20 VC 045: From Idea to Pitch with Alan Jones, Founding Investor @ Startmate

Alan Jones is Chief Growth Hacker at Bluechilli, who have set the incredible goal of building 100 startups by 2016! Alan is also Founding Investor and Mentor at Startmate, an Australian Y Combinator style accelerator. If that wasn't enough Alan also invests and advises through Blackbird Ventures, Pollenizer and Startmate. In Today's Amazing Discussion with Alan We Discover: What you should do when you have a great idea? How to validate a market? How to figure out if it is a viable business? What can non technical co-founders do to get their idea of the ground? What individuals can do to meet technical co-founders? What are the biggest tips for entrepreneurs when facing a pitch? Items Mentioned in Today's Show: Dan Ariely: Predictably Irrational Tzukuri: Bluetooth Wearable Technology TreeHouse Quora OtherLevels: Mobile Marketing Automation Platform

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Harry Stebbings?

  Hello and welcome to episode 45 of the 20 Minute VC with your host Harry Stebbings. Today's show is a very special show as we welcome Sydney's finest Alan Jones. Alan is Chief Growth Hacker at Blue Chili in Sydney, who have set themselves the incredible goal of creating 100 startups from scratch by 2016. They're currently at 54 and they're well on their way. Alan is also founding investor and mentor at Startmate, an Australian Y Combinator-style accelerator programme now in its fifth year. If that wasn't enough, Alan also advises and invests in startups directly and through Blackbird Ventures, Pollenizer and Startmate.

• 0:42Harry Stebbings?

  However, before we dive into today's show, none of this could happen without the amazing Jackie, who I found through the incredible HiringScreen, the fastest and smartest way to find the most relevant candidate for your job. Thank you so much HiringScreen, I couldn't do it without you. And you can find them at www.hiringscreen.com. But without further ado, ladies and gentlemen, it's Alan Jones.

• 1:15Harry Stebbings?

  Alan, welcome to the 20 Minute VC. It's an absolute pleasure to have you on the show.

• 1:19Speaker 01

  Thanks for having me on, Harry.

• 1:21Harry Stebbings?

  Now, you've enjoyed an incredible career, but can you start from the beginning and tell us where it all began and how you made your move into technology?

• 1:30Speaker 01

  I think I'd hesitate to call it a career, but I've definitely careered back and forth from thing to thing. I started as a technology reporter so long ago that in those days, people read the news about the computer industry on the printed page in magazines. And I was the editor of a magazine called Macworld, centuries ago. When print publications started to go to this new thing, the world wide web, I decided it was going to be faster and cheaper and more fun to be publishing things online than in print and started trying to make a transition. I went to work at Microsoft for a few years for things that became part of the MSN network. And then took what I imagine was a a huge risk and joined um.

• 2:16Speaker 01

  A small internet search startup that nobody had ever heard of. Um, that huge risk turned out to be my my my first big lucky break. And I was an early hire at Yahoo back in the day.

• 2:29Harry Stebbings?

  And now you're at Blue Chili. How did that, how did that come about?

• 2:35Speaker 01

  Um, about five years ago, uh, an old friend and I started a. Digital agency which specialized in helping startups. And we were trading off our experience as as serial entrepreneurs in the startup space. And the community of of other um experienced people working in the startup industry in Australia. Who were working on their own startup idea part time, a couple of days a week. And who also needed to pay the rent or mortgage and so on. So we were able to pull together great project teams of experienced startup founders. With expertise in user experience design or software development or or online marketing. We could pull these teams together on the fly and get them to work on a startup project.

• 3:20Speaker 01

  Um, at at a cost that other startups could afford.

• 3:23Harry Stebbings?

  And I love.

• 3:24Speaker 01

  So we ran that business for a couple of of years and then um uh Blue Chili uh was a business that was. Similar enough to ours that we used to refer each other work. Um, and uh they were looking to to bring a a few new members of of management team on board. So the matter is enough for that um we're pleased to accept.

• 3:41Harry Stebbings?

  And I love your goal at Blue Chili to build a hundred startups by twenty sixteen.

• 3:47Speaker 01

  Yes, it's it's brash, isn't it?

• 3:49Harry Stebbings?

  It's very bold. How's that going and and what role do you and Blue Chili take in those startups?

