At a recent planning session for a tech conference, I suggested including a ‘pitch fest’ on the agenda to allow local startups to present their business ideas. This board is made up primarily of other high tech business owners, many of whom are serious investors. I was expecting a rash of suggestions for companies and entrepreneurs who might be interested in giving a pitch, but the response I got was quite unexpected.

“Who will vet the ideas?”
“How will we decide who gets to present?”
“How will we find investors who are willing to sit through that?”

What I was proposing was not a business plan competition or an investment forum, but simply an open-mic for entrepreneurs to share their ideas. Unfortunately, it seems that many investors simply don’t have time to hear bad ideas. This attitude is perplexing, but it is certainly not isolated to those who sit on this particular board. In fact, many investors and angel groups are hiring full-time ‘vetters’ to make sure they only see the best ideas. The big VC firms have done this for years. After all, a successful investor can’t possibly listen to every entrepreneur that wants to pitch them. Can they?

The more successful an investor is, the more pitches they will receive. Obviously, they can’t give every opportunity equal consideration and full due diligence, but why can’t they at least hear the elevator pitch? After all, most of these people achieved their success because of their ability to spot a good idea. Why, then, would they want to avoid doing what they are best at?

Giving elevator pitches is important for entrepreneurs. It forces them to focus their plans – not just the pitch – but the business itself. This is true for good ideas and bad ones. Some of the best ideas started as terrible ideas. Sometimes, a bad idea simply needs to evolve based on feedback. Other times, it needs to merge with another bad idea to become viable. ‘Pitch fests’ create opportunities for one entrepreneur’s chocolate to end up in another’s peanut butter.

Investors do entrepreneurs a service by limiting the time they spend on listening to each pitch and by giving quick feedback, but avoiding pitches limits the opportunity for everyone. Pitch me, bro!

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We need to clearly define the word customer. The definition I’d propose is pretty simple: Those who pay you. This very basic view of a customer seems to have been lost somewhere in the depths of Silicon Valley culture and nomenclature.

Free, as in marketing
At SproutBox, I see a fair amount of Freemium model business plans. Most have 2 categories outlined: ‘customers’ and ‘paying customers. I call bullshit. If a customer isn’t paying you, they aren’t a customer—they are a prospect. You have to understand that your free version is a marketing vehicle, not a sale. You may have a great way of marketing your product, but just like a sales guy working his prospects, you aren’t done yet.

Attention factories
Ad revenue based models have been getting a lot of crap lately and for good reason. But an ad model isn’t all bad, as long is you understand what and to whom you are selling. Most of what would be thought of as Facebook’s customers aren’t their customers at all; they are their product. Facebook is an attention factory. They build and sell attention. That is their product and advertisers are their customers. They are judged by the quality (relevancy) of their product, and live or die based on the margins on units (clicks, impressions) sold. This isn’t new. Ask an ad sales manager at NBC who his customers are. You’ll get a quick answer and it won’t be the millions tuning in nightly.

Don’t get me wrong, if you’re an attention factory, you have to to play close attention to your users. They are your product. They must be tended to and cultivated, just like a farmer cares for his crops. But once you make the distinction between your product and your customers, you’d be surprised how that positively effects decisions from that point forward.

Early adopters
What about these jokers that have no customers at all. Nobody pays Twitter a thing so they can’t have any customers, right? But somehow the doors stay open and @ev takes home a check. That’s because Twitter does have customers and lots of them: Ron Conway, Marc Anderseen, Kevin Rose, Charles River, Union Square, Benchmark and all the other Twitter Investors. In the end you are beholden to where your paycheck comes from and Twitter is no exception. Eventually they may turn their users into prospects for an enhanced version or capitalize on their attention factory. But for now investors are Twitters only customers.

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Startups need things. Lots of things. You can’t bake a company with a recipe alone. You need utensils, ingredients, an oven, a mixing bowl, and some counter space. A complicated recipe might even require an assistant chef. Some of these things are easy to find. Some of them are more elusive and expensive.

Luckily, startups have something they can barter with to acquire these things: equity in a potentially appreciating asset. In any good transaction, the startup will trade some of that equity for something that will accelerate its appreciation. The startup gets what it needs, the other party gets an instant increase in theoretical value and a shot at a real-life profit. For years, entrepreneurs and investors have been trading these things back and forth. The trade has traditionally taken the same form: Investor gives money to startup, startup gives equity to investor. This works out OK, because money is one of those things startups need and, with enough of it, they can buy all the other stuff.

But, how much sense does it really make for cooks to leave the kitchen to go shopping? Nothing is baking while the cook is at the store. Nothing is getting mixed. The oven isn’t even pre-heating. That equity isn’t appreciating. There are probably two types of entrepreneurs: those who will spend more and make quicker decisions so they can get back in the kitchen and those who will take their time to find the best deals. Since time is money, both are a waste.

But there is a bigger problem for real startups than for our analogous cooks. These cooks might make a trip to the store to buy ingredients before each baking project, but they wouldn’t buy a new rolling pin or a new bread pan every time, and they certainly wouldn’t buy new cabinets and appliances for each new loaf of bread. But this is exactly what happens in the startup world! Investors’ money goes to buy new computers, lease new office space and buy new furniture for every new startup they fund. They spend money recruiting and re-locating new staff and paying lawyers to draw up new legal entities and operating agreements.

Luckily, a new breed of merchants have shown up, ready to barter with a new currency. Rather than simply trading money for equity, we deal directly in the tools and ingredients, eliminating the trip to the store so the cooks start mixing faster. Better yet, some us have learned to trade in theuseof our counter tops and ovens (and even our assistant chefs), rather than trying to trade those items themselves. By reducing overhead, re-using staff and space, and recycling designs and code, we get businesses baking faster, and create a whole lot less waste.

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