Didn’t see that (pivot in the business model) coming…
Technical glitches can lead to beautiful things if you let them. This week was supposed to be a founders session, but thanks to some AirPods that wouldn’t connect, we ended up with a total up-leveling in our business model. No more sleepless nights thinking about how to make that direct-to-consumer thing work… B2B sales strategy, here we come!
In this episode, Cynthia shares about the pivot in revenue model the founders recently made after technology difficulties prevented them from recording a podcast episode. Learn about what came out of this pivotal conversation and how they plan to change their startup for the better!
- Cynthia shares about a podcast she’s been listening to, called The Pitch. Entrepreneurs and investors love B2B SaaS, especially considering volume-based selling, pricing, and timing. Learn about how to sell to businesses, get B2B volume, and keep your mission along the way.
- Cynthia also shares about their own experience with Precursa of being at odds with the opposing tensions of different priorities and how Paige’s recent idea changed all of this. Listen as she shares about their desire to sell to stakeholders for early-stage startups and the new perspective this brings. She discusses talking to incubators and accelerators, the common struggle to find good deal flow, and matching with an investment thesis.
- Precursa’s goal is to provide these programs a way to monetize and create a relationship with entrepreneurs, even those they turn away each year. Many mentors in these programs feel that in a typical incubator or accelerator program, there are multiple mentors, which often results in mentorship whiplash for entrepreneurs. Cynthia shares about their desire to sell directly to incubators and accelerators, to provide a foundation for both sides to build more stability from. By testing whether someone is matching an investment thesis, the connections can be made once an idea is deemed viable. As with most B2B businesses, the sales strategy and scaling the business is much easier without adding a lot of overhead in operations.
- Cynthia wraps up this episode by sharing about the importance of strategic partners, their 7-minute pitch, and the many strategies they are formulating. The balance between strategy and vision and execution is crucial in this process. With a new execution and investment plan, Precursa’s founders are evaluating the associated returns and risks. Listen in on the contributions for which startups often fail, and how to prevent investors’s risks and return dilution.
- Brand awareness and brand trust are another important aspect Cynthia leaves the listeners to consider. Learn about the conversation she had with a business leader and how she worked to successfully leverage her sales and abilities for Precursa. What does the pitch for Precursa sound like? Find out how to turn your idea into a viable business!
Don’t forget to like, share, and subscribe to Precursa: The Startup Journey on your favorite podcasting platform and tune in for the next episode! Email us at firstname.lastname@example.org with any questions or comments. Check out our website (https://www.precursa.com) for more information on getting your startup rolling.
Straight to you from Denver, Colorado, this is Precursa: The Startup Journey. We share the ins and outs of building a tech startup from inception to launch to revenue and beyond. If you’ve ever wondered what building a startup from scratch really looks like, you’re in the right place. With full transparency and honesty, we reveal it all about Precursa on our ride from idea to exit: the wins, the lessons learned, and the unexpected twists and turns.
Entrepreneurs, friends, fellows, countrymen, lend me your ears. So, uh, I am alone today. We had intended on having a founder session and here’s kind of what happened with that. So these episodes get recorded on Friday mornings and last Friday, the gals and I were ready to go. And we kept having all these technical problems, right? Like Sarah’s mic wouldn’t connect so she could hear us, but we couldn’t hear her. We use Riverside.fm to do these recordings because it, it does native recording in your browser so that the quality of everyone’s recording. So the quality of everyone’s video is as high as possible because it’s coming directly from your computer, not like through an internet connection, like when you record in zoom. So I was like, well, all right, if that’s not going to work, why don’t we jump on zoom? And maybe we’ll just record it that way. And by the time we got everybody on zoom, I was like, oh my gosh, you guys, this just feels like we should not be recording today. Like all of this stuff that has happened, it costs us like 25 minutes. And I was like, th this is just ridiculous. And maybe I’m not in the head space to be podcasting anyway. So let’s just skip it. And so we ended up having a founder’s meeting instead, and I’m going to get, I’m going to get the ladies back on here in the next couple of weeks so that we can have our founder session. Cause I, I like those sessions and I like that you get to hear multiple voices and what’s going on in the company, but what came out of that conversation? So we’ve talked a lot about direct to consumer. Okay. And or as we call it the direct entrepreneur strategy, which is basically you’re going after the volume play of selling a lot of people and getting them to pay a little bit. Right? So in our model, we’ve got two tiers, we’ve got a $79 here and a one, $119 here. I think we’ve done some price changes. So I would have to look to be sure, but something like that. And so each sale is worth $79 or $119. And then you hope to keep that recurring over a period of time and based on our churn rates and our expected renewal rates and all of that, the lifetime value of that sale is somewhere in the neighborhood of 1000 to $1,200. Okay? Because people mostly stay in the platform for about a year in the current model. Now, obviously we’re working on, we’ve got future phases that are designed to give people more value as they get past product market fit and they get funding and they’re scaling and they’re growing and they’re eventually exiting and becoming investors and all that stuff. Right. But for now that’s about the lifetime of the value that we create. So each sale. So you have to sell a lot in order to hit $50,000 a month or a hundred thousand dollars a month in recurring revenue in revenue, you have to sell to a lot of people, which means you’re like creating these huge campaigns that are about volume that are about getting in front of a lot of the right kind of people. And they’re really expensive. Now, I think I’ve also mentioned several times that Paige and Sarah and I are all really good at B2B sales, right? We’ve all built professional services companies. That’s all about selling. You are a business selling to another business, right? And the reason that that’s so attractive, a lot of times you’ll hear I’m obsessed with this podcast called the pitch. Right now, I’m listening to all of the episodes as we’ve been working through our pitch and working through our messaging and how we talk about ourselves to investors. And I’m going to come back to that here in a little bit. But if you listen to stuff like that, and there’s not just the pitch, there’s a ton of those where you’ll get insight from investors or you get insight from entrepreneurs about the investing process or the pitching process. One of the things you’ll hear from investors a lot is they love B2B SaaS. So business to business software as a service, they love it because the ticket prices one sale generally nets you five or sometimes six figure deals. So you can do a lot less in volume and do a lot better in your margins and in your revenue numbers. Right? And so, because we are an entrepreneur centric universe at Precursa, we just kind of like resigned ourselves to, we need strategic partners for sure, because we need those people to get into their audiences.
