So you’re listening to the pitch. It’s intriguing, without a doubt. The presentation is spot on, the financials add up, the CEO is a ball of fire.
But angels, ask yourself: Is this entrepreneur willing to flip a few burgers? Or at least willing to make some sales calls or write a few product specs? You know … do the dirty work?
Sometimes, that’s what it will take. Smart startup founders should be willing to take a hands-on approach, says entrepreneur-turned-investor Mark Suster. That’s right – they should flip burgers.
Suster did it both ways – hands-off and hands-on. In his first tech startup, Suster and his partner landed US$16.5 million in capital before they were even working it full-time; they hired a team of executives and a corral of developers. This was in 2000 – as market valuations fell, the fledgling startup had to cut its staff by more than half in one day. Then, Suster says, he was forced to do the hands-on stuff – make sales calls, make decisions about technical operations. He was flipping the burgers and getting an education in how his company worked.
The second time around, Suster stayed closer to the flame. This time, his startup raised only US$500,000 – and had a shoestring staff as a result. Suster did more of the down-and-dirty work himself, including marketing, sales, even designing the company logo.
“I did the grunt work. And this is how it should be in startups,” he says.
Just don’t confuse a willingness to take a hands-on approach with the steamrolling Know-It-Alls. The latter, the Armies of One, think they can do it better than anyone else. So they do. And usually, it becomes quite apparent they can’t do everything they think they can. It can be a fine line, but an important distinction.
Often, flipping burgers is a simple matter of survival. Face it: Angels are investing less. A study just released by the Center for Venture Research shows investments were down 27%, to US$9.1 billion, in 2009. The average deal size shrank considerably — by 31% — as well.
That’s not to say angels have shut Heaven’s gate. Angels are investing less, but they’re spreading the wealth thinner and farther afield – they’re spending less on more startups. With less venture capital upfront, the playing field has changed. As a result, the Do-It-Yourself approach is becoming one of the new rules of angel investing.
“Entrepreneurs should find ways to finance their own growth: working without salary, moonlighting, seeking grants, running lean operations, and focusing on an aspect of the business that can generate revenue,” the New York Times wrote last week.
Angels, consider the burger litmus test when as part of the pitch. As the competition heats up, which entrepreneurs are best equipped to withstand the grilling?
As Suster says, if the “CEO can’t drive the demo or the financial model themselves it is a big red flag.”
* For series, references are published in the last installment of the series.