In this unique interview, Burke Franklin talks with Robert Steven Kramarz (Rob) about his course on Story Pitching Investors. Burke is the creator of Business Power Tools and author of Business Black Belt and has been helping young, innovative companies to scale for almost 40 years. His proprietary methodology results in better processes and faster growth and makes a business more attractive to investors.
Rob is a seasoned investor that got frustrated with turning away more than 90% of the entrepreneurs and CEOs that were looking for funding. As few as 10% ever get the funding. That meant that good companies and good products failed all too often. He knew, as an investor, what the problem was. His course on Story Pitching is a solution to the failure of the pitch – lack of trust. The transformation when an investor trusts the CEO and his team convert over 50% of the pitches to funding!
Here we go with Burke and Rob’s discussion of why this works
Burke Franklin:
Hi, I’m Burke Franklin. Welcome to the Business Black Belt podcast. I’m the creator of Business Power Tools and BizPlan Builder business planning software. My guest today is Robert Kramarz. I’ll introduce Rob as a former Angel investor and now a venture capitalist, and we’ll talk about venture capital entrepreneurs, business plans, and that stuff. And back in the day in Silicon Valley, I was selling word processors, and it wasn’t going well. I didn’t like selling word processors. It was a tough sell; eventually, PCs and Macs came along and killed them. And I’m wondering, okay, what good idea can I come up with to make millions of dollars? Because Silicon Valley was full of people making a lot of money, and I wasn’t, it just irked me, and I’m thinking, what can I do?
And so one day, a friend called me up and said, “Hey, I need a business plan. Apple needs to see my business plan.” Because at the time, the SBA did a study that said that 65% of the businesses that failed had no business plan and wanted to see his. We put this thing together, a sales pitch and a plan and a brochure, like a catalog. And it worked. He got the deal. And over the next year, people came to me, and I helped with business plans. And I’m thinking, and I’m just going to help people do whatever they do. Because I didn’t have a product, I didn’t have an idea. I figured I would help other people with their ideas until some bright idea occurred to me, and then I’ll take off on my own. But in the meantime, I’m helping people with their business plans and their businesses. And then one day, I wake up, and I’m standing in the shower thinking, if I see one more lousy business plan, I’m going to scream.Why don’t I just take all this content and make a business plan template? And that’s when, of course, it struck me. Wait a minute; this is the product. At first, I thought I wanted the ultimate business plan for myself, but no, the business plan became the product. Kind of like what we learned in fourth grade, California history is that the people who made money during the California gold rush were the guys selling picks and shovels. And Silicon Valley is a modern-day gold rush. I’m going to sell picks and shovels to the gold miners. Here I was with the business plan, which evolved into everything else Business Power Tools. Just one of those historical things. What do you do? Put one foot in front of the other, keep going, and figure it out as you go. And here’s Robert Steven Kramarz, an investor in guys like me doing what I do and, Rob, let’s hear what you’ve got to say about your stories, what mistakes you’ve made, and what you’ve learned.
Rob Kramarz:
First of all, we bear many similarities in that my growing up with techies, and I ran seven companies over my career, one of them pretty big, but I never made it, I also came so close, but I never made it big. I knew Bill Gates. I had dinner with him once. I did not have dinner with Steve jobs and many others like that. And I never made it even close to that level of success. It was the one time that Gates asked me to be in charge of sales for Microsoft. I think I told you about this. And that would’ve been my big break. Steve Balmer took the job and is now worth $70 billion. I turned the job down first because I didn’t want to work for somebody else. That’s another mistake. I never made it that big, but I did have the wherewithal to start investing. And so I joined one of the most prominent Angel groups in the country at that time in about 2009, and eight out of 10 deals went bad.
Burke Franklin:
Why did you join this Angel group? Was it you’re going to learn something from these guys? Did you have any experience investing before?