Right. But we’re going to have to do direct to entrepreneur marketing and we need to build a big list that way and where, so, but this has always kind of bummed Paige and I out because we kind of have said to ourselves really good at B2B sales, like, is there some kind of a B2B play here that isn’t just the advertising, right? Because there’s always the advertising and vendor side and that’s definitely a B2B play. And that’s definitely a lot less about volume and a lot more about quality of our network and our, our audience. Right? The problem is that until we understand how to create a process around vetting those people, we don’t want to bring that into early. And we also don’t want to give it away for too cheap, too early, because we don’t have a big community right now. Right? So we’ve looked and we’ve talked and nothing ever really clicked as like there’s the way that we could sell to businesses and get that B2B volume and still stay true to the fact that we’re about entrepreneurs, not wasting time and money on things that are never going to turn into something for them, right. We’re about preventing Doug’s story. So those two things always kind of seemed at odds with each other. Well, after our failed podcast experiences, we were kind of talking through some stuff. Paige said, Hey, I had this idea. And I think maybe it would work, but maybe it’s crazy. Let’s talk about it. So we started talking, she basically explained that this is kind of vision she had was what if we actually sold to the incubators, the accelerators, the people who are stakeholders for entrepreneurs, we sell to them, let them drive traffic and drive volume and drive users. And they can decide, do they want to turn around and mark it up as part of their, as part of their offering to people, do they want to provide it as part of their programs? Maybe they want a couple of different options or ways to engage with that. It was like the world exploded, right? I mean, this, this was the perspective that we didn’t have to that point. And all of a sudden my brain started working. So I went and did a bunch of research. There’s 7,000 incubators and accelerators worldwide. On average, each of those accepts somewhere between 500 and a thousand applications every year, or they get that many on average. There’s some that do a lot more and there’s some that do less. So I think the smallest one I found they only get about 350 applications a year, but they also only have 10 spots. Right? So on average 500 to a thousand is what most of those are doing in terms of applications in and on average, 5% of people actually get into one of those programs who apply. That means that 95% of the people who know about the incubator accelerator, who are excited, who do the work to do the application process, 95% of them are being turned away unless that person remains engaged with that accelerator or incubator program. There’s a very high likelihood that they will go away. That’s a problem for the incubators and accelerators because they are struggling to find good qualified deal flow. We hear that all the time, send us your entrepreneurs, send us your business ideas. We’re always trying to find good people that we haven’t, that we haven’t seen or that, or that are more mature or whatever, right. They’re always looking for new deals. It’s not that the deals aren’t out there it’s that they much like an investor. A lot of times accelerators and incubator programs, when they get set up, they will have an investment thesis. And what an investment thesis is, is they will say, we are, we’re interested in this type of segment of industry or market, this kind of demographic of product or service. So for example, someone who would, who would have an investment thesis that would match Precursa would be someone who’s interested in tech startups in the SaaS space, where there is where the technology is a big part of the value. So like AI and ML, machine learning, um, AI and ML investment in technology, in furthering technology, that could be an investment thesis. And they may even take it down even, even further than that and say, tech, startups, SAS software products in the tech space, in the pet tech industry, the healthcare industry, or in enterprise sales, right? Like they might even narrow it down even more. And so what happens is you have this massive segmentation cross across these audiences where the application that each accelerator and incubator program is getting may or may not be exactly right for their thesis and why they take so few is not only because the time and money that it takes to actually execute well for those entrepreneurs means that they have to have fewer to focus on. But also because they get relatively few compared to the total available applicant pool, that’s actually a match for their investment thesis. Okay. So here’s the brilliance about what Paige said. One, we can give all of those incubators and accelerators a way to monetize and create a relationship with every single person. They turn away every single year that they don’t have today. The second thing is when those entrepreneurs are