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How do you prove traction?

You have:

1. Found a great idea
2. Massaged that idea into a product
3. Created the infrastructure around the product to constitute a promising startup opportunity.

However, one thing is still missing. That coveted cash infusion to jolt your product to life...

This post will talk about the gap between the sales you will make, and the manufacturing capabilities you have planned, and how proving traction can bring the investment to fill the gap.
Many seasoned veterans of entreprneurship will say "you should not worry about the cash, just keep on working."

...and if you really have that great idea, and the motivation it takes to bring it to market, how could you not?

The truth is: It is hard to get sales if you have not planned a production run yet.

This begs the question: "How does my company fill that gap in such an infantile stage in the startup?" The answer comes down to the ever famous, and somewhat esoteric word- "Traction"

Babak Nivi from @Venturehacks, also a curator of @angelList believes that it takes 3 things to get funded:

1. Social Proof
2. Product
3. Traction

He also says that the team is a big factor, but he thinks a good team tends to sufficiently prove the above three factors...

Social Proof

In the case of BioLighter, We have seen social proof by the hundreds of cans sold over the past year. We have seen social proof by people coming in and bragging about the new uses they have found for our product. We also found social proof by people herding around our table at Greenfest (picture on left: Adam and unknown BioLighter fan) and becoming fans on Facebook. Last month a school teacher approached us to ask for samples to light up in a class lesson about biofuels. (to learn more about social proof, read this post on Muse Traffic)

Investors understand this social proof by: reading testimonials about your product, endorsements from professional organizations, or even a story they can understand of how you are solving a pain point. The Muse Traffic post most compares it to the human instinct to herd around an idea or movement, and whether the investor can see that happening for your product.

For our investors, the top two reasons they chose to put down the money was- 1) because it caters to the macroeconomic shift towards green alternatives. or 2) because women now control 2/3 of household consumer spending and tend to want healthier solutions for their families.

Product

So many entrepreneurs come to the table with ideas, but fail to transform these ideas to viable products in the market. Factors that attract investors to your product can be: the novelty (or newness) of the product, the patent protection you have to own this market, the price point in which you come into the market, etc... Using BioLighter as an example, We proved the viability of our product through:

1. A full 20 year patent to grow and the potentially ubiquitous solution for the $100M Charcoal Lighter fluid market
2. The fact that we come in at the same price (the first biofuel application society has found to have sustained petroleum pricing parity)
3. BioLighter works better than its competition (build a better mouse trap)
4. BioLighter is healthier, cleaner, and tastes better than its competitor

Traction
At the end of the day, your investors want a return on investment. And even the best products that people really want do not always win. Examples abound: the Betamax format war etc... Investors call this ability to prove market penetration: Traction...

The biggest way to prove traction is through purchase orders. BioLighter found its ability to prove traction in two distinct ways: (and narrowing the gap between manufacturing and sales)

1. Contracts

In mid April, 2011 BioLighter signed a contract with this master retailer to assist with the implementation of our business plan. By attracting the attention of a master retailer who was on retainer at companies like Target, BJ's and Kroger, retailing channels became a sizable opportunity. For a % of sales and a consulting fee, he brought us down the path to execution by organizing a roadshow, and warm introductions to other retail outlets for the maximization of ongoing opportunities.

2. Forecasts.

Many entrepreneurs come to investors with hockey stick growth curves. And while this is definitely what investors want to see, it growth curve must be justified. Justification is only as good as your story. So as long as you can justify your assumptions, this should be an easy thing to do.

After forecasting our growth path, the Northern Nevada Development Authority sat us down with SCORE councilor: Jack Van Dien, (picture to the left) in order to see just how we could justify our assumptions.

How to make Assumptions

The lesson learned is that you have to find a way to build up demand. it is illogical to say "ok, well the market size is $100M, and if we get even 1%, we become millionaires." Rather, one should work through (and keep track of) the assumptions to inevitably justify to the investor. With BioLighter, it went something like this:

Sales Cycle:"With one sales person, with an average sales cycle of about 3 months, we conservatively believe that we can convert 1 account per 3 months. These are the leads we have - and we have talked to them this many times. so for our 3 year growth plan, we will bet 10 accounts over 3 years. "

Next there is an industry standard for forecasting demand of retail consumer goods...

