A few months ago, I joined my niece and nephew for their Ski Week. I didn’t grow up with Ski Week on the East Coast (makes sense b/c east coast mountains are 🤮), but it turns out in California, kids get an extra break in the middle of February on top of spring break.
Anyway, on this trip while out buying groceries, I was reminded of a really interesting concept that I learned in my Industrial Economics class back at the University of Virginia.
If you are going to compete with another business that is very similar to yours and it already has a physical location, do you know what the best location to choose is? The answer is not totally intuitive.
It turns out, all things being equal, the best possible place to be is right next to your competition. When you do this, you remove all location-based variables like infrastructure, population density, neighborhood desirability etc. and effectively split the market right in half.
Now, if you think you are better than your competition. It's even more reason to position yourself right next to your competitor.
As a fundraising coach, I thought it was interesting to consider the application of this concept to how a startup describes itself in relation to competition. I’m a fan of founders calmly placing themselves right next to their competitors and confidently describing their advantages. No running, no antagonism, just a clear description like “Whole Foods is great, but we’re Trader Joe’s and this is the type of customer we capture vs. Whole Foods.”
I spoke with Devrim Yasar, co-founder and CEO of Superpeer about the recent announcement from Clubhouse around creator monetization features that put it in competition with his company. His response was “I think Clubhouse is great and I think they’ll do really well serving a certain type of creator. We may even be great complements to each other! That said, Clubhouse is a megaphone whereas Superpeer is focused on serving an intimate group of true fans.”
Devrim’s response was perfect. He acknowledged Clubhouse while maintaining conviction around where his company fit in the world directly next to what could be thought of as a scary, unicorn competitor. That sort of calm confidence when discussing competition is worth taking inspiration from.
On to the FIeldnotes...
A founder sent this message to me last week and I immediately knew I would reference it in my newsletter.
What that founder sent is both the most common AND least effective ask in the history of fundraising asks.
Remember that the people you’re asking for intros are likely busy. They didn’t become a valuable node connected to the investor you’re targeting without putting in a lot of work. When you ask for something from someone who is occupied with tons of other priorities, you want to make the ask as easy as possible for them. The more effortless your ask, the more likely they are to help.
Innocuous as it might seem, “Can you intro us to anyone that would be interested?” is the opposite of effortless. You’re not only asking for an intro, you’re asking this person to devote focused thought to figuring out who might be interested before then expending the effort to make an intro.
Try instead to identify specific people in the connector's network you want to connect with or at least provide general parameters to help them determine the most appropriate intros. Think carefully about how you can add value so it’s not just a one-sided interaction. It’s also nice to offer a forwardable email or other email copy to reduce the effort on their side.
A founder spoke with me about his valuation expectations for his next round of funding. When he told me he was expecting a 30x step-up from his last round valuation after just starting to generate revenue, I explained why I thought that was unreasonable. This led to a discussion about what the risk is.
Aggressive vs. Insane
There is a difference between an aggressive valuation that might be out of the comfort zone of an investor and an insane valuation that no one will go for. The former is lightly based in reality and could serve as a good anchoring to help drive a healthy, post-negotiation valuation. The latter sends signals to the VC that a founder is unreasonable, unsophisticated, and bad at fundraising, none of which are characteristics that VCs like to back.
So you can ask for any valuation you want, but know that there is a difference between aggressive and insane. Try not to be insane.