Guidance from the Sophia Business Angels: The Best Feedback I’ve Ever Received

Has anyone ever given you constructive criticism that really made you feel grateful for the chance to improve?

This is what the Sophia Business Angels gave me in October of 2013. According to the Sophia Business Angels’ website, these angel investors can “provide you bespoke advice on how you can make your business more attractive to investors,” and they certainly did for me.

I had originally been invited to present for them in April of 2013, but had to cancel at the last minute due to a foot injury sustained while on a trip to Abu Dhabi just a week earlier. They graciously allowed me to reschedule.

My presentation was about my new business accelerator, AccMakk. Its goal was, and still is, to create a connection between the 40+ isolated, uncoordinated entrepreneurship programs in Saudi Arabia through an accelerator built by and for local entrepreneurs.

After getting feedback on my presentation, I was given the chance to quickly edit and present it to the Sophia Business Angels again at the same event. That second pitch earned me the Best Presentation Improvement Award, and more importantly, I was given feedback to help me pitch better in the future.

In this article, I will provide a basic explanation of the problems that the Sophia Business Angels found with my presentation, along with the tips they gave me to fix these mistakes. I will then explain the takeaway I think each point has for you, the entrepreneur reading this article. For fun, I’ve also included some of the tweets I sent while at the SBA event.

Please note that I wrote this article last year, but only found time in my schedule this week to post it.

Problem 1. My presentation was too complicated.

The issue:
The first time I talked to the Sophia Business Angels, I tried to fit 12 PowerPoint slides into one short presentation. I had to speak quickly to cover all of the information that I wanted to explain, such as my goal of creating a new sub-economy, the five-phase adaption program I had in mind, and so on.

But when I finished, one angel investor told me to “Slow it down… and pick out the key points that you want.” Another said “Very interesting and powerful presentation, yet [I] fail to understand what the company is doing… What exactly is the investor investing in?”

In my effort to fully explain the new accelerator, I had not explained the basics enough to the investors, so they did not really understand what my accelerator was all about.

The fix:
The angel investors suggested that I reduce the amount of information in the presentation, speak slowly, and precisely define my business model. They wanted me to explain how capital would be employed in this accelerator instead of providing as much background information.

So, the second time I presented, I used 7 short slides that mostly focused on my main concept, revenue model, and the business opportunity as it specifically applied to investors. I used fewer numbers and spent more time on the basics.

The takeaway:
In a short presentation, there is not enough time to cover all of the details you would like to explain. The focus should instead be on making sure the investors understand the basics and can be left feeling curious to learn more rather than confused.

Problem 2. I did not explain the niche that that my business accelerator would fulfill in the current business environment.

The issue:
In my first presentation, I explained what I expected my new business accelerator to accomplish, but did not focus on how to position it within the current Saudi business ecosystem. This left the angel investors trying to figure out whether my program would actually fulfill the role of an accelerator rather than, for example, an incubator, facilitator, trading platform, or large investment pool opportunity.

“So, the main thing that you are addressing, and I think that’s something that you should see, [is] the entrepreneurship ecosystem in Saudi Arabia,” said one investor. “And then you should say where are you going to position yourself.”

“You can say that you are the missing link,” suggested another angel investor. “This is the way to make the people understand what is your added value.”

The angel investors made it clear that they needed me to better explain my business accelerator’s role within the Saudi business world.

The fix:
I created a slide that showed how my new accelerator would fit into the Saudi entrepreneurial ecosystem, complete with a diagram showing how it would connect funding, markets, start-ups, and existing business acceleration and incubation programs.

In some of text included in this slide, I described my new accelerator as “the connection between the 40+ isolated, uncoordinated programs” in Saudi Arabia and “the canal to channel the cash from government funds, SME banks, VCs, angels.” This made it clear that my accelerator did have a niche and competitive advantage already in place.

The takeaway:
Unless you have created a product or service completely different from anything else on the market, you need to explain the niche that your offering will fill in the existing business environment. It helps to use language and charts that clearly show the relationship between your offering and what is already available.

