The evolution of a business

In my role as educational venture analyst, I compared Recombo in 2004 and 2005.


Brad MacPhee’s presentations in both years were convincing, although for different reasons. The initial pitch was a formal one, and as such it covered many of the key factors one would expect to see. I was impressed with the opening hook: ‘standards create markets’. Good, strong one-liners like that, which encapsulate the company’s value proposition in a single statement, are excellent indicators that the presenter thoroughly understands what they’re trying to do: convince me to invest my money. These hooks often stick with an EVA long after the graphs have faded.


Beyond the hook, however, I was impressed with the business case. There was a clear presentation of the gap they are trying to fill, and a multifaceted approach to filling that gap. In other words, the presentation was more than just hype, there was an underlying argument about why the software was invented, who needs it, and why Recombo can be successful selling it.


Finally, there was an impressive list of reviewer comments from industry heavy-hitters like Pearson and NETg. These were the types of potential customers for whom system incompatibility is a huge issue, so their enthusiasm was encouraging.


Following this presentation, I would ask for more detail about the product they produce. While Mr MacPhee laid out what sectors of the industry competition might come from, there was too little information given for me to judge how sustainable their competitive edge is.


The 2005 pitch was a much less formal one, but it too had some convincing elements. The speech about focus speaks to a lesson learned quickly and well. Successful businesses focus most of their attention on their core, and CEOs and management teams who are able to articulate that as their business evolves are way ahead of the game. The focus on proof was also heartening for a business at this stage, essentially on the edge of a big breakthrough. Mr MacPhee’s conviction that the next phase involved intensification of the relationship with their lighthouse customer, rather than looking for ‘the next big one’ articulates a sensible strategy that I felt very comfortable with. It was very clever to anticipate the problem with MindLeader’s possible unwillingness to share access to their customers and build in an incentive to change that behaviour. I was also very impressed with the way they were training their sales people to ask ‘Why isn’t this a connector sale?’ – encouraging critical reflection on the part of the sales staff rather than a knee-jerk response to engineer the problem away. The latter approach may make the customer happy in the short run, but Recombo would lose the opportunity to make them happy in the long run. Sometimes you serve everyone better if you take the long view!


The final piece that appealed to me was the consistency of the ethical tone – ‘play well with others’ was a theme that Mr MacPhee articulated in both an internal context and an external context, ie. it was both part of the corporate culture they were fostering amongst their employees (and were working to keep in the face of massive expansion) and integral to the way they structured their relationships with the customers.


My questions following this presentation would be the same: who is the competition? How hard are they coming after this business? How hard will the technology be to reproduce?


In sum, I would recommend moving to due diligence with Recombo.


1 nancy castonguay { 09.12.08 at 9:18 pm }

Hi Laura, nicely done. I guess I have to admit that the ‘who needs’ it was what made it difficult for me to analyze the pitch because I was not knowledgeable enough to judge if there was in fact a demand for this product… I wondered: since EVAs are not necessarily experts in the subject (correct me if I’m wrong), how do they go about understanding the demand for a product? How does one make a judgment call if they have no idea what a ‘router platform’ is?

2 Laura Macleod { 09.13.08 at 3:43 am }

Nancy –
That’s an excellent question and one I really struggled with. It wasn’t until my second time through (perhaps when I wasn’t feeling quite so overwhelmed!) that I actually understood what it was they were doing. To my mind, though, that is one of the keys – if you can’t explain your business to an outsider, then you haven’t done a good job.

I do wonder, though, and perhaps one of the David’s could weigh in on this, how much industry specific knowledge to EVAs/angel investors usually have? Would you generally be presenting to plain-old-guys-with-money or would you assume they had at least a minimal background in the general sector you’re working in?

3 Katherine Lithgow { 09.13.08 at 8:27 am }

Nancy and Laura,
this was a question I had as well. I’m curious whether most investors only invest in areas with which they are familiar, or does the key lie in the pitcher’s presentation- that they have made it understandable to a person who doesn’t know a particular area, yet is an investor looking for a great opportunity.

4 Gillian Gunderson { 09.13.08 at 2:56 pm }

This is the part that I missed in my analysis – the due diligence phase – as I went directly to handing out money.

I’m sure the entrepreneurs would like this, but as an EVA, I’m afraid that I would be a tad lacking in the ability to truly understand the risks.

I guess I confused “I like the idea so I’ll need more details” with “I like the idea so here’s the dough!”.

I think that’s called manic phase rather than due diligence phase.

5 davidp { 09.13.08 at 6:52 pm }

This is a great question.

From investment pitches I’ve made in front of both angels and investment bankers, the tenor has been about the strength of the idea and the business metrics associated with it – the size of the market, the differentiator that sets apart the product or technology, the investment needed and the potential return.

However, if the technology is very unique, new to the market, or available for patent or license, then that would be a major hook. It would be the statement of this differentiator that would be a glowing part of the pitch, especially if was is a “make-money-while-you-sleep” technology like those associated with patents and licenses.

The general understanding is that if there is significant bite from the idea and initial metrics, a due diligence phase then begins, with folks representing technical and financial knowledge taking a much closer look.

From my own experience, it is the compelling business model that wins the front end of the process.

DavidV will likely have other comments to add …


6 Laura Macleod { 09.14.08 at 4:07 am }

Gillian – You’re my kind of EVA 😉 ! Laura

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