As a judge for startup competitions, I often encounter many pre-seed stage startups. Here’s what I usually share with them:
“I’m out. But since you’ve come this far, let’s make sure you get something out of this, okay?”
“So, do you want me to give you honest feedback as a friend, or do you want feedback that you can take back and improve on, to avoid wasting your and your company’s resources?”
Since early-stage companies are often more sensitive and vulnerable, it’s crucial to provide feedback that is both delicate and constructive. However, because feedback is often limited, founders might continue down a path that wastes their own resources and those of society.
I’m sharing some general observations about pre-seed deals. Most startups at this stage are looking for investors with successful exit experience, which is rare in Vietnam.
The remaining startups often have very little to negotiate with due to limited accomplishments.
Startups at this stage often share common characteristics that experienced investors can quickly identify. This is because investors have been through similar experiences and can recognize patterns.
I want to express my gratitude to the sharks for dedicating an entire day to filming and for their patience and kindness in responding to the founders. It takes a lot of effort to listen attentively and try to understand the founders’ goals and needs.
Both the speaker and the listener invest a significant amount of time and energy in this process.
Overall Assessment of the Deals:
- A common trait among the founders in this episode is a lack of strength in sales and marketing.
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- To grow as entrepreneurs, they need to overcome these milestones:
- Sell to 10,000 customers.
- Conduct a market research study with over 1500 qualified respondents to gain deep customer insights.
- Achieve over VND40bn in revenue in the first year.
For all three businesses, I estimate it will take the founders an average of 4 years to achieve this if they focus on the right things. It’s crucial to have a clear direction, otherwise, even 10 years might not be enough.
- Shark Nga asked the founder of Pơ Lang a very pertinent question.
Is what you’re trying to solve aligned with an economist’s perspective?
We don’t need too many people wasting society’s resources.
If you’re just experimenting with production for fun, it might take Vietnam a long time to develop new economic and financial icons.
Regarding agricultural products, just follow the example of agricultural guru Nguyen Thi Thanh Thuc. Take your products to trade fairs, China, and directly work with distributors and retailers overseas. Repeat this process for 4-5 years. This is perhaps the most practical and least wasteful approach.
a) The sharks’ time is also a societal resource.
b) Money is also a societal resource.
c) The time of you, the founders, and your team is also a societal resource.
We need more salespeople and traders, not too many people focused on raw production and missions that require more time to prove.
Your mission is interesting and noble, and it moves many people, but if I can give you a more honest opinion as a businesswoman, are you really solving the real problems of the agricultural sector?
When engaging in business discussions, we need to be more forthright about economic perspectives rather than simply relying on empathy.
When we don’t fully share the business implications, it creates a foreseeable waste.
- The founders’ negotiation style regarding valuation.
The startups in this episode don’t offer anything particularly novel in terms of competitive barriers.
For beauty companies, the visual appeal and emotional connection are crucial, as you’re selling to end consumers. And end consumers don’t care about the price of avocados, your feelings, or the farmers. They’re more interested in taking selfies and feeling proud about using products from a well-known brand.
It might sound harsh, but it’s a reality that entrepreneurs have to accept. If you haven’t experienced this and haven’t come to terms with it, your journey is far from over.
Sometimes, we’re passionate about solving certain problems, but they may not align with what customers actually want.
Therefore, setting aside your emotions and focusing on customer needs is a necessary step to becoming an entrepreneur.
Being an entrepreneur is challenging. The hardest part is overcoming your natural human emotions and facing the harsh realities of the business world. While you can maintain your passion, you must learn to prioritize the needs of your business and customers over personal feelings.
Shark Nga asked a great question: Are you really solving the right problem at this stage?
Should you be exporting avocados in large quantities or running a cosmetics company?
How long will it take you to realize this?
A 30% stake from the three sharks won’t help you much. The percentage is too small, and it will take a long time to see results.
I suggest the founder use the VND3bn to learn about marketing and the market quickly before expanding production if they want to continue with cosmetics.
- In my opinion, the best thing for any founder at this stage is to find a good partner.
I don’t think you should negotiate much when you don’t know your own value. Complicating a simple deal can cost you and your company opportunities.
Finding a supportive partner can be difficult. Sometimes, you have to go through many layers of screening to meet the right people.
When you do find someone, invite them to join and learn from them. There’s no need to overcomplicate things.
You should only negotiate when you have something to offer.
For entrepreneurs, emotions are for personal understanding, not for sharing and seeking sympathy.
If someone invests because of your emotions, will you still need that when you realize they didn’t invest in your talent or team? That’s a pretty uncomfortable feeling for an entrepreneur.
Besides, the knowledge that investors bring can help founders avoid mistakes, save time, and reduce costs. Sometimes, this knowledge is worth more than the investment itself.