ready, the Precursa platform has all the data about that startup to give more objective basis to the incubator and accelerator program to say, okay, does this actually match our investment thesis? And how mature is it and how viable is it? Right. So that’s the second benefit. The third benefit is we’ve now talked to in the week and a half. Since that time I’ve talked to four or five mentors of big accelerators that you’ve heard of one based here in Boulder, two that are, that are based in San Francisco. And then a couple guys out of Austin and Texas, all of these guys, as I, as I asked them, you’ve been a mentor for accelerators. What do you really love about doing that? What works really well about it? What is it that, that makes you not want to do it again? Like, are you just gung ho every year? And every single one of them said, you know, every year I hesitate when they asked me to, to renew. And actually one of the guys that I talked to said, I backed out for a while, because of all the things I’m about to tell you, but the common thread with the mentors, remember most of these people are unpaid. They’re doing it because they’ve built startups successfully. And it sort of feels like a way that they can help other entrepreneurs do better, or they’re doing it because they’re looking for deal flow. A lot of them are investors as well. And a lot of them find it very frustrating. There were two big points that all five of these people made that I thought was really interesting and speaks exactly to why Paige is brilliant with coming up with this new B2B angle. The first thing is all of them express that sometimes in an incubator accelerator, most of them, you have more than one mentor, maybe not in the incubator accelerator, but definitely you’ve got other people who have invested in your company. You’ve got at least one mentor through the program that you’re in sometimes more. I mean, there’s, there’s definitely programs that have like two or three, sometimes four people who are sort of like a board of mentoring you in the program that you’re in. And then you’ve got all the people in your life, right? So the first complaint that we heard is that oftentimes what they see as entrepreneurs end up with mentor whiplash, and as a result of that, they either don’t engage at all with the feedback or the ideas or the strategic piece of talking with the mentors and sitting down and doing the work, or they pretend like they’re going to, but there’s no pushback. There’s no conversation. There’s no. And he said probably 80% of the entrepreneurs that go through these programs. He’s like, I can’t even figure out why they want to do it. Other than maybe the money getting 15 or 20 or $30,000 from the, from it completing the accelerator actually makes a difference in their business, but they’re not taking advantage of the, of the mentorship either because they’ve got mentorship whiplash, like too much. I don’t know, like, I don’t know what to do with all this. I’m just going to put my head down and go, or it’s not right for them. Like, he’s been paired up with companies that are product companies and he’s a tech guy. Right. And so what we’re trying to create actually solves this problem for the incubators and accelerators and how it does that is not only does it give them more people where they can see they’re at a particular level of knowledge, right? That’s one of the other benefits is we’re setting a baseline level of knowledge for every entrepreneur that goes through the Precursa process. And we’re not only giving them a score, but you will know whether you know it now or not, when you get through Precursa. So you’re going to understand TAM, SAM, and SOM you’re going to understand what a good performer looks like. You’re going to understand churn longtime value CAC. You’re going to, you’re going to understand these principles and concepts, and it doesn’t make any sense for a high-level mentor, a strategic thinker in a program like Techstars or Y Combinator or Innosphere or BoomTown, or, you know, I’m listing a lot of the ones that are in Colorado, but long beach accelerator, like at co-founders lab. It doesn’t make any sense for the people who are mentoring entrepreneurs in these programs to spend 90% of their time. Just trying to get you to understand the vernacular and trying to figure out, well, what data research have you really done and how deep was that dive and like trying to get to some kind of objective metric or understanding of where is everyone. And then realizing that of the six people who are in your cohort, in your group, they’re all over the place. And so now you’re trying to figure out how do I set a base level of knowledge without boring, the people who have actually done this work, and you can see how it starts to become less and less valuable to the individual entrepreneur and more and more frustrating for the mentors, which means you have a lot higher turnover in your mentors as an accelerator and incubator, right? So as I’m telling you the story, what you can start to see is there is a play here to sell directly to incubators and accelerators.
