Recently on LinkedIn I answered a question of a fellow entrepreneur. His question had to do with going to a Venture Capitalist or a better established business to pitch an idea he had, but couldn’t implement on his own. His concern was on his ability to do so and protect his idea.

The Dilemma

When you’re the small start-up and you need money you’re put in a place where you don’t typically hold a lot of power. Potential investors will be completely invasive with their questioning and business reviews, at the end you’ll be lucky if they don’t know your business better than you do.

The problem this gentleman, and any small investor, faces then is how to maintain a position of strength in negotiations. VC and M&A activities are all about the big investor squeezing as much equity as he can out of the start-up.  The more of a business model and plan that is replicable the more equity a VC can extract.  This is counter the preference of the entrepreneur who really wants to make a deal (for as little equity), since they’ve deemed sacrificing a piece of the company a necessary process to accelerate growth or build in stability into the business.

Building in Value

Given the preferences and tactics of the buying parties in these transactions, we know its vital that a entrepreneur come in with the most attractive business plan possible. Knowing who your audience is, having achieved current run-rate business, and having a brand customers are aware of are just some of the things you can do to drive value into the bargaining table.

The element that is often over-looked and extremely valuable is Intellectual Property: the patents, copyrights, trademarks, and trade-secrets that the company holds. These intangible things represent the ability to lock in value by removing an area of the market from competitors.

By focusing the conversation onto IP, and by having a thorough understanding of IP the entrepreneur protects their value first by dictating a asset has value and asserting it most be measured into the asking price, and secondly by removing a possible exit strategy that sees the potential investor become a direct competitor.

Take-aways: Control the conversation and navigate into IP valuation. Assert and qualify the investments you’ve made in intellectual property. Explain to the potential investor how your IP makes this a unique product, one that doesn’t have many substitutes.

What do Cavemen, geckos, and eyeballs on money have to with each other? Outside of being a triumvirate of successful marketing campaigns, not a heck of a lot. When someone looks at Geico’s advertising outside of it being really solid and quite humorous they don’t make a whole lot of sense on the surface. Why would a company create 3 different personas? Won’t this cause confusion in their customer base?

When you look back at some of the posts we’ve discussed previously around messaging it becomes a little more clear. You have a messaging statement built on 3 pillars.

Ad Campaign: Gecko ads

Pillar: Name recognition and trusted in the Insurance Industry

This was the opening gambit of Geico. The idea was the name Geico wasn’t memorable and wasn’t really interesting. By creating a mascot gecko and playing off the confusion between the name Geico and the Gecko they created a playful way to address the lack of brand awareness.

As the branding became more widespread the gecko ads the messaging transitioned from awareness to trusted and reliable.

Ad campaign: Cavemen ads

Pillar : Ease of Use

Tagline: So easy a Caveman can use it.

This pillar is directed at reducing the fear customers have of removing an insurance salesperson from the equation. By going online and direct Geico is able to maintain higher margins and have a leaner organization. The challenge they faced was how to get the average consumer to overcome the uncertainty of going online, picking their own policy, and not having an “expert” to assist them in the purchase decision.

Ad Campaign: Money-eyes

Pillar: Money saving offer.

Tag Line: Its the money you could be saving with Geico

Another brilliant way of conveying the message in a playful and interesting way. This is much more effective than just claiming they save money and moving on to the next bullet point on their value proposition.

Big Picture

Geico promises to save you money, while offering you an easy ordering process, and standing behind their product with reliable trusted service. This is one heck of a mouthful, and its extremely dry. Geico needed to break it up in such a way to drive excitement and engagement, as it is a service that requires direct response in its sales channel. Three sets of commercials bring the value that one just couldn’t.

Background

I started my career working in a value added reseller; while it wasn’t a job I cherished at the time the experience is just invaluable now in my role as a Product Manager

The Problem

In product development the goal is always to build a product “so good it practically sells itself”. We want to create a product that is completely interpretable by the user, requires little or no interaction to get it to fly off shelves, and is completely identifiable with the target market. There are a lot of tricks that are used to get to this point with a product including: focus groups, targeted advertising, branding, slogans, and Public Relations.

A funny thing happens on the way to the check-out stand though. Product Managers begin to ignore the traditional and some would argue most important part of the sales process: the advocate. It stands to reason as PMs begin to work more and more on the areas they control, and try to get to a more direct interaction with consumers that they would begin to miss areas that are beyond their sphere of influence.

Marketing Tries to Solve the Problem

The types of product positioning I’ve detailed are all centralized around Advertising that is creating a message around explaining the value at a customer. While good advertising creates the appearance of insight into customers’ demands/needs it’s also one sided approach with no adjustment to the individual’s needs. Another major failing of this approach is its impact is extremely difficult to measure.

Understanding these limitations marketers turn to “direct-response marketing” a method heavily relied upon by infomercials, catalogue sales, and search advertising. The idea here is that a customer will self select the product and prompted by an offer will reach out to the company directly to purchase the product. Direct-response is much more cost effective than other forms of Advertising they also tend to breed skepticism in a large audience base, which can limit effectiveness.

Just no Substitute to Sales

Marketing and Advertising by their nature have to scale out as broadly as possible while still maintaining the appearance of being directed at the intended audience. This creates a huge gap in effectiveness as your campaign either needs to be broad enough to hit secondary groups, or you have to ignore them to ensure the primary audience message is delivered (both have drawbacks).

