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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Note: This was one of the first things we ever wrote down about SproutBox. It happens to have been written exactly one year before we launched. It’s posted here to give you some insight into what drove us down this crazy path.

The SproutBox Manifesto

We believe startup culture is failing entrepreneurs. Today’s great minds are trying to create a paradigm shifting, socially viral, semantic networked, widgitized platform with integrated user-contributed synergies and enterprise ready monetization—and then sell it to Google while in beta. We take a different approach. We give bright minds the team and tools they need to build focused products. Products that solve user problems. This isn’t to say that we don’t sprout innovative companies. Many of the companies we work with can only be described as revolutionary. They have the potential to be the next big thing—but that potential isn’t the extent of their worth.

We understand that every billion dollar business was once a million dollar business. A company’s first goal shouldn’t be to figure out how to sell their company. It should be to figure out how to build a product that will sell. We know from experience that this can pay off. Entrepreneurs have become obsessed with coming up with the mythical billion dollar idea. They have forgotten that Facebook wasn’t mankind’s first attempt to bring people together or that 37Signals wasn’t the first company to tackle project management.

We believe ideas are less important than the entrepreneurs that have them. It takes a great deal of faith and dedication to start a company. That faith should be in the entrepreneur’s ability to implement better solutions to real problems. Ideas come and go and there are plenty of them, but people who can consistently revise and execute are rare. The best entrepreneurs are idea independent and can adapt creatively within an ever changing set of constraints.

We believe getting everything you want is dangerous. Creativity dies in environments where things are handed to you. Ingenuity needs a challenge. That’s why we time box development of new ideas. If you can’t get to market in a fixed amount of time, you’ll have to cut something—usually features. This isn’t a bad thing. Being forced to focus on high margin, core product functionality means you’ll be able to keep your team small and agile.

We believe growth shouldn’t be measured in headcount. Most companies boast how they want to hire hundreds. We don’t. Small teams are like simple products. They focus on the high margin portion of the curve. We don’t measure success based on how many cogs we can add to the machine. Instead, we are interested in how much value the machine can produce with just the right amount of gas.

We believe making money means providing value. In today’s age of free, it might shock you that we are in the business of making money. We aren’t looking to make it through some treacherous ‘charge ‘em later’ scheme or by tricking our users to click here or there. We make money the old fashioned way—providing products customers are glad to pay for. The Idea of building companies that have value seems pretty obvious. But much of Silicon Valley wants us to buy into their pyramid scheme—buy ads so you can sell ads to the level below you. Or better yet, make Google more money and cross your fingers that they will buy you.

We believe the mid-west is a great place to start a business. We live and work in Bloomington, Indiana. It’s an awesome place to be. It fosters a new startup culture that has the ingredients for success: a great university, vibrant downtown, fantastic food and arts, low cost of living, large talent pool, and a solid tech community. Come visit and see for yourself.

Our secret isn’t that our beliefs are that revolutionary. It’s that we follow our own advice—we execute well. If you’re an entrepreneur or investor interested in being involved, let us know.

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