Rob Kramarz:
I had the wherewithal to invest, but I didn’t know what to do. I didn’t know what convertible debt was, although one of my companies was venture funded. I didn’t know any of the wherewithal or how to pick companies, vet them, do due diligence, or write the contract—none of that. I didn’t know any of it. I started following the standard row, the typical pattern they taught, in which you got to understand the product, the market, and growth. And you have to understand the gap that’s being filled and the intellectual property. And then, you have to check for all the mistakes, lies, and whatnot during the due diligence process. Oh, and don’t forget the financials. I had to learn those, how the exit will happen, and how much value might be created. I followed all this. It helped them create the scorecard that we could score companies on all this. But at the end of the day, eight out of 10 deals failed.
Burke Franklin:
What were you prioritizing?
Rob Kramarz:
True for everybody, not just for me.
Burke Franklin:
When you did the scorecard, and we’re investing in these companies, what were your priorities? What were you looking for in these businesses that you thought made them winners?
Rob Kramarz:
Well, we scored how good the product was, how big the gap was between the problem being solved, how important it was, how big the market could be, and how fast it might grow. We also scored the financial results that might result, how profitable the product, because naturally, a losing product’s not going to make anybody any money, and the financial projections. Those were all the factors, the biggest one being, how big is the problem being solved?
Burke Franklin:
Now, what did you miss in all of this-
Rob Kramarz:
What we missed in all of this-
Burke Franklin:
To go south?
Rob Kramarz:
Most of us had 80 to 90% failures. As you pointed out, you could chalk that up to how business is. And by the way, they all had business plans and still had an 80 to 90% failure rate. But the one thing that struck me, since I had a degree in psychology, I had a sense for this that they weren’t paying any attention to the founders other than reading their resumes.
Burke Franklin:
So you guys were betting on the horse, not the jockey?
Rob Kramarz:
We were betting on the horse, not the jockey. That may have worked in the 90s or something, but the technical and marketing change rate is so accelerating by the 2010s that every company will change anyway. The product’s going to change. The problem’s going to change. By the time it goes public or gets acquired, it will all be different. Why are we betting on the horse when we’re not even going to be riding the same horse by the time the exit occurs? That’s when it occurred to me, oh my God, this is my mistake. And fortunately, I thought I had some skills in psychology. I could assess people and recognize winners, but how?
Burke Franklin:
Did you think you could also fix them, guide them, and coach them? Or do you need to find someone who’s already got it going on and does not need to be fixed?
Rob Kramarz:
Very interesting you said that because I first thought I could fix them. I could train a CEO, train a technical guy into being a great CEO. And then I found that was impossible to do quickly enough. That was about two years of error right there. And then it finally dawned upon me; I did a radio broadcast then. It was an interview like this. And so there’s no time to make a CEO out of a non-CEO. They must partner up a co-found with somebody who can run a business.
Burke Franklin:
Like Steve Wozniak got Steve Jobs. Steve Wozniak, on his own, Apple wouldn’t exist. He needed a PT Barnum to get out there and make it happen.
Rob Kramarz:
Or, in the present world, you have Mark Zuckerberg bringing in Cheryl Sandberg after one earlier mistake. Elon Musk brought in Gwynne Shotwell and developed her from a sales rep. And look, Elon’s still the CEO. Mark Zuckerberg’s still the CEO, but the person who runs the company daily, whether president or COO, is essential because you can’t train the CEO fast enough. I don’t even want to, frankly, because how will they be a visionary if they handle all the day-to-day monkey business?
Burke Franklin:
That in itself is 24/7, not only a 24/7 job; it’s a 24/7 focus. I’m a visionary type. I’m looking at that and running the gory details of the day-to-day businesses. I can, I could, I should, but I shouldn’t. And so well, go on about that. How do you invest in companies now?
Rob Kramarz:
Well, then there’s one more factor. First of all, we’ve got to have a pair of co-founders who have complementary, shared values, shared vision, and complementary skills. One can run the business or be a visionary. We call that the vision master and the execution master. And just to be clear, there are lots of variations. Not everybody is pure, one or the other. There are many colorations and variations, but basically, one’s the vision master and the execution master. That works. Secondly, the biggest issue once you find the right team is whether you can trust those people. They seem to trust each other, but can I, as the investor, trust them? And it turns out that we can’t.
Burke Franklin:
You can’t; you cannot?