So say we’re targeting a computer at 20 year-olds who are going off to college and need a machine for word processing, internet, and video/VOIP telecommunications. Does that product not also work for the mother of 2 who sells Avon and has routine conferences she must go to? In fact the product might be the perfect offering for her, but because she doesn’t fit the primary audience profiles any commercials and advertising would miss her.

Nothing Like the Human Touch

Going back to our mother of 2 seeking a computer, at first glance this seems like a missed opportunity for our computer maker, but when we introduce a sales channel and arm them with the appropriate messaging to hit a secondary market a chance for success is created.

The importance of a sales force comes across in a dialog with the customer, in this engagement the salesperson is able to understand individual needs and provide a consultative approach to positioning the value. I can’t stress enough how valuable the sales interaction can be, given it allows for a re-messaging to meet the individual customer’s needs as well as a good feedback mechanism to Product Managers in the planning of new products or campaigns.

Where Sales Matters Most

· Start-ups or new products with little to no market penetration

· Companies who lack substantial budgets to run aggressive PR and Advertising campaigns

· With products that are complex or have hard to convey value propositions

· Products with a balkanized customer base

Take-away: The more successful a product is the greater the danger of ignoring the sales aspect of your business. With a strong brand and product category leadership is the disadvantage of falling into “it’s good enough” mentality.

Smart Product Managers will quickly realize that a closer integration with sales will provide a multiplier on the revenues they can expect from a Product Offering.

Saw this on Gizmodo

I was floored by how accurate this Venn Diagram was. It just goes to show that products can’t be everything to everybody. By each of these competitors focusing on a couple benefits they have a differentiated value.

As humorous as this graph is, it’s telling.

Dealing with Venture Capitalists

When going into a deal with Venture Capitalists you need to understand regardless of how great they think your idea is, they will talk it into the ground in order to secure a better price for their investment. Jonathan the proveyer of Element Bars was prettty good about reiterating his value position. However, he missed a lot of opportunities by focusing back on the fundamentals, the sales results, the growth rate, the potential to expand the offering with seed money.

What is the value of Element Bars?

Lets look at their business and the various intellectual properties which they may own.

Business model: Deliver high quality customizable energy bars that meet your nutritional needs and taste.

Slogan: We’ve raised the bar! <—– really thought this was a terrible slogan.

Messaging: Our made-to-order energy bars are chockfull of tasty, whole ingredients and nothing you can’t pronounce. Guarranteed to put fuel in your tank and keep you smiling. <—- Think they bit off a bit more than they needed to and missed having a concise easy to get behind message.

Recipes: Curious whether they even own the recipes for these bars as they’re crowd-sourced. What happens if they wanted to expand into retailers, if they select a user created bar does the user or the company maintain the rights to the recipe?

The Website: Great URL name, very professional, well put together portal. Not much room to move beyond the current product though, no ability to scale out into complementary goods unless you use Element Bars branding in them.

The Process: Having built a process to deliver thousands of customizable orders on demand is a useful skill. That know-how or “trade secret” could be very valuable to bigger players who are looking to move down into customizable product niches.

The ordering Process: This to me is probably the most amazing piece of intellectual property I saw in the product. The idea that i could customize across 5 variables, and then have the nutritional information and bar power key change is very cool. I could see this technology being applicable for anything from recipe sites, to corporate restaurants detailing their menu.

We’ve talked Value now lets talk Challenges

Scaling ~ The most concerning thing about this business for me (and one which the sharks seemed to neglect) is how are you going to scale the product line given the reliance on customization. Its great you build 1 bar specific to 1 person but if you have 10,000 people waiting on their unique bars can you deliver? This really is the difference between small restaurants and fast food chains, there’s  a certain adjustment that the product ofering must undergo to scale out to large audiences.

Is the product offering too narrow? ~ Next we’re talking about a niche product, or rather 3 niches coming together to create an even smaller niche.

Pretty narrow niche to fill

 Competition ~ If you walk into a grocery store you’ll already see a glut of these bars, most of which claim many of the same benefits of Element Bars. How does Jonathan plan to compete with the Power Bars, Cliff Bars, and Luna Bars of the world? How is he going to fight them when he’s not even on the shelves next to them in stores, where the majority of people still do their shopping?

Marketing and growing customer base ~ I’m very concerned about this one, your product is online meaning there isn’t a ton of product placement opportunities for you. You’re relying on people who are dissatisfied with the offerings they see on a daily basis to seek out this product. I see this as a major blocker to expansion.

Suggestions

Hit the Gym ~ If I was Jonathan I would focus on a primary audience to act as my distribution channel: Sports Clubs, Gyms, and nutritionists. His problem is scaling with a customizable product, these businesses are centered around creating health plans for their members. They could order his product customized but paired down to just a few options and keep them onhand as a recommendation to go into their excercise and diet plans.

Force feed them ~ This is probably going to be about as well recieved as Howard Schultz telling Starbucks they should move into preperation of coffee drinks instead of sticking with just whole bean sales (and we saw how well that worked out). I love you customized story, but you need an offering into stores to get the visibility. You could even use it as a trojan horse to drive people to the website for the customized product.

White label ~ Go after companies that want to use your product as a complement to their offering. His process already supports this but make it a priority.

Take Away: Ok this was an incredibly long post. I was pretty dissapointed on both sides of the negotiating table. In the end Jonathan did make a deal (it was unclear whether he got to keep the 4% royalty or whether it went off the table when he negotiated to 30% stake). In the end its a reality TV show so anything you see, you have to be sceptical of. For me I’d probably have invested on the condition I be granted the IP for the customization on the website for use outside of the energy bar marketplace.

Most people don’t understand intellectual Property or how to value it, use this to your advantage.