Problem 3. I focused on the funding sought, but could not explain why I needed it within the time available for the presentation.

The issue:
When I first presented, I had a detailed slide covering the amount of investment I was looking for, the percentage of the company that investors would own, the amount of time it would take for them to be paid back, the IRR, the year that the investors would exit, and the profit that they were expected to earn. I thought that the investors would feel reassured by this focus on their expected returns. But my strategy backfired when one of the angel investors asked me this: “If there is so much money in Saudi Arabia, why are you looking for money in Europe?”

If you have seen my most recent infographic, Why Start-Ups Don’t Get Funding in Saudi Arabia, you know why the money available in this country does not get down to us, the entrepreneurs. But it can be difficult for people outside of Saudi Arabia to understand this situation.

So, the Sophia Business Angels helped me realize it would be difficult to explain to non-Saudis why foreign investment in an accelerator program would be needed within the short amount of time allowed for my presentation.

The fix:
The angel investors suggested that, instead of focusing on the amount of funding sought, I focus on the opportunity that my new business accelerator provides to angel investors, then make them want to learn more.

When I redid the presentation, I explained the basics of the business model, then ended my last slide with this powerful statement: “Today, oil is not the most valuable resource in Saudi Arabia. If you want to know what the most valuable resource is and you want to invest, let’s talk.”

The takeaway:
If there is some part of your pitch that would be too complicated to explain in the presentation itself, you can provide a teaser that invites investors to ask you about it afterward. This buys you more time to explain details, such as the financial side of the opportunity, to the investors who are actually interested.

Listening to this advice won me the Best Presentation Improvement Award.

The Sophia Business Angels advised me to keep my pitch centered on the basics, such as my accelerator’s business model and niche, and to leave more complicated details, such as why this accelerator needs funding despite having government support, for later discussion.

When the Sophia Business Angels gave each participant 90 minutes to improve his or her pitch, I used every minute to craft a shorter, clearer, more focused, and more thought-provoking pitch. I presented it to them a second time and won the Best Presentation Improvement Award.

Most of all, I was glad to receive the opportunity to improve my pitch. I hope you will keep some of the advice I was given by the Sophia Business Angels in mind when it is your turn to present your entrepreneurial idea.

So, would you like to pitch to an angel investor who knows what it feels like to pitch to angel investors?

Yes, I am also an angel investor myself, and am always interested in helping young Saudi entrepreneurs. If you would like the chance to meet with me about your business idea or plan, please contact me through one of the forms on OsamaNatto.com/contact today.

International Entrepreneurship Symposium Keynote Address: Going Global with Richard Christou

Ready to learn how to take your business global from the man who controlled international operations for IT giant Fujitsu?

This article summarizes the major points of the keynote speech delivered at the 2013 International Entrepreneurship Symposium by Richard Christou, former President of Fujitsu’s Global Business Group. This symposium was organized by the Anima Investment Network, Sophia Business Angels, and the Fondation Sophia Antipolis.

In his role as President of Fujitsu’s Global Business Group, Christou managed all operations outside of Japan for this approximately 180,000-employee company. During his career, he purchased many entrepreneurial businesses, and is now taking the opportunity to share his knowledge of what makes a new company stand out.

Note that the following article is a paraphrased summary of Christou’s speech and does not necessarily reflect my own views. I actually put it together last year, but had to find a break in my busy schedule in order to post it.

Three Ways to Organize a Global Business

In theory, there are 3 basic ways to organize a global business: the conglomerate, centralized, and transnational models. Each model comes with advantages and disadvantages that entrepreneurs need to understand.

Conglomerate Model

In the conglomerate model, a small holding company owns many subsidiaries around the world, all of which are basically autonomous. The holding company exercises little oversight, perhaps just appointing a chief executive to sit on the board and requiring subsidiaries to make approved business plans every year. The holding company may also make decisions that affect the conglomerate as a whole and deal with additional financing for subsidiaries.

