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Understanding the questions behind a VC’s questions: Part 5 — How is the view at the top?
The view is unknown, but understanding the possibilities can help you choose your path to the top
For the fifth entry in this series of posts about why investors ask the questions they ask I am focusing on competition and other things that could erode the value you have worked to create. To start from the begining, please go here.
The defensibility of your business speaks to its long-term value as a stand alone entity or as an acquisition target. As you are building a company, it is important to know what is on the other side of the cliff you are scaling. Building a business is one of the hardest and most rewarding thing you can do professionally and thinking about the view at the top while you climb can help you choose the best path. Your strategic decisions will be different if you believe you will enjoy green fields at the top of a mesa or be faced with a steep and dangerous decent forcing a traverse along a knife edge ridge (aka — Pivot).
When you speak with a potential investment partner, competition should be well researched and conclusions about the strategy they will pursue should be supported with historical evidence or facts about their dependencies. When an investor is asking about competition and other surprises that may exist in the business they are looking for both specifics about your business as well as your general knowledge and approach to the industry.
WHAT IS YOUR VISION?
- What is your big vision?
- What problem are you solving and for whom?
- Where do you want to be in the future?
WHO IS YOUR COMPETITION?
- Who is your existing & likely competition?
- Who is adjacent to you (in the market) that could enter your market (and compete) or could be a co-opted partner?
- What are their strengths/weaknesses?
- Why are you different?
WHAT PARTNERSHIPS DO YOU HAVE?
- Who are your key distribution and technology partners (current & future)?
- How dependent are you on these partners?
- What assumptions are key to the success of the business?
- What “gotchas” could change the business overnight? New technologies, new market entrants, change in standards or regulations?
- What are your company’s weak links?
As an entrepreneur it is your job to see what others do not and to innovate around your vision. A business strategy is a best guess, and honesty about this, knowing what you do not know, is good. If you can also articulate a plan for learning what is currently unknown while keeping your options open, this is even better.
**My friend Jon Steinberg has written about this in the past and I agree with his push for execution and product focus, but would include potential consumer shifts such as the healthy trend that hurt Coke as one of the red arrows in my diagram above.**
For the last post in this series I will talk about the two areas investors care about that apply to the whole curve, team and fit with the portfolio.