|By David Strom||
|December 14, 2012 02:05 PM EST||
One of my favorite times of the year is the end of the school term when I serve as a volunteer judge at the Washington University business school class called the Hatchery. Student teams present their final class projects, pitching a new business venture to a group of us in the business community who judge and rank them. It is an intensive day or two of presentations and rapid-fire questions, and generally a lot of fun. And the kids even dress up for the pitches.
Many of the pitches though had fatal flaws. Here are some of them that I found during the day’s activities.
- Capital requirements way out of whack. Asking for too much or too little. I heard presentations asking for as little as $10k and others for more than a million. Somewhere in between is the sweet spot.
- Confusion over net and gross margins. When the judges asked the students to explain their numbers, some of the teams got tripped up on understanding the difference between these two, which could mean the difference between a successful business and a flop.
- Channel conflict from the get-go. One team had a great idea, to work as wholesalers, but was adding their own direct service on top. That kind of channel conflict right off the bat isn’t encouraging. On the other hand, many of the teams came up with the idea of having campus managers to expand their reach nationally across the college market, which was quite clever and compelling.
- Paying the founders too much. If you are asking for lots of VC funding, plan on living off the land the first couple of years. Carrying a $750k aggregate first year salary nut isn’t a good idea. Bootstrapping is the name of game, and while a few of the teams got this into their DNA, it was a lot less than I expected.
- Not understanding the right people skill mix to get the business started. In some presentations, we saw pie-in-sky requirements for new positions on the management team. While there is high unemployment, you aren’t going to find this experience easily.
- Is there really a market for your service? This is a very hard question to answer easily, and none of the teams spent a lot of time addressing this issue. Some of them had really great ideas but not necessarily a market big enough or specific enough of buyers.
- Crazy price points. Do some sensitivity analysis to see if people are really going to pay what you think. You might be asking too much or too little for your product or service.
- Underestimating your web tech. One team was going to the cloud, and take advantage of Amazon’s free first year of hosting. That is great, but what happens in year 2?
- Using online ads to pay for your venture is so 90s. Click-through rates are plummeting rapidly. Betting on ads to carry you through is very risky. Diversify your revenue stream.
Now I don’t want to leave you with all gloom and doom. It was great to spend time with all the students, and seeing them very excited about starting their ventures (some are already up and running, even though the kids are still in school). I wish all these budding entrepreneurs all the best, and can’t wait until the next crop comes through next spring.
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