Advantages

• Simple model
• Offers local decision making
• Gives acquired CEOs the best chance of succeeding in the new company
• Efficient for very localized products or services
• Works well with regional or geographic distribution of resources

Disadvantages

• Little synergy
• Break-up value can be greater than shareholder value (as a whole)
• Unpopular in modern business environment
• Makes sharing information across borders difficult
• Inefficient for global distribution of resources

Centralized Model

With the centralized model, there is a very strong company headquarters with subsidiaries or branch offices that execute the orders they get from central management. The headquarters is where research and development takes place, the marketing strategy is updated, and all major decisions are made. There is close oversight over subsidiaries, which function like sales outlets or delivery outlets.

Advantages

• Popular in the modern business environment
• Offers strong control over subsidiaries
• Efficient for highly standardized products (i.e. software, cars)

Disadvantages

• Requires very competent central management
• Gives acquired CEOs the worst odds of succeeding in the new company
• Does not work well for products that require local customization

Transnational Model

The transnational model is set up like a net with nodes spread throughout. It uses a web of relationships between different subsidiaries, each of which have their own specialities and assigned tasks. Each node transmits their knowledge or the results of their development around the net to subsidiaries in other locations. The headquarters practices more oversight than in a conglomerate, but unlike in the centralized model, central management is more focused on matters like general strategy than on managing subsidiaries.

Advantages

• Allows for synergy between different centers of excellence
• Efficient for global products that need local customization
• Works well with regional or geographic distribution of resources
• Very effective for most service businesses

Disadvantages

• Requires trustworthy, competent management at each node
• Relationships can be complex
• Inefficient for standardized, global products
• Requires uniformly strong subsidiaries

In Practice

In practice, there is no best model, since every market, product, and service is different. The best model for any particular company is the one that allows its offerings to reach its intended market in the most efficient way.

In the real world, it is also never possible to start with a blank slate. Taking a company following the conglomerate model and trying to implement a completely centralized model, for example, is both expensive and impractical. So, the amount of distance between models is worth considering, with the conglomerate and centralized models being the furthest apart. When adapting to a new model, subsidiaries that don’t fit in will need to be developed, shut down, or sold, and new subsidiaries may need to be set up.

There are also two important issues to keep in mind when considering the conglomerate, centralized, and transnational models: how headquarters are set up and the effects of acquisitions.

Acquisitions
Most companies don’t evolve from having one local base to using international subsidiaries entirely on their own. Instead, they grow through acquisitions over a period of many years. Thus, the importance of integrating acquired companies is something an entrepreneur should keep in mind when considering how they will handle subsidiaries when their company goes global. As a warning, no company should acquire a company larger than itself, as it will be swallowed by the bigger company rather than integrating it.

Headquarters
Another important consideration when looking at the conglomerate, centralized, and transnational models is the type of headquarters they are associated with.

To effectively do business on a global scale, one must have a global headquarters with a mix of people of different nationalities who speak different languages. Beyond that, what makes a headquarters effective depends on the model being used.

Conglomerate Headquarters
A conglomerate’s headquarters is very small. For example, the former General Electric Company was an international conglomerate with turnover in the billions that was run out of a U.K. office with a staff of 50.

However, with the conglomerate model, there is the danger of creating way too much overhead by replicating headquarters. For example, a company can end up with a headquarters for each country, a headquarters for each region, and a main headquarters.

Centralized Headquarters
Under the centralized model, the main headquarters is very involved in managing subsidiaries, so it needs highly skilled professionals. However, this headquarters doesn’t need to be huge. IBM, for example, avoids having more than about 500 people in their headquarters at a time, but all of the people they have are very technically astute.

Transnational Headquarters
With transnational nodes, there is no need to duplicate headquarters, although the danger of high overhead is still there, as in the conglomerate model. Christou was able to manage transnational cooperation with a staff of about 300 in central headquarters, so again, a large headquarters is unnecessary.

Rules of Globalization

Naturally, many factors contribute to a global company’s success besides the organizational model it chooses. While a global business may seem very different from an entrepreneurial business planning to go global, they both must deal with many of the same “rules of globalization,” summarized below:

1. Be the Big Fish Wherever You Go
It’s good to be a big fish in a small pond or a big fish in a big pond, but a small fish in any pond gets eaten. Whether a new company is a big or small fish depends on the geography and target market it is serving.