Initial Demand: "Each one of these projected companies have this many stores. They will give us this many facings, (literally the face of your product on the shelf) and they will stock their product this deep (amount to fill the shelves). By multiplying these inputs together, we get the initial demand of the stores

Sell Through Rate: The second part of demand is their weekly replenishment, better known as their sell through rate (how much they sell per week). we factored in the seasonality of our product, and said that we will sell between 1 and 3 cans per week. By multiplying that across the number of stores, we come up with a weekly and monthly demand for our various accounts.

By conservatively justifying our demand, and applying it to a proforma income statement, we have an organic way to justify both the value of our company, and the revenues we will receive. (many of the analysts who looked at our financials believe we underestimated our demand, and therefore cheated ourselves out of valuation)

We went through our demand assumptions with Jack Van Dien and added weekly, monthly and quarterly expenses to create a realistic picture of what we were about to get ourselves into. We have since had countless banks, analysts, and investors look through our spreadsheets in their due diligence and come back surprised at our conservatism.

By conservatively forecasting demand, explaining our social proof, and showing how BioLighter was a product poised for success, We received much attention (and as of April 19th, are hoping to put the funding plug in between our production and sales)

What does it take to start a company?

FORWARD

The Texas alliance recently published a paper explaining all the different uses for petroleum. Our goal at Vastly Different Solutions is to find renewable and sustainable solutions to every one of these products. The first one is BioLighter. If you are interested in:

1. Partnering with us, or working for us to make these products more widely available
2. Investing in our technologies
3. Offering your expertise and knowledge

You may do any of the following to get in touch with us:

• Comment at the bottom of this post
• Drop us an e-mail at info@biolighterbbq.com
• Visit us on our Website or Facebook page

First you need a problem to solve

As many of you know, Vastly Different Solutions has been working with biofuels to create new and more responsible alternatives for consumer packaged goods. This all started at a back yard grill-off where our founder, partner, and patent holder, Joe Marlin, noticed how bad the smell of petrol charcoal lighter fluid was. Being an accomplished engineer and well versed in the Biofuels industry, he went home and created a new formula that works faster, burns cleaner, and tastes better than traditional lighter fluids. We are now on the path to commercialization. With our story as an example, this blog will teach you all about the moving parts that go into a thriving startup.

BioLighter 1.0

After several months in meetings with patent lawyers, banks, input suppliers and countless barbecues, BioLighter was born. We had created a legal entity, bank accounts, a great team and most of all -a great product.

We next created prototype cans in our garage and hired Zach Winter to create a label. The first problem we encountered was learning about all the verbiage associated with flammable liquids, and how to properly label this innovative new product. After several iterations, we solved this problem with the following considerations:

• Identify the top 4 or 5 features and/or benefits of your product and put them on the front of the package;
• Use the label to educate the customer, not just boast your product;
• Understand your competitive environment and the functional requirements of your customers, and make sure you address those on your packaging;
  
• Apply for a UPC code at the GS1 website so retails can easily integrate your product into their inventories.
  
• There are many packaging companies that can do this for you if you have the cheddah $$$ but this is in some ways the most important part of your product. Make sure they add true value if you go this route.
  

Crowd Source for Solutions

Your team may want to hold a contest for labels (#99designs does a great job of getting ideas in front of your team, but we suggest you pay at least $1000 to attract some talent). After you find a couple of your top potential labels, hold a vote so customers, or anyone else can voice their opinion.Surveymonkey.com is a great, free resource to hold this vote off, and we got over 100 people to voice their opinions by merely posting it on our facebook page and sending the link to our contacts.

We then put our final labeling into the USPTO to trademark our brand. Might we ever get ripped off without it? Who knows, but when you are starting a company it is imperative to understand and follow the proper steps to avoid potential pitfalls in the future.

With these lessons learned, BioLighter 1.0 reached on the shelves in early May 2010.

Creating the Master Plan

We have been in the biofuels business for 10 years, and successfully created two startups. Dogpatch Biofuels sells B-100 biofuel at vehicle pumping stations, and Incredible Adventures runs the worlds greenest eco-tourism company with a fleet of biodiesel tour buses. Because we made BioLighter available on the shelves at Dogpatch and other biofuel stations in the Bay Area, our upstream suppliers got wind of it fast.