Again, those are now five and six figure sales. Think about an accelerator that gets, I’m trying to think. I don’t know actually how many they get every year. So I’m not going to say that, but think of an accelerator that is getting it on average, a thousand applications, they’re taking 50 of them, which is their 5%. Maybe they’re taking a hundred that’s 900 and 950 people every year. Now some of those are repeats, but the repeat rate is actually a lot lower than you think it’s less than 30% of people who are trying multiple years. So there’s 900 to 950 people, about 600 of which six to 700 of which are brand new people every year who are just being turned away. And now, where are they going to go there? Are they going to go find a different incubator accelerator program? How would they do that? How do they know? Like after they get turned away, do they know, is it really because I’m not ready? Or is it because I’m not a match for you? Like the brilliance of this is the incubators and accelerators, even though they’re, they’re the buyer. And that’s a different persona than the user user persona, which is the entrepreneur, the incubators and accelerators actually have the same motivation that we as Precursa do for those entrepreneurs. So it’s actually the perfect way to create a B2B sales strategy without giving up our core values, which comes down to the entrepreneurs are the center of the universe. And they drive all of it, right? Incubators and accelerators agree with that. That’s why they build these programs to begin with. So this was like explosion of the world, explosion of the mind and in the intervening week and a half, like I said, we’ve already started doing user validation, talking to mentors, talking to people who run the accelerators and incubators, getting contacts at anywhere. We can with people who work with entrepreneurs and are trying to give their strategic vision and their strategic help to them, we’ve even talked to a few seed pre-seed and angel investors who are like, if there was a platform like this and I could prevent deals with some sort of objective thing, it changes the way I would do my due diligence process. I would pay for that. Right? The other thing that this does, though, let’s say that, you know, you apply to Techstars and you’re not one of the 5% or eight. They actually take like 8% of their applicants every year, but you’re not one of those people. And they say, but we’re going to give you a discount on this Precursa platform, go through that. And that will help us understand what if and when you are right for us. And if not all the other incubators and accelerators that are in the platform also will see when you raise your hand and say, I like to apply to incubators and accelerators where my idea fits your investment thesis. All those other incubators and accelerators on the platform are going to get that notification. They’re going to see you, if they’re a match for you. And then they can actually proactively invite the types of companies they want to see because they actually understand what it is you do, and they can see your score and they can see that your demographics and what you’re building in your company matches their investment thesis. The platform already essentially does that for the investor dashboard. We’ve got a prototype of the investor dashboard and essentially investors build their investment thesis. And then we say, here’s all the ideas in the platform that matched that. And here they are ranked by score and maturity and viability, right? So it’s just that with a different type of audience. And so now you can start to see how a direct entrepreneur marketing strategy still needs to exist. And primarily because we need to be responsible for setting brand awareness, establishing our brand trust and getting to be known in the entrepreneur world, right? So that when texts are says to you, Hey, we have this deal with Precursa. When BoomTown says, you have this deal with Precursa, you know, because you’ve seen it, you’ve heard about it. Maybe you’ve seen ads, maybe you’ve even gone and poked around a little bit, you know, exactly the value that you’re going to be getting for that and an accelerator and incubator that you trust that you want to get into putting their stamp of approval on it or saying, this is now part of our process just makes that a no brainer for you. Right? So now our direct to entrepreneur marketing strategy shifts a little bit, and our B2B sales strategy becomes really, really clear the value proposition of why we sell into those companies who matches our demographics of people.
We’re looking for in companies we’re looking for. And if we sell a hundred of those, that’s not a hundred users in the platform. That’s 50,000 users in the platform, right? Because if there’s 500 on average at each of those hundred, that they either bring in as part of their curriculum or that they offer it as at a discount or as an incentive to apply again. Well, there’s 50,000 users and we’ve just blown our 20 2005 years out of the water. So you can see why investors love a B2B sales strategy and B2B SaaS software, because you can scale SaaS software. The reason that investors love that specifically is because you can scale it without adding a lot of overhead in ops like an operations, right? So if you think about a business, like a professional services business, or a restaurant, if you want to scale a restaurant or professional services where people’s time is what you’re buying in order to do that, you have to add more people which adds more costs. Okay? So your margin doesn’t really change as you grow. It might grow a little bit because you might get some economies of scale. The more, the more bodies you have, but your costs definitely increased a scale with something like Precursa. When you scale it, you scale by adding servers to handle more load you scale by increasing your ability to support the product. But that is a lot cheaper than scaling to support serving at a restaurant or professional services and a cybersecurity company or something like that. So that’s why investors love SaaS because you can scale it and increase margins without increasing the operational costs. Right? So my other SAS company is a perfect example of this. When we first started, it was literally the three of us founders. And even though we have scaled to two airlines and over 1200 or 1300 pilots in the platform at it, you know, active during bidding at any given time, we have added very little in the way of support. So we’ve doubled the team from the three of us. Now there actually, I think we added four support, five support guys who are like part-time contractors, who are only on whenever bidding’s open, which is one week a month. And then we have one guy who is sort of like our DevOps. He keeps track of what’s going on on our server and lets us know if there’s a problem. If we need to scale something up or add another database or whatever it is, right? The cost of that labor far, far cheaper than the amount of revenue. So our, our margin from the three of us in the first like hundred to 150 clients that we had, or pilots that we had, our margin was maybe 15 or 20%. We now operate on an 84% profit margin. And that’s only because we can scale practically infinitely without increasing operations costs. The increase in operations is dramatically lower than the resulting increase in sales and revenue. So when you take that and put it into B2B numbers, when you’re selling business to business, your primary support is an account manager, right? Who’s, who’s managing the relationship with the business. And the business is actually the one in our case, the business is actually the one encouraging users, driving traffic, driving, driving your revenue from that perspective, well, not driving your revenue because they’re paying for it, but they’re driving your user base. And so they’re driving the increase in your data, but in one sale to one accelerator, we’re getting anywhere from 300 to a thousand, potentially more users out of that relationship every year. So you can see why investors really love B2B SaaS, because it has all the benefits of the infinite scale and increased margins of a SaaS of SaaS software and the economies of one sale, huge volume, larger sales numbers, right?
