Pretend you are on the board of a startup. Unfortunately, this startup is not living up to its potential, and is failing to get sales traction as you and the team hoped. Why are sales not materializing? I had a brief, but insightful, conversation with one of my partners today. This partner (like most venture capitalists) is on several startup boards. Most of these startups are growing quite well; however, one of them is not.
The question is why? From a board level, it is quite difficult for a venture capitalist to determine the cause of the startup’s sales slippage. Is it the sales team? Or is it a market/product issue?
If the sales team (this could include the CEO) is not performing well, then the fix is to replace or augment the team. If the problem is the product or market, however, the solution is much more difficult. Assuming that the startup has spent serious venture money to create the initial product then fixing this issue could be very expensive. If the problem is that the market is not ready for or does not actually need the product… then what’s the solution? Shutting down the company? That’s not a happy answer.
In a perfect world, venture capitalists and startup founders would diligence away the product/market issues before launching and funding the startup. Typically this would be done by talking to customers (see my post on the importance of talking to customers before starting your startup). However, given the large number of venture funded startups that don’t make it, you could clearly assume that this isn’t a foolproof plan!
Also, in a perfect world, startups would hire only the most perfect sales teams. Venture firms put a massive amount of effort into recruiting the best possible people into their startups… but again, this doesn’t always work out as anticipated.
Obviously this post doesn’t really solve anything, but it does point out two of the areas where VC’s spend a huge amount of their time – the team and the market. If you are going to talk to a venture capitalist, be ready to address these points!
