🎙️Interview with a VC: Saul Orbach

"How do you decide what market you are going to target first and how you’re going to do it? That’s the key question all startups out there need to find an answer to."

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Hello friends,

Welcome to Fundraisedd, the newsletter that tells you all you need to know about fundraising and startup finance.

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This week, I had the pleasure to interview Saul Orbach and discuss with him his extensive career as an entrepreneur and investor, his views on go-to-market strategy, and his value-based approach to building and growing a company.

So without further ado, this is Interview with a VC, Episode 1.

Nicolas Carteron: Hi Saul, and thanks for doing this interview. Let’s start with an introduction, can you tell me more about yourself and your career?

Saul Orbach: Sure, let’s see. I come from the world of finance and real estate. Before I got involved with the tech and VC industry, I was a bond trader on Wall Street and worked in finance until 1988 when I got sort of bored with moving money around. I wanted to get into industry to build stuff, so I changed course and got hired by a software company in Jerusalem. I was the fifth employee there.

I gather this change of career was the right decision for you?

Definitely! I fell in love with the tech industry immediately. I discovered how software was built, all the possibilities it offered, and this was an eye-opener. You know, when I was a trader with didn’t have computers, we did it all by hand. When I joined this tech company, it was not long after Windows 2.0 was released. Saying this makes me feel like a dinosaur!

What did you do at this company?

I was in charge of business development. We started by selling the first professional, multilingual typesetting program and that led to the first multilingual word processor for Windows. My mission was to find ways to make money by creating different revenue streams. Eventually, I got recruited by another company so I left them in 1992, about a year before they went public.

My new employer, who was operating 4 different businesses, was planning to go public too, so my first task was to participate in a roadshow, which was pretty exciting as you can imagine. We ended up not doing an IPO and selling 2 of the 4 business, though.

So, in one year, you worked towards an IPO and 2 M&As. That’s quite a year.

Yes, you could say this!

Can you tell us more about the financing environment back then, how were the VCs of the day?

VCs? There were no VCs in Israel at the time. You’d have to find a financial partner and convince them to give you money to build your idea. I see your face, you’re too young to even know what it means 🤣. At the time, you couldn’t find professional investors that specialised in young, tech companies. If you had an idea and no money, you had to do it the old-fashioned way: find someone with money interested in your idea and partner up.

My first experience with a VC backed startup came in the late 90s, early 00s. It was an Israeli startup that had raised $1M and they sent me to Silicon Valley to build the US market. That’s also the first time I had to raise money.

How did that go?

I had to learn everything and, truthfully, I was really bad at it! One advisor to the company took mercy on me. One day, he told me “you know this Einstein’s quote, the definition of insanity when you keep doing the same thing and expecting different results? That’s what you’re doing and you don’t even realise it!”

So I asked what it was I did wrong without even realising, and he said something that changed my professional life and stuck with me ever since:

You’re talking, and talking, and when you ask people to invest they say “no.” When you ask them “why not?” they don’t tell you, and you have no clue as to when you lost them. That’s your mistake. If you want people to invest, after each slide of your deck, stop and ask the people in the room “do you agree with that?” and whatever they say, you don’t move forward until you have a real answer. If they say “no, but keep going,” you don’t keep going. 99 people out of 100 will keep going, and that’s wrong. You keep digging for an answer. That’s how you learn how to find out what’s wrong with your pitch, how to improve it, and that’s how you raise funds.

And he was right, Thanks to his advice, we raised a $10M round and, thankfully, I’ve been able to raise many more afterwards.

Was the fundraising process different back then?

The main difference was that, contrary to today, there weren’t many resources online that would teach you how to raise funds. Investors were always testing you. They had these questions they wanted answers to, but of course, they didn’t tell you in advance. That’s why I wrote a paper in 2002 called “The 8 Questions You Need to Answer to Raise Money Successfully” that I distributed to entrepreneurs and founders around me. The 8 questions were:

  1. What’s the problem?

  2. How big is the market?

  3. What’s your solution?

  4. What’s your competitive advantage?

  5. What’s your competitive landscape?

  6. What’s your strategy?

  7. Who’s your team?

  8. What do you need?

I guess these sound familiar. 🙂

I met Alexander Osterwalder not long after his book came out, and I told him about this paper and how I should have turned it into a book and sold millions of copies of it like he was going to!

To bounce on that, Osterwalder’s Business Model Canvas tries to solve the same problem as your paper did. What’s your take on his model?

I think it’s a good model, but it lacks one key element, and that’s market penetration or go-to-market.

How do you decide what market you are going to target first and how you’re going to do it? That’s the key.

It is indeed a question founders face all the time. What’s your advice on how to decide what market to address and how to do it?

There are multiple ways to answer this question and, as a matter of fact, we could be talking hours on this topic.