So this is really exciting. I’m explaining this in a little bit more depth, simply because I want you to understand, you’ve heard me talk about this and we we’ve even evolved our sales model a few times or the way that we think about it a few times in Precursa, if you’ve been listening to the podcast, this is just another cut at that. But it, it changes the ball game because when Sarah and Paige and I sit down with an accelerator and incubator or an investor of some kind who sees the value and wants to get into the platform that has a much bigger impact than you as a single entrepreneur, seeing an ad, right? And so we want you to see the ad and we want you to come onto the platform and get value and already have that all established before you ever go to an incubator accelerator, right? We want you to have that experience because you’re going to be more valuable to them. And you’re going to know where to go, but doing this B2B sales actually gives us the ability to impact more entrepreneurs, where they are with the same backing and benefits of the strategic partnership of these people, of these incubators and accelerators. But now they are actually in control of the buying decision, which means they have a different level of investment than just a strategic partner. So this is super exciting and we’re just starting to dig into the edges of this. So, so the crazy part about this is when we were set up to do our founders session a week and a half ago, right after that session, I was like, okay, I have the pitch. It’s seven minutes. It hits all of the important points. We still have to work on the 99 second version pages. Brain knows how to do that better than mine, but I got it to seven minutes. It hits every point. And I want to pitch you guys page and Sarah, I want to pitch you. I want you to throw objections at me. I want you to throw what’s missing at me because before I go out and start pitching to more people who are less friendly or whatever, I want to know what’s going to come back so that I can prepare. So I was like, all right, so we have this, the podcast didn’t work out. We said, screw, that let’s move on with our lives. Let’s have this conversation about the B2B business opportunity. And then I said, okay, well, I’d still like to pitch you guys here. The thing is, I think this is going to have to change now because now we have two sides of the story. The one side is Doug’s side of the story where he’s spending years of his life and hundreds of thousands of dollars to never get to the place where he thinks he’s ultimately going to get, because nobody wants what he’s building, but then you also have the incubator and accelerator side of the problem, which is they have a hard time finding mentors who are really good. And when they do, they have a hard time keeping them engaged because the entrepreneurs, their skill levels, their maturity levels, their, their ideas are all over the map. And it’s hard to marry those two things up and they get a lot of volume and they can’t handle that much volume. So how do they help more people just like Precursa wants to help more people, right? So telling both sides of that story is going to be really important in the pitch because both of those, we have to solve it for the entrepreneur. We have to, they ultimately are the end user. So no matter how many problems we can solve for incubators and accelerators, if entrepreneurs don’t get the value and don’t get the outcomes that we say are important, and the accelerators and incubators know we’re important for them, it won’t matter how many people they try and get on the platform because they won’t get the value. And ultimately the business will fail. So illustrating to potential investors. How well we understand the entrepreneur from a mindset standpoint from a journey standpoint is really important because in order to solve the problem for incubators and accelerators, we have to be able to solve the problem for entrepreneurs and all of us, incubators, accelerators, Precursa investors. We all want that problem solved for the entrepreneurs. Cause it just makes it easier and better for us and for them. So we’re getting together on Monday, we’re doing this huge strategy session where we’re going to sit down, we’re going to retool the seven minute pitch to bring in both of the same story, but from both of those perspectives, talk about the go-to market strategy. Talk about the launch strategy. Talk about the B2B marketing strategy and sales strategy versus the direct to entrepreneur strategy, which is shifting a little bit now. And then ultimately make our pitch. We’re raising half a million dollars. We’re even talking about now, since we do have a B2B strategy, which just so you know, on the entrepreneur side of the house, when we were trying to do direct to entrepreneur as our only mechanism, the ultimate valuation of this company within five years, according to the proforma and the numbers and the research and everything is somewhere in the neighborhood of on the low end 320 million to about 650 million on the high end, somewhere in that range is where ultimately the valuation would come out and what we could potentially sell for in five years. If we hit a wall, all of our metrics, and we can get access to the market, the way that we think we can, right?
