Thursday, January 19, 2012

4 reasons to create your pitch deck before you need it

As I look back, I realize that I ended up getting a lot out of our pitch deck before ever using it to pitch. Here are four reasons I think every entrepreneur should start thinking about the pitch early on:

1. It makes you do all the market research.
When we first started InstaEDU, our research had mostly been qualitative. We’d started a tutoring company, talked to customers and identified potential solutions to some major problem areas. What we didn’t know was how big the market really is, how current online companies are doing, or even how many people give a sh*t about education. (With education startups, you’re constantly warned not to overestimate the value people put in education.)

You can’t tell an investor ‘We talked to some people. They all liked our idea. And, uh, there are a lot of students out there. We’re gonna be huge.’ So in an effort to paint a realistic picture of the market in our pitch deck, I set aside a few days to do research. Some basic questions included:

 - How big is the U.S. tutoring marketing? How about online tutoring? How is that changing?
 - How many students work with tutors each year?
 - How many students don’t work with tutors, but realistically would?

I was surprised at how difficult some of the answers were to find (or even extrapolate), but after a few days of reading, much of what I learned actually surpassed my expectations about the potential of the tutoring market. (As a side benefit, I also absorbed several studies on the overall benefits of tutoring and the effectiveness of various education styles.)

When I first started my research, I thought the actual numbers would only be important when talking to investors, but when I had them all in front of me, they became important every time I thought about our product and audience. For example, it made me realize what a small percentage of education-minded individuals are currently working with tutors. Now I’m constantly thinking about how the market is split and how we can capture both halves.

2. It forces you to think about the "what ifs".
One of the parts I dreaded most about putting together our pitch was the financial projections. (Fortunately, my cofounder Dan rocks at this kind of stuff, so I was off-the-hook for the worst part of it.)

Dan put together some rough financial projections early on, but as we got closer to talking to investors, we realized we’d need something that better explained all of our assumptions and let us easily change them. (We were sure that there would be many, many numbers that we’d want to update over the next couple of months.)

Dan then plunged into the depths of Excel and set up a multiple page spreadsheet where changing any assumption - from our monthly churn rate to the cost to a paid user to the number of engineers at any given point - updated all our projections over the next couple of years.

This proved to be an awesome tool for evaluating how different scenarios could play out. What would happen if we dumped a bunch of money into advertising? How would slightly increasing our viral coefficient affect our long-term numbers? What happens if more users churn than we predict?

I think this is actually the most insightful exercise we’ve done, and I doubt we would have done it without impending investor meetings.

3. It helps you figure out how to talk about your company.
In a year of running Cardinal Scholars, we had a lot of conversations with students, parents and tutors. We felt like we had a good grasp on their needs, but when it came to describing them to other people, we generally relied on specific scenarios because that was how we’d seen the needs manifest themselves. I’d say:

"Imagine you’re a student, it’s 11pm, you have a test the next morning and you’re stuck on a physics problem set that you don’t understand. InstaEDU provides relief by letting you quickly connect to a great tutor who can help you out."

Or in another conversation, “Great tutors tend to be limited to major cities and certain college towns. If you live somewhere like Napa Valley or Cedar Rapids, there aren’t a lot of AP Chemistry tutors nearby. InstaEDU gives everyone access to top-notch tutors."

In putting together our deck, I had to show what we were doing and why we were doing it. Let’s start with the why. In the end, I was able to narrow down our findings to four main issues:

1. In-home tutoring is cost-prohibitive for most families
2. Most students don’t plan ahead to know when they’ll need help
3. Geography limits the availability of great tutors
4. Busy schedules make regular lessons difficult

The next step was evaluating how our platform fit these needs. (Again, this was something I knew in my head, but had difficulty articulating quickly.) With the help of a more experienced entrepreneur, I was able to take our four problems and break them into two real solutions: online and on-demand.

1. Solved with *online* tutoring >> In-home tutoring is cost-prohibitive for most families
2. Solved with *on-demand* tutoring >> Most students don’t plan ahead to know when they’ll need help
3. Solved with *online* tutoring >> Geography limits the availability of great tutors
4. Solved with *on-demand* tutoring >> Busy schedules make regular lessons difficult

Suddenly, I was able to go from a jumble of student issues to problems that could solved with online, on-demand solutions:

InstaEDU is an online marketplace where students can connect with great tutors on-demand.

4. You get much better feedback.
Our first pitch deck sucked. It was full of things that had been in our heads so long that I didn’t know how to put them down on slides effectively. (I’m also no visual designer.)

The best thing we did with that first version was show it off. First, I had my boyfriend suggest some improvements. Then our advisor. Then a few friends in the space. Then some other entrepreneurs. Then some investors. Oh, then my boyfriend again. And our advisor again... You get the point.

Our whole deck is now a collection of a couple tweaks here and a few clarifications there. Looking back, I initially wondered why the first batch of viewers didn’t point out more issues. Later I realized why: No one wants to be too critical. It’s awkward.

By going through dozens of feedback sessions over a couple months, we were able to make a large number of improvements without anyone having to give us more than a few pieces of constructive criticism at any given time. Yes, it means asking for help a lot of times, but it also means asking for it in small doses.

Follow me on Twitter at @ajalison and check out InstaEDU on AngelList

Tuesday, January 3, 2012

11 Things I Learned in 2011: Part 2

A couple weeks ago, I wrote my first blog post reflecting on some of my learnings during my first year of entrepreneurship. After realizing how long 11 lessons were, I decided to break it up into two parts. Here's the second half of 11 Things I Learned in 2011: Part 1.