• 3:56Speaker 01

  Yeah, so so over the past three years, Blue Chili has built a portfolio of fifty four startups. And we're on track. In fact, I'm pretty confident we're gonna smash our goal of one hundred by twenty sixteen. And so Blutually is a bit unique in that we partner with non-technical entrepreneurs who've got an idea for a tech startup. What we've observed in Australia and a number of other markets around the world is that the great potential technical co-founders go off to work on their own ideas or they move to Silicon Valley because the rewards are so much richer there. And in markets like Australia, as a result, all the great people move to Silicon Valley or they want to work on their own ideas. So there's no shortage of entrepreneurs in Australia, but there's a real shortage of technical co-founders.

• 4:40Speaker 01

  So Blutually acts as the technical co-founder for the startup team's portfolio. We actually have our own product development team of nearly forty people now, and they work simultaneously on five or six startups at a time. We have an accelerator program to make sure that the founders that we're working with, the entrepreneurs, are fully skilled up on all the experience and all the business model testing and market strategy validation that they need. And then ideally, the founding team graduate from our accelerator program at the same time as their product graduates from our product development team. Then we're able to go to our investor network and say, okay, here's a startup that we're super confident about because we've educated the startup founders and we've built the

• 5:24Speaker 01

  product and we're both confident of both being able to scale.

• 5:28Harry Stebbings?

  And so an individual has a great idea. How do they apply to you? What's the process like and what are your admissions processes?

• 5:38Speaker 01

  Yeah, we have a massive great pitch to us button on our website. You can't really miss it if you're there for longer than three seconds. And anybody, anybody can and does use that button. So we get, receive on an average month about two hundred applications online. We don't ask a lot of questions in that form. The goal is to, is to get a discussion going. Of those two hundred applications, we, we screen out roughly twenty each month for, for further due diligence. And we have a guy, a very hardworking Irishman, whose full-time job is, is doing that screening and doing that first round of interviews with startup founders. Then of that twenty, our goal is to enter into commercial negotiations with four or

• 6:20Speaker 01

  five each month, of which we hope to bring two new startups into our program each month.

• 6:25Harry Stebbings?

  And do the entrepreneurs have to be Australian or is it completely international?

• 6:30Speaker 01

  Well, it's getting more international all the time. So currently, we have three startups in the US, one in New York, one in LA, one up in Toronto. And that's been a great growing experience for us. Here in Australia, we have the majority of our startups based in Sydney, but we have a few in other regional capitals. And earlier this year, we opened a Melbourne office. Melbourne is our second biggest city here. So we have a dedicated team there, an incubator space, and five healthy growing startups down there too.

• 7:03Harry Stebbings?

  And in a recent article, you said that when you have a great idea, to build a product is the wrong thing to do. So what should people be doing first when they have that great idea?

• 7:16Speaker 01

  I'll preface that advice with no one piece of advice is going to work for everybody. But if you're a great product person, so if you've spent five or seven or 10 years building tech standard products, then your greatest skill and your most likely path to market is to bootstrap and build your own product. That way, you're not using other people's capital and you're applying your time and experience to something you know well how to do. But in Australia and a lot of other places in the world, many non-technical entrepreneurs spend a lot of time going on to meetups trying to find that potential technical co-founder. So that wastes a whole chunk of time. And then potentially when they start to build out their product team,

• 8:02Speaker 01

  they might spend several hundred thousand dollars building a product first and then take it to market and then find that the economics don't work. That perhaps they're too early to market, or perhaps the customer demographic that they imagined they were going to to appeal to doesn't take up the product. Or perhaps even just the end of the day, even though they're acquiring customers, the cost of acquiring customers is greater than their average revenue per customer and the economic models don't work. So in the last few years, in lean startup methodology, we've developed a bunch of really great practices. And also, there's a whole suite of really good software as a service tools that you can use to

• 8:44Speaker 01

  to validate a business model, to validate a marketing strategy, all in advance of going to the trouble of building a product. So that helps us establish, first of all, whether or not we have a viable business to build a product for. And second of all, we can start to test a lot of our assumptions around the kinds of feature features that we might want to include in that product, the kind of pricing model we want to introduce, the kind of marketing messages that might work to actually acquire those customers.

• 9:13Harry Stebbings?

  And now we've validated our market and know that it's a viable business. What now, what would you advise the majority of people who don't know how to code? Would you suggest that they learn through something like Treehouse? Or would you suggest they outsource? What are your thoughts?