The first general advice I would give early-stage founders is that if your strategy involves going global at some point, you need to build it in the DNA of the company from the start. You can’t develop in your backyard without looking around and suddenly decide to go international. While you may choose to start locally for tactical purposes, keep an eye on the global market, the trends and the companies otherwise you’ll be lost.

The second advice isn’t about geography but market verticals. You need to look beyond the obvious and try to understand who can benefit from your service or product. You also need to look at the urgency of the need, and the willingness to pay to have it satisfied.

I’ll give you a personal example. As a VC, I got to meet a fascinating entrepreneur, an inventor. The guy had created some kind of kaleidoscopic device that could measure and map the light reflectance of any material or object. It looked cool but I didn’t know what to make of it. He explained that the device was meant to replace a goniometer, which is a machine that measures the reflectance property of surface materials and costs about $1M. The current process to map an object then (I don’t know if improvements have taken place since) took about 25 hours. His device could do the same thing in 3 seconds, at a fraction of the cost.

I didn’t understand the tech, but I know a compelling value proposition when I see one!

You see, who needs to be able to measure the light reflectance (and therefore the texture) of materials and objects? There is the defence industry (for stealth materials), the insurance industry (for art forgery), the cinema industry (for CGI), and the design industry (to render realistic 3D models). The market need went way beyond lab research and his inventions had dozens of real-life applications.

With so many addressable markets, how did you go about choosing which one to target first?

We narrowed it down doing market research. I interviewed more than 65 companies over a few months trying to understand their needs, urgency, and willingness to pay. I concluded that the design industry would be the main target (it was large, winnable, and would be highly profitable) but we had an issue. The vast majority of design software was limited to 2D at the time, and none of them would work with our technology. We decided that we would focus on design 18 months down the line when the industry was projected to adopt 3D modelling.

Our core addressable market would need us tomorrow. I needed to find a market that needs us yesterday.

There were two markets just like this: Hollywood and NASA. I discarded NASA, exciting though it is because government contracts in the US are a complicated affair. That left us with Hollywood and all the CGI companies that were struggling to make textures realistic (look at Spiderman 2 and you’ll see how the effects weren’t as realistic as they needed to be yet).

The CGI industry was small and would be less profitable, but it needed our product now. It would allow us to start ramping up sales, prove our product, and get ready for the real deal with the design industry later on.

In the end, it’s all about who needs your product and how urgently do they need it?

Yes! That’s how you choose which market segments to target. Ask yourself:

  • What do they need?

  • How urgently do they need it?

  • How much value does it provide?

  • How much are they willing to pay for it?

Urgency, demand, and need are what you should look for in your first segment. That’s the low hanging fruit. Now if it has size on top, even better.

And this stays true for all business models and all geographies. Once you figure this out, once you find your target segment, make sure to deliver a great experience conveniently, and you’re good to go!

You touch on something that could be the subject of another interview. Whatever the product or service you sell, what matters nowadays is convenience, user-friendliness, and efficiency.

Exactly. Amazon isn’t that valuable because they sell a lot of products, or because they have a great inventory (most of it isn’t theirs anyway). Their real value is convenience.

I like to quote the saying that nobody ever buys a drill. What you buy are holes, the drill is just the most convenient way to get there.

Entrepreneurs need to understand what people are actually buying from them. Amazon spent billions to build their warehouses all over the world to reduce delivery time and increase convenience because that’s what their customers were actually buying.

You need to think outside the box, to look further.

The visionaries of today are not creating new products or new services, they’re creating new business models, new experiences.

Would you say this is a move from commoditised products or business models to differentiated ones?

I never thought about it that way, that’s interesting. I look at my phone, an iPhone, and how interconnected it is to my life and all my other gadgets.

A phone is a commodity, but the way it integrates into my life, for good or bad, is a whole new experience that is differentiated from one phone to another. So I guess to some extent yes, it’s about finding this differentiating factor and capitalising on it.

Any final thoughts you’d like to add?

I’d like to emphasise again for all your entrepreneur readers: everything starts with the customer. As an investor, one of the first things I always ask entrepreneurs is “tell me more about your customers.”

I want to know how well they understand them because it all starts here. And the customer needs to be woven in their corporate story. The problem you show me, that’s your customer’s problem. Your solution needs to fit your customer’s reality.

Saul, thanks a lot for this interview. Where can people find you online if they want to get in touch?

Thanks, Nicolas! People can reach out to me via email on saul@beachheadgroup.com.


I hope you enjoyed this interview, that you learned a lot from it, and I wish you all a great week!

Best,

Nicolas


Suggested Reading

Where to Play by Sharon Tal & Max Gruber

Business Model Generation by Alexander Osterwalder & Yves Pigneur

Value Proposition Design by Alexander Osterwalder, Yves Pigneur, et al.

Your Startup is a Series of Cycles by Tomasz Tunguz