I don’t think negotiation is necessary when you don’t have much to offer. Their involvement is already a good thing.
Let me tell you a funny story. Once, I created an exclusive distribution agreement for a partner with many restrictive terms. It’s ridiculous to think that someone would agree to those terms when you’re just starting out. It’s like chasing away a talented person who wants to work with you while you’re still unknown.
- Regarding IMK, I’ve noticed that in every 10 pre-seed startups, at least 3-4 have a similar idea about providing comprehensive solutions.
However, if your ideas don’t pass the financial viability test, they’re unlikely to work.
This is for the IMK founder. There are three key things you need to understand to succeed in the digital transformation and software industry:
a) You have a tech background and do internet marketing, but you seem to lack the most basic marketing principles:
Who is your target customer?
What problems do they have?
Given their budget, team size, and revenue, what kind of software do they need?
What can they afford to pay?
Has anyone else solved this problem for your target customers?
If competitors have already done it, why are you doing it again?
b) You don’t understand the cost of goods sold (COGS) for software companies.
Providing comprehensive solutions is very costly, and your team of four is not enough.
For large corporations, a full-scale project would require 20-40 people to earn VND2bn.
Otherwise, they outsource to SAP, Oracle, or Salesforce to boost their stock price, why would they buy from a small, inexperienced local company?
If you offer comprehensive solutions to SMEs, you’re providing something they don’t need. This is a basic marketing mistake. What size of SME needs a comprehensive solution?
Most SME founders aren’t tech-savvy. Convincing them to use a high-cost, complex solution is difficult.
Your 14 years of experience is actually less valuable than a founder who has a systematic approach and can achieve the same in 18 months. Your data is limited and lacks a strong foundation.
c) You don’t understand large-scale management.
If you’re providing digital transformation services to medium-sized SMEs, you need a strong understanding of finance, accounting, and management.
Digital transformation software reflects the manual processes of a company transitioning from a startup to a larger organization with multiple owners and employees. If the company hasn’t mastered manual operations, why transform digitally?
Based on what I’ve seen, you don’t have a sufficient understanding in this area.
No negotiation: You have nothing to negotiate because what you offer is basic and doesn’t solve any specific needs.
On the other hand, your current model works well because your services have low costs and high profit margins, but it’s difficult to scale and become truly wealthy. How can you share profits with investors if you can’t get rich yourself?
Based on these points, you might need 10-12 years to truly pursue this niche and become successful. And when you do, remember to charge 2-10 billion [currency]. A few hundred million is underselling your expertise.
If we look at it from the perspective of a company president looking to hire someone, your team isn’t mature enough. As an investor, I would rather find a fresher team in the market and start from scratch. It’s more cost-effective than trying to change existing mindsets.
Sometimes, it’s difficult to change someone’s mind. The best approach is to let the market do it.
But to fulfill my initial criteria of providing value to the founders, I’ve highlighted these points to give you a foundation. Perhaps, in the future, you’ll look back and find these insights valuable.
- Perfume, like Pơ Lang, is a venture started by a founder who isn’t a professional marketer.
For products in the beauty, fashion, and cosmetics categories, consumers buy more for the brand and logo (10 parts) than the physical product itself (1 part). It doesn’t really matter what the founder’s background is. But one thing is certain: We haven’t had as much experience and history in the beauty market as international brands, so Vietnamese brands can only compete on price.
This is a common problem for local Vietnamese stores: They sell products that are identical to European and American brands, but they rely on the same suppliers and yet want to compete on the same level. This is simply not feasible.
By partnering with Shark Bình, you’ll be inclined to lower prices to compete in the mass market. But then you’ll have a difficult time positioning your product: too high and you won’t sell, too low and you can’t cover costs, and somewhere in the middle won’t be effective. Customers who find your prices too low might ask for more, expecting higher-level service, but they won’t buy much. On the other hand, customers who want luxury products might be willing to pay a premium for a well-established brand. Perfume isn’t a fast-moving consumer good, so people might only buy a new bottle every year or even three years.
If you want to compete on price, you’ll need to find new suppliers and lower your costs. Perfume isn’t the main focus of the beauty, fashion, and cosmetics industry. It’s difficult to scale a perfume business without expanding into other areas like accessories, clothing, shoes, and bags.
This deal with Shark Bình is more like a trial run for the founder to learn about e-commerce. It’s like a first love in business.
Based on all these analyses, I’ve titled this episode “No Deal”. Sometimes, knowing your limitations can create new opportunities. The fact that the sharks spent their time on you, despite their high opportunity costs, is already a success. If not, the founders would have a much harder time. Shark Bình is right to be cautious, even if he wasn’t, this might not have been a good deal for the investors. Instead of a deal, a more accurate title would be “Successfully Recruiting Shareholders and Independent Board Members”.
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