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If you read about the decision making process by
investors, including angel investors and venture capitalists, you’ll likely
encounter the term "pattern recognition". Pattern recognition describes an
investor's tendency to attempt to match the existing business proposition
to previous experiences. This match
ideally will be to previous
successful investments and companies.
But it might also be a match
to unsuccessful ones. Investors employ
pattern recognition because it enables faster processing of
opportunities that need evaluation every week.
There are various specific aspects to employing pattern recognition. Sales model, business model, distribution method, customer set and other similarities to previous successes warrant consideration in pattern recognition. And while I will blog again on pattern recognition and its components, today I would like to focus on a trusted technique within pattern recognition.
One of my favorite techniques in applying pattern recognition is to determine if there
evidence of natural lift. That is to say, is this an investment that will benefit
from environmental or systemic factors?
Further, is this a company
where growth and success will come more easily than not? Will this company will be a slog? Is there natural lift to the idea/product. For example;
If you launched a Facebook application
as the Facebook platform was beginning its meteoric rise, that
would be an example of systemic benefit.
Your life and the focus of
your investor would be about managing growth
rather than creating
it. You can start companies whose
success will be difficult and
risky. You can also start ones where
success will be easier and more
between new entrepreneurs and experienced
ones can be the latter's desire to
start companies with natural lift. That
natural lift makes them easy
to raise money for by the way. Natural lift enables customers to
be acquired more cheaply and employees recruited more
easily. Momentum is created in
conjunction with and facilitated by, the
external environment. I find that people
often confuse natural lift
with "buzz". I consider buzz
as a potential side product of
natural lift but different in a fundamental way. Natural lift cannot
be created by the company per se' as it is an external factor. Buzz can be created by the efforts of
the company's staff and
is internally generated ultimately.
(Sometimes faux mentum rather than momentum.....)
The alternative to a company with natural lift is when
the success of the investment is a
complete, endless slog. Where growth and success be fought for and
won on an inch by inch
basis. No wind at your back ever. And while
necessarily gravitate to a slog, there are many that will sign on to the
right one. There are just less investors
that will back an endless slog than will back a company with natural lift. And, no one
can handle many
companies on the slog path as they are time consuming by nature.
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