This shift to a B2B sales strategy, turns this into a billion dollar plus business. And the reason is because of the lower volume with higher ticket prices, like we make one sale and that’s actually 500 sales or 700 sales or a thousand sales that becomes very quickly a billion dollar plus business. Now it’s at a level where a VC or an angel investor looks at it and says, wow. So my 50,000 now we’ll have a hundred X return for me in five to seven years. Yeah. I’m going to invest in that for sure. Now it becomes a no brainer. So this is all illustrating. If you are looking at your market, you think you’ve got it nailed. You think you’ve got it dialed. You should keep moving forward. This is that balance I was talking about between strategy and execution, right? If we get too bogged down in strategy and too much about vision and we don’t ever actually build something, we don’t ever actually execute on the thing, there’s always going to be a huge gap and we’re never going to have anything. And we’re never going to sell anything in our companies ever to go, going to go anywhere. You also have to balance that with not executing too fast on the wrong strategy, right? So ultimately for us, this is the perfect time because the entrepreneur still has to be served. So everything that we’ve done in the platform to date is still relevant, still valuable, still exactly what entrepreneurs need, but by identifying this other market and realizing that there is a strategy in the Southern market, what that makes available to us, as we say, okay, now we understand there’s another piece, which looks like an accelerator incubator stakeholder dashboard that we either need to be prepared to go to market with right away, or that we need to be, have waiting in the wings, ready to go. As soon as we hit that level of traction with individual entrepreneurs that are incubators and accelerators might be looking for now, all indications from them is they don’t care about the number of users we have in the platform before they get involved. They just want to know that the product works. So for them showing them a demo, showing them how it works, showing them that it does work and then giving them a sandbox area to say, have some of your entrepreneurs work in the sandbox, see, comes out of it, getting that early feedback. That’s all they need. So our strategy of getting to a thousand users as quickly as possible to be cashflow positive probably will happen. Now, before we launch in that is a huge differentiator between us and other companies that are pitching to these same investors. Trying to get a little bit of a little bit of money, a little bit of attention. Now, the flip side of that, how I started this was, I was saying, we now may have to go after more money. It’s not actually because the ability to our ability to execute on this new strategy is going to cost us any more than what we’ve projected. But when you’re doing a B2B SaaS play or a B2B technology play, investors get a little bit suspicious because they, I don’t believe. And it’s, it’s mostly not true that you can build sold a business to business sales team and sales strategy and marketing strategy without spending quite a bit of money to get there, right? You get a bigger sale. It also costs you. You might’ve put money into sales and marketing to build some buzz and get some individual sales. Now you’re putting money into a good sales team that knows how to close five and six figure deals. The benefit, why I say 9900.9% of the times, they’re absolutely right. And you’re going to need more money than you think. If you have a B2B sales strategy, because closers for B2B deals, they’re not cheap. They shouldn’t be cheap. They’re really good. And they’re really hard to find in a lot of markets. I’m caveating that in our case in saying we don’t really need more money. Although we are going to raise more money because we know that raising too little will actually turn off investors just as much as trying to raise too much money. And we don’t want to do that. Now that we have a B2B strategy, but remember, this is what Paige and I do do. And it doesn’t cost us any more. If Paige and I are the ones out hitting the pavement, building those leads, getting those leads in the door and then ultimately closing them that doesn’t cost us any more money. So it’s not that we actually need more. But if we go in front of an investor, Sarah’s bringing me around to this. And so we’re going to work. This is another one of the things that we’re going to chat through during our strategy session on Monday.
But she is bringing me around to imagine you’re on the other side of the table, you’re an investor. And this person walks in and says, Hey, we’re raising half a million dollars for our B2B SaaS seed capital for our B2B SaaS product. They’re going to go 500. Like, how are you going to get good sales? And how are you going to do the right kind of marketing? And how are you going to break through the noise of all the people trying to sell those on 500,000? And it’s not that we can’t tell that story. It’s that in the back of an investor’s mind, they’re still going to wonder you can run out of money too fast, and then you’re going to be raising again, which is going to dilute me and the thing that investors want. They don’t want to be diluted. They want to have the value that they see in the potential they see. And they’re thinking how many times is this company going to have to raise in order to hit that billion dollar valuation and how much more money are they going to have to raise on those incrementally larger or exponentially larger valuations in order to make that happen? Which tells me how much dilution I can expect. So if I go in at 10% of the company and I’m expecting that I’m going to be diluted at least 50% before there’s an exit potential. While all of a sudden my 50,000, that was a hundred extra turn. Now it’s only a 50 extra turn. So it goes from 5 million to two and a half million. Those are still big numbers. I mean, if you could take $50,000 in five to seven years from now have two and a half million, you do it, right? I mean, any person who can do basic math that knows how the market works, they would take that deal. Obviously there’s a risk that, that doesn’t happen and investors. That’s why there’s such a thing as a credited investors, which means you have to at least make $200,000 a year. I think it is, or have a net worth of over a million dollars excluding your primary residence, right? There’s there’s rules around this because the returns look really great, but there is a level of risk, 90% of startups fail. Now we are not going to fall into the 42% where nobody wants our product because we’ve done that research and that’s what Precursa’s about, but there’s lots of other things that could contribute to the other 60% or whatever that fail for other reasons. And could we be part of that? Sure. Do we think so? No, we don’t. But the point being, if an investor thinks that you’re going to run out of money sooner than you think, and you’re not being realistic and you aren’t asking for enough, that’s one more level of potential dilution in their, in their eventual equity that reduces the return on their investment. So going in and saying, we have a direct to consumer strategy and we’re going to bootstrap it and be scrappy, and we’re going to take 500 grand and that’s going to get us 12 months post-launch they can buy that. They want to see that because consumer markets are harder to penetrate. If we come