The Poetry in our Hearts: Some Great Idea is Unfolding
Our man of noble inspiration, Rabindranath Tagore said: “All men have poetry in their hearts, and it is necessary for them, as much as possible, to express their feelings. For this they must have a medium, moving and pliant, which can refreshingly become their own, age after age. All great languages undergo change. Those languages which resist the spirit of change are doomed and will never produce great harvests of thought and literature. When forms become fixed, the spirit either weakly accepts its imprisonment or rebels. All revolutions consists of the “within” fighting against invasion from “without”… All great human movements are related to some great idea.”
Each week we receive dozens of business plan submissions from entrepreneurs and intermediaries seeking venture capital for their businesses. Some of these are narrative executive summaries and more often than not they arrive as powerpoint presentations. I recently received an innovative video e-mail thatcontained a personal product demonstration by the company founder. For the most part, these “asks” are dull, predictable and formulaic, borrowing their format from a business plan guide or competition framework. Occasionally a presentation speaks with poetry, expressing vision, passion and commitment towards an ambition that is extraordinary and meaningful. Many entrepreneurs, in their hearts want to change the world for the better and some even attempt to do this directly through their businesses.
I received a request the other day to look over a website and presentation for a young company that is making a line of beautifully designed eco-friendlier performance running shoes. The company has a neat product and a snazzy image, yet the sharp headwinds of rapidly changing consumer interest, values and capacity (are we going to enter the “age of frugality”?) and the global economic recession present many challenges for these innovators. I sent back a note to the young entrepreneur with my thoughts, which one of my business partners encouraged me to share more broadly.
Many thoughts on this from an (one) investor perspective. I hope you find this helpful.
- Green as a benefit is not going to be enough for consumers in this economic environment, meaning it won’t be a compelling enough point of differentiation or reason to buy a product. Consumers are fundamentally going through a period of trading down, so the most compelling benefit has to be cost/performance, with green a distant next. Brand as competitive advantage is not enough anymore—so don’t rely on it to make your company a success. Try to focus on true UNMET needs that people know (or can easily discover) they have. (I’m not sure your PROBLEM slide really captures the current problem or a (currently recognized) really big problem.)
- Consumers are still very unsophisticated about shades of green, so making meaningful claims or producing compelling benefits (rather than features) is very tough is an already crowded, noisy market. Slide 27 is interesting….but how much LESS COST to the consumer will XXX be than its perceived competition. If you are truly 30% less in cost to the consumer (and you still have great margins) then you have a proposition.
- Traditional channels of distribution are crowded and backed up and its going to be difficult, expensive and time consuming to get to scale in the traditional retail marketplace. Retailers are always looking for new hot products, but their ability to really support them now is going to be limited and many distribution channels will be fighting for their lives. I would encourage you to find a unique distribution channel partner who can really put you on the map and support you in a dedicated way during the next two years.
- There is no doubt in my mind that XXX will get lots of exciting publicity, kudos, awards, attention, etc., but in this economy that is unlikely to translate into (enough) profitable sales. That is not to say you won’t capture the interest (and dollars) of early-adopters, but crossing over into meaningful volume (that makes your manufacturing system make sense) will likely by a major challenge.
- While it looks like you have great design, do you have any disruptive technology that can be protected as IP? Is there anything that you are doing that Nike couldn’t do in the future? Do you have anything that Nike would want to buy in 3 years? If so, we should talk further.
- I would encourage you to look for innovations that are truly breakthrough or disruptive, rather than incremental. We recently invested in a company called Textronics that was just bought by Adidas that is one such example. Physic is interested in investing in core technology platforms that can be delivered into consumer products, so if your business model takes you in that direction, let us know how we can be helpful. We are not investing in traditional consumer-product type companies, but rather enabling technologies that deliver their value through consumer products that keep people healthy.
Hope this helps. Best of luck. Stay resourceful, keep your overhead low and get to break-even as quickly as possible. Grow organically and steadily. (Capital is going to be very sparse this year.)