Rob Kramarz:
After you’ve had eight out of 10 deals go sour, most investors are deeply cynical. We don’t trust the entrepreneurs.
Burke Franklin:
Would you say the approach is they’re guilty until proven innocent, or maybe put more consciously, they are suspect until proven trustworthy?
Rob Kramarz:
That’s the attitude.
Burke Franklin:
Something like that.
Rob Kramarz:
That’s the attitude when companies walk into the room and make a pitch.
Burke Franklin:
You’re behind the eight ball from the get-go.
Rob Kramarz:
You are behind the eight ball from the get-go because we don’t trust you. We automatically just begin with the assumption that you will be exaggerating or not disclosing all the facts.
Burke Franklin:
Look at Theranos and Fire Island and these horrific catastrophes.
Rob Kramarz:
Yeah. And it’s not necessarily outright deception. It’s rare, but it’s leaving things out or exaggerating. Do you know what the biggest problem is? Entrepreneurs drink their own Kool-Aid. They’re not even conscious anymore.
Burke Franklin:
We make the Kool-Aid.
Rob Kramarz:
Yeah. We’re not even conscious anymore. And I’m an entrepreneur going back. We’re not even conscious that we bought our bullshit if you don’t mind the term.
Burke Franklin:
Well, we have to be optimistic. We’ve got to be optimistic against all odds and damn the torpedoes, but still, there’s a fine line there. Huh?
Rob Kramarz:
But the investor’s looking at you, not you personally, but looking at the entrepreneur and saying, “I know everybody’s exaggerating. They’re all trying to give me the best bullshit they can. How can I make a decision here?” And so, knowing that’s true, I try to turn the tables on the investor, which is contradictory because I’m the investor, but I genuinely want to make a difference. And if I’m not making a difference, what’s the point of making money anyway? I began teaching entrepreneurs, don’t brag about their products. Don’t even try to sell your product. First of all, focus on yourself and your partners. As a team, focus on the people. In other words, lead the investor to the bright side of the world. Lead the investor-
Burke Franklin:
It’s like, what’s a nice person like you doing in a business like this, or here’s what a nice guy like me is doing in a business like this. I’ve got a purpose beyond the pitch; I tell a story about the mercenary versus the missionary. I take my missionary part and add it to my mercenary part. And now I’ve got a reason to stay in this business or be in it when things get tough because they will, but I’ve got this story to tell you.
Rob Kramarz:
Well, the point is that you got to lead the investor to the enlightenment. That it isn’t my product that’s important here, it’s me, the entrepreneur, and my ability to lead my team and pivot when necessary because the world will change long before I can sell the business. You have to convince me as the investor that you’re the right CEO and the right team to run this business or any similar business. And the only way to do that you have to start by cutting through the fear that I’m bullshitting. I’m an entrepreneur.
Burke Franklin:
You mentioned revealing some mistakes we’ve made because we’ll be over here and say, “I don’t make any mistakes.” It’s like, there’s an ample red light on the dashboard.
Rob Kramarz:
The surest way to cut through and wake that investor up, cut through their cynicism, is to admit a big mistake you made. Or, as I did in my talk, and as you did here, we told the story of a big mistake we made, several. That wakes people up, but it also makes them trust you because how many people start conversations by admitting their mistakes and they’re failing?
Burke Franklin:
I don’t want to do that.
Rob Kramarz:
Now you have a little window of an opportunity because they’re starting to trust you. I am just starting.
Burke Franklin:
Well, and if I can come in and reveal, here’s a bunch of mistakes I’ve already made on my dime. I’m not going to make them on yours because I’ve already learned that; it seems like that’d be a good head start. Not that I need to come in and parade all my disasters in front of you, but at least not shy away from them and use them as here’s what I learned from them.
Rob Kramarz:
Yeah, exactly. And that makes you sound coachable. It makes you sound humble enough to take the investor’s advice because they love giving advice. We love giving advice. Every investor loves a humble and not prideful, someone willing, but most importantly, it gives you that opening because now they trust you a little bit, so you can tell about your product and your vision without that kickback that you usually get. And remember the investors seeing hundreds. For every one out of 100 gets the money. Everybody’s coming in with their best dog and pony show.