• 9:28Speaker 01

  So I think a majority of startup founders would want to have best of breed in everything that they do, right? So if I'm appointing a VP of Sales, I'm going to try and get the best possible person I can for that job. Same with your VP of Marketing and ideally your CTO as well. So I guess the question there comes down to, you know, your own self-knowledge of you. And for most of us, we would want the best possible technical founder of the business. And for us, if that was going to be us, then we would have learned that about ourselves when we were in our early teens. Great software developers, I think, I really do think there's something

• 10:13Speaker 01

  very early in the development of the person, perhaps even inherited from their parents, that makes people particularly good at certain kinds of learning and performing certain kinds of tasks that makes them really, really gifted software developers. So you and I could learn to play the piano, certainly. We could learn another language, absolutely. Are we going to be the best? Is Oliver going to become a professional tennis player? Probably not at this stage in our lives. So I think if all you need to do is build a very, very basic, minimal viable product and time is not an issue, then certainly I would say go and learn some coding skills and see if you can get far enough to bring some other co-founders on board or perhaps find an accelerator program that will accept you and help you find,

• 10:57Speaker 01

  matchmake you with a technical co-founder.

• 10:59Harry Stebbings?

  And what would you advise?

• 11:01Speaker 01

  Sorry.

• 11:01Harry Stebbings?

  What would you advise in terms of finding co-founders? Would you say do meetups? Would you say do online forums?

• 11:08Speaker 01

  Um. So if if you check Cora, actually, um. Cora's, somebody asked a question a little while ago, you know, how do I, what's the best way to attract a co-founder? And and I'm I'm pretty excited about the fact that my answer to that question is is the is the top rated answer. So, look, great technical founders, um, uh, uh, uh, you. It's not a good thing to stereotype people. And so every every great software developer or every great hardware engineer is going to be different to the next. But in general terms, if we may just stereotype a little bit, just to make some progress. Um, these are people who are interested about solving interesting problems.

• 11:48Speaker 01

  And they don't see, generally, they don't see business problems as as nearly as interesting as great mathematical or logical or programming problems. And so I encourage people to to to break their business goal and their customer aspiration and the the journey of their business down into the kinds of things that are going to motivate a potential a potential technical co-founder. So there are there are things like um recommendation algorithm. There are things like um drunk walk solutions to trying to find the best way to get a package um um or several packages um in a delivery vehicle through multiple stops along the way. There are kinds of of of great programming um problems that always merit further work.

• 12:33Speaker 01

  Um, and we can sometimes involve a a potential technical co-founder in our business if if we can kind of refactor our business challenge into something which is a really interesting software developer challenge.

• 12:45Harry Stebbings?

  And you wrote an article on how to hack a pitching event. Now that we have our idea and hopefully a product, the next logical step is to start pitching. So could you share with us your biggest tips and biggest no-nos for pitching?

• 12:59Speaker 01

  Yeah, so there, if, if, if you Google how to do a great startup pitch, right, you will find um templates, um a lot of templates on, on, on the same kind of basic um model, right? So um at some point, a VC or, or a tech startup entrepreneur has put up a template and everybody else has copied it and made made the changes to that. Basically, you get up in front of an audience and say, um here's, here's a problem. And here's the traditional solutions to that problem that don't work very well. Here's our suggested um better solution to that problem. And this is how big we think the market is, and this is how much of that market we think we can claim. This is the awesome rock star team who have working on this problem.

• 13:41Speaker 01

  This is how much capital that we're hoping to raise, um and this is when we expect to close around. That's the, I'm generalizing, but that's the broad model, right? The reason why that model is so popular is that we, is that we pitch to people who are reviewing many, many, many pitches at a time. And investors like to make rational, logical decisions about the investments that they make. And for most of us, that's the worst possible way for us to be judged, right? Because if you're trying to be the next Airbnb, there's thirty other people all trying to be the next Airbnb. And if you're all just going to be judged on rational, logical metrics, then there's almost always going to be somebody better than you, and they're going to get the investment capital, not you. Absolutely.

• 14:23Speaker 01

  The other challenge with that approach is if you're at a pitch event with another twenty teams or another thirty teams and everybody's using that, that pretty much that same narrative, um then you're going to blend right in and your, you know, available domain name, brand name that you've chosen, what's O E O dot com, right, is, is going to be equally as, as non memorable as everybody else's. So I encourage my startups to remember um about the fact that pitching is storytelling. And storytelling is the oldest form of human communication, right? Four hundred thousand years ago, around the campfire at night, looking up at the stars, there was some old elder who could tell a cracking story. And that was how all of the knowledge of our society was passed on from one generation to the next.

