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A Dozen Tips for Partner Startups from an Investor

So you're a startup? Congratulations on a wonderful and highly exciting journey!

I have started and sold companies my whole life. Now, I focus on investing and helping entrepreneurs. Based on my experience, here's some advice from the trenches.

1. Focus, focus, focus! Don't try to do two things at the same time. I often hear excuses that developing a new offering didn't take much effort, that this might be a new opportunity, or that we got to send a bill for this special assignment. But what I really hear is that your scarce resources are being spread out, making everything weaker. As an investor, I want your core focus to be on one thing -- and if that one thing is not viable, then let's find another thing to focus on.

The jack-of-all-trades era is gone. With stiff competition and innovation on a global scale, you will need to focus on being great at one thing rather than mediocre at two things. Stick with your business idea or develop a new and better one. But only one idea at a time, please! When you become bigger and stronger, you can, of course, consider adding new offerings. But that will be tomorrow and not today.

2. Margins should be high. Great software products and great service offerings will give you a great net margin. That means that your marginal cost needs to be low. (Think of an airline selling one more seat; the marginal cost is limited to a bag of nuts.)

3. Selling should be done over the Internet through digital marketing, not by sending out bodies to meet with potential customers. Sending out bodies might work in your hometown, but it will be super hard for you to scale up and sell in other cities, counties, states and countries. If you can sell without sending out sales reps, then I will listen.

You can, of course, do this through a network of partners. And I don't like it if you have a call center doing outbound sales calls; that is just a little bit better, but not good enough. I don't mind an inbound call center helping customers with their experience.

4. A global mindset. Being able to sell outside your local market and win on a global scale has never been easier than today. This is something that you should always have in mind as you start your new venture and make sure that this is influencing your decision-making. I find many companies with great business models and wonderful offerings, but they are hard to bring to other markets. Therefore, I most often decline making an investment.

5. Subscriptions will give you recurring revenue, and that is a fantastic thing that everyone loves. It will take longer for you to get the revenue compared to selling projects or traditional licenses, but when it finally comes, it will be more robust and more predictable. And investors love recurring revenue! When you're selling your company, you will thank me for this advice, as it will give you a much higher valuation or enterprise value (EV).

6. Live the digital life and love digital marketing. I often meet companies that are in the technology space, but they do not understand the value and concept of digital marketing. They have a Web site, perhaps a blog, a Tweet now and then, but they have no plan or strategy for how to regularly create new content and make it visible to their audience. I honestly think that most Microsoft partners are better at talking about this to others than doing it themselves.

Digital marketing is an area where I always advise my companies to invest more. When you master digital marketing, you'll be king!

7. I love artificial intelligence (AI), but I want to hear a decent story. Just adding AI with no real purpose will not excite me.

But if your solution is driven by AI and this is a differentiating factor, then I will listen and fight to invest. AI will change our lives and there are many ways for a startup to leverage the AI bandwagon, so this is really an area with a great future.

8. Don't be afraid to fund your company with revenue. There is nothing bad about building revenue. When you've got revenue and you're cash flow-positive, you'll be in a much better position to talk to investors. Having customers that are willing to pay for your services is proof of what you're doing, and it will help you pay the bills and arrange external investments -- which you may not even need if your revenue is great.

9. The team is crucial for success. Many investors say that they invest in the team first and in the product second. The right team will find the right product and the right business model. It is important that the team has multiple talents and has the right combination of experience and disruptive thinking (i.e., inexperience). It is crucial to get along with each other, both within the team and with investors. Teams that don't get along well will never perform!

10. Embrace diversity. Your customers are diverse and your team should be the same. Embracing diversity will also give you access to a much larger talent pool. And you'll be in a better position to understand your customers' needs. This is especially important when entering new markets.

11. Don't forget the customer. Having the customer top-of-mind will help you become successful. If your services are highly appreciated by your customers, it will be hard to not become successful -- and satisfied customers are the best advocates to help you win new customers. Being customer-centric should be part of your DNA, and I want you to be proud of what you do for your customers.

12. Be honest; don't try to hide your problems because, eventually, I will find out. Instead, involve me in what is not working and seek my advice for how to resolve it. The true advantage with investors and what differentiates them is often the quality of their advice and the value of their networks. A fellow investor friend told me, "They will surely take your money, but what they will really value is your advice."

And remember, being a startup is a fantastic journey that will reward you in wisdom, knowledge, freedom and, hopefully, financially. And when you've become successful, don't forget to give back to new startups!

Posted by Per Werngren on October 10, 2018


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