Burke Franklin:
And a little too much PT Barnum.
Rob Kramarz:
The investor’s bored with it. How many circus acts can you see before you go, “I’m done.” If you understand why investors invest, it also helps. Because when it talks to Angel Investing, it’s not about making money. Truly. It’s a long shot. Sure, we all will dream about making that giant killing, but it’s not about making money. It’s about bragging rights, having fun, being the advisor, and being part of something exciting and new. It’s about creating a legacy. Those are five or six personal reasons and nothing to do with making money. Why are we focusing on how much money we will make for them?
Burke Franklin:
That seems to be the significant scorecard. And it seems today the gold rush is in solar panels and batteries, and you want to be the investors. Yes, I invested in the company that makes the 1,000-mile battery or something like that. You’ve got some bragging rights that you bet on the right jockey and the right horse.
Rob Kramarz:
That’s why telling stories is the right way to pitch instead of using a pitch deck. Although you may have a pitch deck, it’s not essential.
Burke Franklin:
I think many people think they say, “I don’t need a business plan. I just need a pitch deck and a smile. And I can raise hundreds of millions of dollars at a unicorn valuation because people are doing it.” And I, of course, would like to argue with that, but I wonder what your take on what happens. There’s the pitch deck, the pitch, the excellent presentation. How long does it take, and what happens between then and when you actually write them a check?
Rob Kramarz:
First, I don’t want to see a pitch deck until after our first conversation. The pitch deck is something you can send to me after the first conversation, which is a significant breakthrough right there. But if I’m trusting you, then what goes on after the first conversation is the second conversation. And there, we might go through the pitch deck to see what the numbers look like and what the product and the problem are. But now I trust you. Now, I’m open and receptive to it. And if you continue to add context, your attitude is look; the world will change.
Rob Kramarz:
Today’s business is not the way the business is going to be five years from now. You and I know it. Let’s be frank, how can I help you, Mr. Investor or Mrs. Investor, Miss investor? How can I help you get what you need? We are building a legacy, which is making a difference, having some fun, having some bragging rights, maybe making a killing, and being an excellent advisor to us. If you ask the investor lots of questions, and if they do a lot of talking during the supposed pitch, you may have won. That’s a winning sign. That’s an I’m getting a check sign.
Burke Franklin:
You turned the pitch around and turned it into questioning that the investor is talking to them.
Rob Kramarz:
Right, right, right, right.
Burke Franklin:
Listening to their stories.
Rob Kramarz:
Right. It’s counterintuitive. But remember, we see hundreds of deals every month, every year maybe. Only invest in one or two of them. So if you do the same thing everybody else does, you will have the same result that everybody else does, which is nothing. Come into my office with a different attitude and wanting to learn about me. Oh my God. That’s different.
Burke Franklin:
I heard some old saying that they’d give you advice if you ask for the money. If you ask for advice, you’ll get the money.
Rob Kramarz:
Yeah, there you go. That’s it. Thank you, Burke.
Burke Franklin:
Thanks, Rob. I appreciate being on the podcast, and I’m looking forward to sharing this with people.
Rob Kramarz:
Yeah. If you want to get hold of me, make an appointment use my Connect link. That’s my calendar. And how do they get a hold of you?
Burke Franklin (on LinkedIn):
Well, I’m at businessBurke@businesspowertools.com. You can see it on my little name thing right there. And this will be on our webpage, and it will probably be on LinkedIn. Please, please contact us. We can help you. We’re all about helping you with your 200-mile-per-gallon carburetor if that’s what you have. What I remember from childhood is that whatever happened to this product that got away? I would’ve loved to invest in that, write their business plan, or work for those guys. Many people have great ideas. Entrepreneurs are saving our world these days with innovations and ideas and stuff, and it’s going on everywhere, all over the place. And it’s just amazing. And so it’s a lot going on. It’s inspiring. Let’s keep going. Put one foot in front of the other and persist, persist, persist. Thanks, Rob.
Rob Kramarz (on LinkedIn):
Thanks, Burke.