• 15:08Speaker 01

  How to make a weapon, how to start a fire, where to look for food, how to kill a wildebeest. All that was passed on through great storytelling. So we have evolved to be highly receptive to great storytelling. We don't have the defenses against great storytelling, right? So the difference between a typical tech startup pitch and a really great TED Talk is so enormous. And most of us really can't, unless we sit down and break it down frame by frame. We can't really express what it is about that storytelling that that works. But great storytelling has a narrative arc, it has a beginning and an end, it has a climax or multiple climaxes. It has a hero, it has a bad guy, it has a romantic love interest, right?

• 15:53Speaker 01

  There's there's lots of different narrative archetypes, but all great startup pitches fall into one of those great narrative archetypes. So we need to become great storytellers and that never, never, never fits the templates that the VCs want to see. Why? Because the VCs want to punch all the metrics into a spreadsheet and judge you coldly and rationally. The best thing that we can do is grab them by the nuts, grab them by the heart, pull them rationally, grab their emotions. And get them to to love us as a team, love us as an idea, get them to help us build what we have in mind.

• 16:28Harry Stebbings?

  Surely being that storytelling, um, very narrative element, as you said, it goes against the metric driven VC. So surely you won't be successful in your investment round then, if you are, if going against their metric based decision?

• 16:42Speaker 01

  The purpose of of a great pitch is to begin a discussion, right? So even a Y Combinator, term sheets happen after the the pitch, right? They happen in the discussion one on one, in the in the in the in the room, when it's mingling. And more typically, in in markets outside of Silicon Valley, they happen over the course of weeks, maybe months, and a series of meetings. So that gives us months and months and months to go through the detail, to supply metrics, right? So the purpose of the pitch is to get invited back to have that detailed discussion. If you're not. Grabbing people by the heart and making them feel, wow, I really have to make this team. You never get to next base.

• 17:24Harry Stebbings?

  Okay, and and now we're talking to investors and we've got to that next base. You yourself have immense experience with this through Blackbird and your investments with them. What do you personally look for when determining whether a startup will be a success then?

• 17:39Speaker 01

  So it's been a while, but the the formula that I use these days is that. Let's assume that no matter how exciting, no matter how much traction an early-stage startup has received. There will be hard times at some stage. And in order for me to work as hard as I should, and in order for the founders to work as hard as they need to to make this business successful. We all really need to care about a couple of things. We really need to care about the customer that we're addressing. We really need to care about the problem that they're facing and how we solve that, how will we solve that for them? If we've all got all been to business school and we've identified an opportunity.

• 18:19Speaker 01

  To uh create an e-commerce site that sells custom personalized handbags to women between the age of twenty five and thirty five.

• 18:27Speaker 01

  If that's just a niche that we've identified. I'm sorry, but we don't care enough about it to really win in the customized handbag space. I've learned from doing um charity fundraising for for endurance events, things like Oxfam Trail Walker that. Even though I've got friends who who really love and care about me. When I ask them to donate to um my Oxfam Trail Walker Walk later this year. I know it's gonna take a bit of bothering from me to get them across the line, you know, I'm gonna have to do a little bit more work. And investing is the same kind of thing. As an early-stage investor, I have to work a little bit harder. To get my startups in front of the VCs that I know are gonna like this idea. Even though the VCs like me and we're close friends, they get a lot of pitches all the time.

• 19:09Speaker 01

  And for me to be effective as an early-stage investor, I have to help my startups raise their next round. And the only way I can do that is if I work extra hard. And the only way I work extra hard is if I really care. So me, my other early-stage investors and the founders themselves have to really care about the customer, the problem that they face, and how we solve them for.

• 19:28Harry Stebbings?

  And you said about investing in, say, a portfolio of twenty startups. Do you have a sector in particular that you invest heavily in?

• 19:36Speaker 01

  I think it's always a good idea if you're an investor to focus on what you know, right? So I have a twenty some year history of working on product development and product communications. And so I think probably where I've been most successful is in investing in startups that are solving problems for other startups. So building the platforms and the tools that you need as a startup founder. So I recently had an Australian startup called Other Levels that did an IPO on the Australian Stock Exchange. And that was very successful. They're a business that provides analytics for app publishers to help them track whether anybody's reading and responding to the push messages and the SMSs and emails that get sent to users of that app. And so that's a problem that I've faced before.