In terms of geography, an IT business in the U.S. will not get noticed until it has a turnover of about 5 billion USD (~19 billion SAR). In Australia, an IT company could be one of the biggest in the country with a turnover of 1.5 billion Australian dollars (~5.4 billion SAR).

In terms of target market, a company can be a big fish in a very small pond without heavy investment by focusing on the right niche. That way, big companies in that market will be interested in buying the small company in order to gain a niche advantage.

However, with this strategy, entrepreneurs must be careful not to spread out too thinly geographically, especially if their company’s main offering is its product rather than its customer base, as is usually the case. Unprofitable locations will only subtract from the selling price that the entrepreneurial company can command.

2. Focus on the Bottom Line When Expanding
Never spread to a new region for the sake of expanding. Expansion is only valuable if it improves the bottom line. Locations that are not making money will increase overhead costs, sap revenue, and just end up being subsidized by locations in big income-producing economies. Before expanding to a new location, a business owner should consider whether that market is right for their company, and whether they can be a big fish in their chosen market there.

3. Avoid the Matrix Management Strategy
A matrix strategy can combine, for example, managing employees according to both the geography they are responsible for and the product or products they are responsible for. Unfortunately, this system can lead to confusion in terms of responsibilities, incentives, and authority. The simpler path is to determine whether the company should be organized according to geography, product lines, or service lines, then stick to that so that employees stay focused.

4. Consider Starting with a Local Distributor
When spreading to a new area, control and risk come together. With more control comes more risk and higher costs. This is why, with the right product and careful planning, entering an area through a distributor can be a good, low-risk alternative to opening or buying a subsidiary.

If the agreement works well, the option is buy the distributor is there. Otherwise, terminating the agreement is no major loss.

5. Put Trust First When Delegating
Having a close, honest, trusting relationship with those one delegates to is crucial. This is especially true in a small business, since one person’s failure can destroy the entire company. Ultimately, the most important factor is whether one selects trustworthy people.

6. Go Local When Selecting National or Regional Reps
Large companies can fall victim to the fatal idea that expatriates know everything, even though they often don’t speak the local language and just end up sitting in their office when they arrive in the host country.

Most of the time, these expats either become totally isolated by delegating everything to a local chief operating officer, or try to run the business on their own and fail. While having an expat in charge can work with standardized physical products, like computers or cars, a local should be selected as the regional or national representative when some localization is expected, as with services and most products. A local is the best choice for making contact with and gaining the trust of local customers.

7. Be Careful with Joint Ventures
When considering a joint venture, a small business must choose its partner and write the joint venture agreement very carefully.

Most companies look at which partner has more shares, then focus on minority protection, or on the ability to veto changes. However, the most empowering request is for the ability to appoint, remunerate, or dismiss the CEO. The people who can choose between paying and firing the CEO get what they want, while those who just have veto power can only argue, and too many arguments will eventually lead to the dissolution of the joint venture.

8. Make a Clean Break When Exiting
If an entrepreneur’s exit strategy is to be bought by a large company, the best thing to do after being bought out is to make a clean break. Retaining some shares creates friction, and the entrepreneur tends to lose value by going this route.

Likewise, after a buy-out, each company tends to tell the founder that they will be retained as the CEO or as another type of employee. But, after the honeymoon period wears off in about six months, most entrepreneurs find that they don’t like the structured, political, hierarchical atmosphere of a big company, and end up leaving or being let go with high severance pay. That’s why it is better for the entrepreneur to take an as-needed consulting role, with pay tied to profits or earnings, rather than staying in the company.

So, what do you think of Christou’s advice?

The crowd at the International Entrepreneurship Symposium seemed to like Christou’s speech, but what do you think? Do you agree or disagree with his point of view?

Please let me know by posting comments below, and be sure to check back soon for other another story from the International Entrepreneurship Symposium: my summary of the best criticism I’ve ever received.