Ive spent the last few days here with the UK Department of Trade & Industry (DTI) delegation exhibiting at the SXSW trade show, visiting sessions with leading speakers in their fields and crucially meeting entrepreneurs from startups around the world.
This year the whole of the Hilton hotel next to the convention centre is given over to SXSWs startup programme, which boasts its own mini-accelerator programme with opportunities to meet well known VCs. Having spent the day there earlier this week, I took away an understanding of where startup culture is at here at SXSW, and the learnings that UK startups can take from that.
Startup is an industry now
Taking over the Hilton isnt something that SXSW does lightly but with sponsorship from IBM, Rackspace, Oracle and other big names in technology, you know for sure that theres something in it for them! With the funding options for startups improving all the time, from VCs seeking a better return in slow-moving markets to crowdfunding from customers and individual investors, finding funding isnt going to be the biggest problem a startup has. So with well-funded but inexperienced businesses growing in number, others are seeking to get in on the startup industry.
So watch out where your hard-earned startup capital goes. It might be great to be able to get off the ground with introductory free or cheap cloud services and accept help from various sources, but if you end up giving away little chunks of equity here and there, or committing to future platforms which become expensive as you scale, you might end up giving away a big piece of future value.
You need to solve a big enough problem
Theres a well-trodden path in pitching best practice, where you start off with a problem that a potential customer might have, describe how you can solve that problem and then go from there. But attending several pitch events at SXSW, I could see that this first hurdle was the biggest for several of the startups that pitched for funding they were describing problems that very few people had and which werent actually big problems in the mind of the user.
When this happened, investors seemed to have an “oh thats interesting” moment, followed by a moment of calculation before switching off. The refrain was pretty consistent “I can see how this is an interesting product but whats the business model “
Sales and marketing are part of your product
This leads on to the central point that I took away here at SXSW, there are a bunch of startups pitching for funding, and there are also a bunch of novel products being launched. The important thing is to know the difference. Investors here are only interested in businesses where the product solves an important problem, delivering significant value AND theres a justifiable case for this being a separate business. Getting a business off the ground is all about getting the cash flow happening, and that requires sales, which in turn requires marketing.
Read more about sales and marketing:
- Mobile marketing a top priority for 87 per cent of retailers in 2015
- How content marketing can drive sales
- UK online shoppers to spend average of 1,174 each in 2015
Your elevator pitch is important
There are thousands of startups here, and it feels like half of the people to who I say “hi what brings you to SXSW”, respond that they are looking for funding, partners or talent for their startup. They all have an elevator pitch. If you can catch someones attention in the first 30 seconds, then youve a chance of being heard above the noise.
Plan to scale from day one
A final, but important point, is that investors are only interested in businesses which can scale. Any part of a business which isnt well thought out, isnt well defined, or is set up in such a way that it requires hiring lots of people in order to scale, just isnt interesting to investors. The investors in SXSW pitch sessions focus in on this like sharks circling for blood.
If your business is going to scale, it all needs to scale. When US investors put in cash to scale a company, they only do that when they can see that there arent any flies in the ointment that will hamper that growth. If the UK is going to compete with the US and generate the next billion dollar startup, then we need to have the same laser focus on growth, and that means building it in from day one.
Martin Campbell is MD at Ormsby Street.