• 20:21Speaker 01

  I understand what it feels like to be an app publisher and not know who my customers are and whether or not they're responding. And so for me, that investment's gone quite well and I think I've been able to add some value to that.

• 20:32Harry Stebbings?

  And if it's okay with you, we're going to move into a lightning round now.

• 20:36Speaker 01

  Sure.

• 20:37Harry Stebbings?

  So the next five years for you and Blue Chili?

• 20:42Speaker 01

  So global growth for Blue Chili. So we have aggressive international expansion plans. Last October, we started investing from our first venture fund, a ten and a half million dollar fund that makes matching investments in startups graduating from our portfolio. So when we first started trying to raise ten million dollars, that seemed like a really scary, super big thing for us to try and attempt. Done it. And so now we're moving on. So in the Australian marketplace, there are now a number of funds in about that size. And all of us are looking to about ten X the size of our investment capacity. So I think we'll see in the next five years, I think we'll see a number of one hundred mil and greater tech startup funds out of Australia.

• 21:27Speaker 01

  For Blue Chili, obviously, we're going to smash our hundred startup goal. But I think realistically, in the next five years, we're going to be aiming for five hundred startups across Asia, across North America and across Europe.

• 21:39Harry Stebbings?

  VC or bootstrap, which one do you prefer?

• 21:43Speaker 01

  If we really take a random sample of a thousand startups, I think the VC startups are going to win more often. So it's a general truism that if you're working on a startup idea, whether you're aware of it or not, there are twenty, thirty other startups working on that same idea that you haven't heard about yet. So winning generally comes from scaling more quickly, right? And investment capital gives you not just money to grow sales and marketing, but it helps you build a better and more effective product team that introduces you to distribution relationships and ultimately acquirers of your business.

• 22:17Harry Stebbings?

  And crucial reading for entrepreneurs?

• 22:20Speaker 01

  I think it's really important to read outside of your field. Read relevant things that can have an impact on what you do if you sit down and think about it. So I would highly recommend, so I'm in growth hacking. I'm all about acquiring customers, about activating customers if you're acquired, and increasing the average lifetime value of that customer to the startup's business. So one of my favorite fields is behavioral economics. One of my favorite authors is an MIT professor called Dan Ariely. And a good starting point for anybody who's interested in what makes people buy things is a book of his called Predictably Irrational.

• 23:02Harry Stebbings?

  Fantastic. And then finally, your most recent investment and why you said yes?

• 23:08Speaker 01

  The two most recent that I'm most excited about at the moment. One is called Muro Music. It hasn't launched yet. It's a really interesting new spin on automatically generating playlists. So not playlists where every song sounds like the previous song, but a playlist the way a DJ creates a playlist. So you say, I want to set the runs for two hours and I want to start with this mood of music. I want to peek up around in this other genre and then I want to finish in this third genre. And Muro Music is going to build a custom playlist that'll do that for you. And we think that's the first time anybody's ever been able to do that.

• 23:42Speaker 01

  I'm excited about that because the people coming to that startup are a wonderful mix of really high-quality app developers and people deep in the DJ community in Europe. Another startup I'm really excited about now is got a Japanese name, so it's hard to spell. It's called Zukuri, T Z U K U R I. I think I've got that right.

• 24:04Speaker 01

  They are building a really interesting set of glasses, of eyewear, really high quality eyewear, which is part of the Internet of Things generation. If you spend $500 on a pair of sunglasses, you really don't want to lose them. And this is a pair of glasses that you'll be able to find from your smartphone.

• 24:24Harry Stebbings?

  Well, Alan, thank you so much for coming on the show. It's been an absolute pleasure having you on.

• 24:28Speaker 01

  Great to meet you, Harry.

• 24:29Harry Stebbings?

  Now, for all the incredible resources mentioned in today's show, you can, as always, head on over to the blog at www.the20minetc.com. And don't forget to check out the incredible hiring screen. If you have any questions or concerns about the process, I'm really happy to answer any questions. You can email me, [email protected]. I'd love to tell you how I found Jackie in just 15 minutes. Unbelievable. Thank you again so much, Hiring Screen. I hope you enjoyed today's show and I look forward to seeing you in the next episode.