7. Maintaining your personal life pays off in your business life.
People tend to think that in order to get a company off the ground you need to be locked in your basement working 120 hours a week. While working hard (and more importantly, smart) is obviously crucial, I've quickly seen how valuable our time outside of the office has been to InstaEDU.

Beyond keeping you sane, getting out ensures that you're talking to real people. New acquaintances will inevitably ask you what you do, so every person that you meet is a chance to explain your product and gauge their reactions. I've refined our pitch hundreds of times after conversations with random people, and we completely rethought our target customers after Dan had a night at the bar with his high school friends.

I'm not saying new entrepreneurs should still attend every happy hour, but making an effort to get out when you can pays off immensely. Unless you're building a product for engineers, you should spend time with people who aren't engineers.

8. Companies = bills, bills, bills.
When we first started Cardinal Scholars, it was easy to run quick numbers that made our potential profits look like sunshine and rainbows. With only a couple hundred students working with tutors twice a week, we'd be taking in more than $600k a year in profit.

While we knew that there would be some expenses beyond paying tutors (e.g. cost of incorporation, marketing dollars), there are a lot of little costs that come with running a business that I hadn't fully taken into account. We spent thousands of dollars putting together our terms of service and privacy policy. We had to hire bookkeepers and tax accountants. We needed professional liability insurance. We now spend several thousand dollars on Adwords each month. We have the least glamorous office in the world, but rent still adds up. We've managed to build a profitable business, but we far from keep the $20-40/hour "profit" from each lesson hour.

It's also made me look at other companies in a whole new light. When I pay $20 for a pedicure, I'm trying to analyze how much of that actually lands in the salon owner's pocket. (Hint: not much.) And while I don't know their numbers, how an expense-heavy company like Zipcar will ever become profitable still perplexes me.

For anyone who's planning on bootstrapping a business for a while (something that I recommend), make sure you're planning for all the little things.

9. Before I start my next company, I'm going to travel. A lot.
I'm obsessed with traveling in general, but in the past year I started to see it as a business idea engine as well. Most American startups attempt to solve American problems because that's what they're familiar with. InstaEDU is no different, but there are a lot of other markets out there.

As I develop more of the startup mindset, I can't help but think about other business opportunities wherever I go. On our most recent trip to Central America, my boyfriend and I spent a lot of time talking about how to make it easier for small hotels to improve their online presence. (Booking a room ahead of time often took days and dozens of emails.) We had several conversations with the owner of our bed and breakfast in Belize about her pain points and the current solutions available to her. I'm not looking to start a different company any time soon, but I found the whole dialogue incredibly stimulating.

Anytime you travel, there are countless opportunities to talk to cab drivers, waiters, shopkeepers, etc. Even if you don't come up with a billion-dollar business idea, I guarantee you'll learn something.

10. My parents laid the path for me to become an entrepreneur.
I grew up in Portland, Oregon and my parents are both teachers. They're reasonably tech savvy (but my mom still uses Comcast email). At first glance, they don't seem like the type that would raise two Internet entrepreneurs, but the more I think about it, the more it makes sense.

Whenever I read articles about why there aren't more female entrepreneurs, I have difficulty relating. A lot of the arguments have to do with the fact that passive people don't make great entrepreneurs (and women tend to be more passive than men).

Fortunately, my parents raised us to both think big and be assertive. Nothing was out of the question if we could argue for it well enough. I quickly learned to pick my battles and then fight them relentlessly. (My mom's patience with us over the years amazes me to this day.) We weren't going to get yearly spring break trips to Hawaii, but I could convince my mom to let me wear makeup sooner. Near the end of elementary school, I vividly remember writing my mom a persuasive essay on why I should be allowed to shave my legs. After a few more discussions, permission was granted.

While my fondness for arguing can sometimes drive my friends crazy, I've had 24 years of training in figuring out what I want, what's possible to get, and how I can get it. And I certainly think that helps in business.

11. I undervalued Twitter and blogging.
Sorry, I'm late to the game with this one.

I've always considered myself someone who "gets" social media. I think I did a solid job at managing our Facebook and Twitter presence at Aardvark. When I worked at Google, I ran their Facebook page for a while and taught several product teams how to implement social media. But what I failed to do for a long time was use anything other than Facebook for personal development.

I reinvigorated my personal Twitter account recently when I wanted to learn more about various investors. While it's helped with that a little bit, the conversations it's started have been much more powerful. I've reconnected with a number of startup acquaintances and seen a bunch of interesting entrepreneur resources that I would have missed. (My Facebook newsfeed is full of party photos and people who are upset about the outcome of the Fiesta Bowl.)

When I wrote my first blog post a couple weeks ago, I mainly wanted to force myself to reflect on the past year. I posted the link to my Facebook and Twitter, expecting a couple dozen clicks from my boyfriend, dad, etc. Instead, a few people actually retweeted it, and after getting sent out in a Startup Digest reading list, it's had more that 2800 pageviews. More significantly, I've received several dozen comments, tweets and emails from interesting people I'd never spoken to before.

While nothing that I've written is groundbreaking, it's helped me realize that there are a lot of people who are in the same place and want to connect with each other. Myself included. Tweeting, blogging, etc. helps me find those people.

So find me on Twitter at @ajalison :)