Friday, October 31, 2014

Revisiting the Tomato Plant Dilemma

Revisiting the Tomato Plant Dilemma*

The views expressed may not reflect the opinions of venVelo’s board or its investors.           

Many years ago, in a corporate training class, I learned about the Tomato Plant Dilemma.  Essentially, it goes like this:

You have 10 tomato plants, but only enough water for five.  Do you water each plant with half of what it needs to thrive and watch them all die a slow death while hoping for more water to arrive? Or, do you water five to make sure at least 50% make it?  Seems that the answer is pretty clear, yet smart, hard-working, persistent entrepreneurs often make the wrong choice.

Many entrepreneurs fall prey to the temptation of attempting to initiate multiple product lines out of the gate rather than focus on the product with the greatest potential, and for which there is funding support (i.e., water). I recently joined venVelo and have had the pleasure of listening to numerous pitches designed to peak our interest enough to invest.  A few have come in with the idea that they could support more than one product line.  Often, the idea would be that one easily launched product line, though limited in potential, would generate enough cash to help support the development of the real target product.  Seems like a great idea, right?

Whenever one of these opportunities was presented to us, some members of the fund – many of whom have launched and worked in more start-ups than I have – typically take the founder to task.  I am new to the game, so I usually keep to myself in these instances.  I always wondered what was so bad with the multiple product approach if indeed one product could be sold in the near term to support the other.

Well, now I have joined a start-up myself (not a venVelo portfolio company) and I see the folly first hand.  I would summarize the problem as one in which the executives leading the company may be guilty underestimating the challenge of raising market awareness with no brand value, the difficulty of developing distribution channels, the responsibility to manage invested funds carefully, and risking the success of their employees.  That may seem an awful stark statement, so let me elaborate.

Start with the devaluation of employees.  It is likely the new company has only enough funds to support a small team.  In charging that small team with trying to market, develop distribution, and sell multiple product lines, like the Tomato Plant Dilemma, they will not be able to give the attention to all that it takes to move product for one product let alone more than one. Like sharing the water among too many tomato plants, employee morale will die a slow painful death.

Similarly, in a start-up, cash is king.  When cash from investors is what is keeping the company operational, money should be spent as if “nickels were manhole covers.”  Yes, you have to spend money to make money, but when you are using other people’s money, you should keep returns on the horizon in mind.  When you try to support multiple products, no matter how honorable the intentions, you are likely to spend too much on supporting the lesser product, and cheat the business you are truly trying to create. There comes that pesky Tomato Plant Dilemma again.  Do I focus my limited financial resources on the true business, or do I risk wasting it trying to stand up an interim product?

Finally, when you have no brand awareness, and your product has limited proof of value in the market place, being able to develop distribution is typically a lot harder than it might seem.  This is true regardless of how good a mouse trap a start-up may have.  While it is true that 90% or more of start-ups fail, this is not saying that 90% of the products were inherently doomed to failure.  It is more likely that many failures were problems raising awareness and landing distribution.  You do not simply get the product packaged and go to QVC to see what you can sell, for example.  At a minimum, it takes money, the persistence of talented sales and marketing people, and a good helping of luck, to get most products off the mat.

So, my advice to myself and to other entrepreneurs is to focus on the product that you want to pin your future on.  Many things contribute to the success of an entrepreneurial endeavor, and focus is key among them.  Give the tomato plant with the most promise the water it needs to thrive.

*The author is a board members of venVelo, a venture fund and business accelerator in Winter Park, Florida focused on early-stage opportunities. Formally launched in 2012, venVelo quickly established itself as one of the most active venture funds in central Florida.