in and say that same story, but it’s a B2B play. They’re going to go, you’re going to run out of money. You are not asking for enough. So the balance for us as founders is to say, okay, we were really trying to go out as a safe so that we don’t have to establish a value too early, because we ended up giving up more of the company or on the flip side of that, potentially the investor ends up getting less than they imagined as well. But this protects the equity in the company until such time that a reasonable valuation can be established because the reality is if we went to a valuation company right now and said, Hey, do evaluation for us, we’d answer all their questions. And they’d say, how much money did you say you have in the bank? Oh, 40 grand. Great. You’re worth 40 grand. Like, because there’s, we’re, pre-revenue, we’re pre-product right. There’s no valuation here. We’re, we’re kind of making it up. It’s an EDU catered guests, but we’d like to pull it off that educated guests until it can be a much more educated date driven valuation rather than a guess. And so that’s why that’s why we’re pursuing a safe. But in that context, if we, if they do want to establish a value and we’re thinking probably five or 6 million post money, we it’s a lot easier story to tell that we’re raising a million dollars for a B2B SaaS strategy. And that’s going to get us 18 months of runway post-launch than it is to raise what looks like too little money. And investors are like, well, you’re immediately going to dilute me before I ever have a chance to see an increase on my return. So all that said, this is the balance we’re striking between strategy and execution. And as much as you can be executing on the pieces that you know are going to be like table stakes, while you’re working through the strategy to understand, is there a different way to sell this? Is there a different go to market strategy? That makes more sense. That’s really the balance that you’re looking for. And this is why having partners like Paige and Sarah who have been around the block. We got some feedback. It was really interesting. Sarah sent our original pitch deck, and I’m really curious to hear what he says when we send him the updated one with the B2B strategy in it. But he looked through it. He gave us a really, really great feedback or some really great insight, and then listed like six or seven people who are investing in our type of business that he’d like to introduce us to, which is amazing, right?
I mean, just, it’s exactly the kind of thing that we’re looking for. And we send out a deck, but one of the comments he made was you’re all adults like I’d wear I’d back you. I want to work with you. I want to back you, you’re adults. You know what you’re doing? You’ve been around the block. I’m not having to hold your hand and teach you how to do this in order to make it happen. That’s incredibly valuable. There are statistics out there that prove second time, third time, previous founders who have had an exit event, or how to sale, or even how to failure have a higher success rate than first time founders. And they generally do it on a lot less money and in a lot less time, because they’ve learned a lot of those lessons. So if you are a first-time founder, that’s not to say you shouldn’t do your thing. Everybody was a first time founder once. But if you can get someone as a co-founder or get someone on your advisory team who will almost act as a co-founder, who has that previous experience, but listened to that person use that person’s knowledge. I mean, yes, I am a serial entrepreneur. This is not my first startup. This is not my first rodeo, but having two very experienced, very co-founders like Paige and Sarah only adds to all of the dimensions of the ability on our team to not only craft strategies, but execute on those strategies, sell those strategies, turn them into real revenue and ultimately drive growth at a very, very fast pace, which is ultimately what VCs and PEs want to see, you know, which is why VC money might not always be appropriate for what you’re looking for. You may have to look at other types of investors who are more comfortable with slower growth or building over time. Oftentimes when VCs get involved, they’re like we want 300% growth year over year. We want to see you doubling tripling, quadrupling your business year over year, and we’re driving you towards that quick exit for a very high dollar amount. That’s not always appropriate for every business or for every kind of business. Okay. So just keep that in mind. And if there is an option to do a business to business play versus, or direct to consumer play, really look into that and see, how could you tell that story and how does that impact your business model? The reality is there are some products that just need to be, or some services that just need to be direct to consumer the consumer’s the ultimate user. They’re the ultimate buyer. That’s not always the case. So we’re really excited about this shift. I think the way we got there and sort of the world that kind of opened up when we did finally see the opportunity, it’s really exciting to us. And it’s taken that last little bit of doubt of like, okay, but we don’t have a direct to consumer direct marketing, direct sales expert on our team. Right. And I know I’ve talked about that before. We’ve seriously been looking for an investor who has that D2C experience because we know that that’s a missing on our team. I no longer have that concern anymore because the type of strategy of what we’re doing is the same kind of one that Paige and I both do in our professional services companies, which is the direct to consumer is just about brand awareness and brand trust. We’re actually selling in a B2B way. So this is really exciting. It’s taken that last little, that last little bit of like, there’s a piece in this that I’m not sure how to reconcile, or I’m not comfortable with yet or whatever. It just taking that red out of the mix. And now when I’m talking to people, I mean, one of the conversations I had with one of these mentors, uh, I talked to him yesterday and when we first got on the phone, you could tell, he was like, so why am I here? Why am I talking to you? What’s up, you know, he’s figuring I’m an entrepreneur. Who’s going to try and pitch him are gonna wants to, wants to pick his brain or use a strategic vision, or, you know, but he’s a friend with a friend of mine. And so he’s doing her a favor. Right. And as I started to explain, I actually didn’t even explain Precursa. I said, oh, you’re a mentor. And I know I was like, I’d like to interview you. Okay. So typical, very user validation here. It is in real time. Right. I said, I’d like to interview you. I’m not going to give you a lot of context, but I’d like to talk to you about your experience being a mentor for an accelerator or for an incubator. Would that be okay? And he’s like, yeah, sure. Whatever, you know, and he’s still probably trying to get me off the phone at this 0.2 minutes in, right. And as I started asking him questions and turn it engaging, he kind of opened up because now, now it was about him. Right. He was telling me about his experience and about how he would do it differently if he could do it differently and all that. And so I said, okay, cool. I really appreciate you taking like 10 minutes and just kind of walking that through with me, cause that’s going to help us in our B2B sales strategy. And he goes, well, now you have to tell me what you’re doing.
