found a link to an excellent article at Adweek that talks about why the value of a pageview at web 1.0 companies like Yahoo! are higher than the value of pageviews at social network companies like Myspace

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I’ve seen a few startups recently that are relying on launching a new form of advertising as their business model. These can include product placements, sponsorships of various flavors, new forms of local advertising, interactive out-of-home advertising, and lots of …

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There was a TechCrunch post today regarding a new search service from Healthline called Symptom Search which attempts to provide an information service suggesting common illnesses related to symptoms that a user is experiencing.

Symptom Search is a great idea. …

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