It turned out they had recently been approached by several investors in Nevada who were looking for new markets and business opportunities in biofuels, and they put us in touch. We also were introduced to an NGO with close ties to regional and state governments who were interested in supporting our new venture.

At this point, Adam Salmen, a young and eager entrepreneur with a top notch degree from Babson College and a history of successful startups, was brought on to write the business plan and help the company plan a growth strategy.

(If you are an aspiring entrepreneur, it might be a good idea to check out NEW VENTURE CREATION, a book by Jeffrey Timmons. But if you don't have $150 to shell out for the book,you might want to consider bootstrapping some resources from Venture Hacks, an amazing and free resource for everything entrepreneurship).

Disclaimer on Business plans

Many entrepreneurs know that a business plan is a necessity that shows that you have masterminded a route to market, and also that it inevitably becomes nothing more than a scrap of paper once reality hits you in the face. A business plan amounts to your hopes and dreams, while a real business is wildly unpredictable. Once you hit the ground and the hurricane of activity begins, you hardly have time to look back at your organizational structure. Your financial models become pretty pictures and your original marketing strategy is gone with the wind. With these considerations in mind, the most important things to accomplish in writing a business plan are:

1. Defining a goal;
2. Getting the teammates to agree on their roles and responsibilities;
   
3. Digging deeper into the details than "and then we make millions..." and anticipating as many of the challenges you will face as you can imagine, as early as possible.
   

But when it comes down to it, success lies in the ability of the team to exploit an opportunity with the resources that it has...

Modeling the process

Jeffrey Timmons believes that the success of a venture lies on the shoulders of the entrepreneur. The success also lies in his or her ability to balance the OPPORTUNITY, TEAM and RESOURCES in order to create a successful startup.

BioLighter's opportunity

Petroleum-based lighter fluids are obsolete. The EPA has been trying to get it off the shelves for years, and is now tightening up the standards on VOC emitting lighter fluids. Brands like Kingsford are being forced to put unrealistic serving sizes on their bottles so they can pass emissions tests. Kingsford is actively searching for our product, and has yet to come up with the solution we have a patent on.

The BioLighter Team

Biolighter is composed of 4 teammates, each proficient in different aspects of the business, and surrounded by a reputable network of industry leaders. We feel that our best assets of our business are:

1. The deep knowledge of biofuels that Joe brings to the table;
2. Brian's history of creating relationships and starting up 2 previous (mulit-million dollar) companies;
3. Jolie's ability to go through the formal paper work, manage business accounts, and make sure BioLighter ready for the major league;
   
4. Adam's academic rigor (financial modeling, business planning, etc.) marketing abilities, and active business management skills.
5. We have also brought on a master retailer who is known for selling millions of dollars of new winning products. His ability to sell will give us introductions to top retailers and distributors.

BioLighter's Resources

Possibly the best aspect of BioLighter (in respect to the Timmons model) is its ability to acquire resources. After 10 years in the BioFuels Industry, we have substantial up-stream contacts and partners to ensure a constant stream of quality material inputs. Joe has established a fantastic network in the industry and the ability to contract purchases anywhere in the United States. We also have access to several task forces facilitated by the Nevada government. Our financials have been certified by Jack Van Dien, previous chairman of the Chrysler Corporation.

Manufacturing

Brian has a family history of entrepreneurship in bottling and manufacturing. We have had the opportunity to use these relationships as key resources to learn the logistics of the bottling industry. We are now in contact with several bottling facilities, strategically placed around the United States to cater to our bottling needs. However, as BioLighter picks up, we will build our own manufacturing facility to create jobs, and to create the world headquarters for sustainable and well educated packaging solutions.

Retailing

Our whole team has built great relationships with retailers throughout the United States market. With our support from the NNDA , we are in touch with a master retailer to take our product on a national "road show". Our plan is to create an organic demand for our product via roadshows and special retail solutions. And we have signed contracts to roll out BioLighter in time for the 4th of July, taking a great step towards our nation's energy independence!

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Our Business plan spelled out the entire process, and is now being used as a blueprint. As Timmons suggests, our business plan was used to fit the gaps between the team, opportunity and resources!

Next Step- Funding...

So now that we had created the proper kindling (a huge opportunity, a great business plan, an amazing team, and the resources to make this plan a reality) we started searching for the match (proper funding with reasonable terms) to get this BioLighter party started...