And so in under a minute, I gave him sort of the real high brief. He asked like two or three clarifying questions and he goes, oh my gosh, I love this. He’s like, I want to introduce you to this person. I want to introduce this person. He’s like, these guys totally need this. And if you can get, if you can get just a couple of these on board putting their name behind it and getting their people involved, he’s like, you’ll skyrocket this. This is brilliant. So in the course of that conversation, I remember we always talk about removing bias. I removed my bias. I got interested in what was going on in his world and how I know that there’s a product here as a guy who was really trying to get me off the phone really quickly and felt like this was probably gonna be a waste of his time, ended up giving me the entire 30 minutes and making two introductions already. So I know there’s something here right now. I get to be confident when I’m talking about it. And I know I’m leveraging the best of my sales and business development abilities to build this business. And that’s, what’s, that’s, what’s really exciting to me and will also be really exciting to investors. Our strategy has like gotten a little bit of a shakeup. It’s super fun. We know there’s a little piece we’re going to be adding to the product. We’re working with the UX engineer who starts this week. We’re so excited about that. She’s going to start this week, working with our engineers and our developers just to, to build out new wire frames and make sure that the user journeys are being addressed at all the different points and understanding the flow and all of that. And also working out what is this new sort of stakeholder dashboard really look like? And how do we create realms? Or how do we create, you know, just working on the strategy of all of that. And we’re realizing we probably need to ask for more money. Not because we actually need it, but because optically, it’s just gonna be a red flag for investors. And we’d rather, they have no red flags and just jump in and, and invest, invest like crazy. So that’s really exciting. So over the next couple of weeks, at some point again, I probably, uh, next week, actually not next week, probably the week after, I’ll give you the seven minute pitch as it’s been refined so that you can kind of hear what is the pitch for Precursa to sound like? You know, a lot about it following this journey with us, what is the pitch for it sound like? Because here’s the thing that I’ve learned. So I was going to bring it back to this, this, the last thing I want to say, I’ve been listening to this podcast called the pitch. It’s literally entrepreneurs go into a room with four or five. They pitch their company. There’s some commentary from the host, sort of like clarifying some things so that, you know, you’re not listening to an hour long episode. You’re listening to like a 25 or 30 minute episode. And then you hear what are the objections from the investors? How do the entrepreneurs handle those objections? Are they doing it well? Are they doing it poorly? Why are they doing it well or poorly? Who decides they want to throw their hat in the ring and invest or not? And why? And then you get a up on what happened with the company. Did they raise their money? And you get to hear what the investors say when the entrepreneur leaves the room, I have been bingeing this because what it’s done is helped me see the plot holes in my own company and help me understand the objections I’m going to get in my own company in a way that would not be possible without just hearing tons and tons and tons of pitches and trying to understand what are the things that an investor’s looking for, what are the things that cause them to pause and what are the things that make them go, hell yes, I’m in, I am so excited to go pitch. I can’t even tell you. I’m excited to like drill in and fix this story, to tell both sides of the story for the B2B and the D2C. And I am so excited to get in front of investors because I know when the right people get in the room, they’re going to be stoked to invest in this now. Okay. So that said, this was a really amazing week. I’m actually really glad that we didn’t record with the founders. Last time I knew in my gut that all the stuff that went wrong was all pointing to don’t do this episode yet. Something else is coming and it’s going to be so much better when you do. I think that’s going to be two weeks from now, but I just got to figure out schedules and get them, get them back on the schedule. So it may be a couple extra weeks as always. Thank you for listening. Thank you for being on the journey. I sincerely hope. And my goal is always that this helps you grow and shift and tweak and hone and refine your company and your idea and your startup in a way that gives you the ability to have it be a bigger success than even you thought possible at some point in the game. Thank you for being along with us and as always happy entrepreneuring. And we will see you soon.
Thank you for listening to this episode of Precursa: The Startup Journey. If you have an idea for a startup and you want to explore the proven process of turning your idea into a viable business, check us out at precursa.com. Make sure to subscribe to this podcast wherever you listen to podcasts, so you never miss an episode. Until next time…