“Is he all right?” Connie whispered to me.
He sat still, his head down, the phone dangling in his hand.
I had to admit this was a different Lenny. For a second, I was a bit worried about him.
Slowly, Lenny sat up and gathered himself. He put the phone back to his ear and spoke again. The words “two more weeks” were clear enough.
“So, Mr. Last-Chance Twenty-six. You were leaving?” Connie wanted to know. She looked at me hard. “How about another chai?” she asked finally. “On the house.”
Perhaps this wasn't the most opportune moment to sneak out. I still had some time before my next meeting, and for all his bravado, this kid could really use a clue.
I took my coat off. “My friend out there,” I said, “he'd like a decaf.”
Chapter two
THE RULES
OF THE
GAME
LENNY, THOUGH SUBDUED for the moment, was likely to spring back to life and resume his story of those putrefying bacteria, probably in the middle of lunch. So, why was I still here?
A couple of reasons, I suppose.
My father's parents were Russian immigrants. My mother's family came off the boat from Germany. Both sets of grandparents left their homelands for a new and unknown world. It was a courageous bet on a vision, simple faith. I see a common gene among immigrants and entrepreneurs who strike out from the pack to pursue their dreams. I admire people who are willing to bet everything on a belief. Some of these risk takers, whether immigrants or entrepreneurs, have a profound impact on what happens in the world. They place bets on the future, often against fantastic odds. I see heroism in that.
The other reason is simpler still. On one or two occasions in my own history I've been helped by people who should have given me the boot for my naïve and disruptive zealotry. I have been sympathetic to the plight of true believers ever since.
I carried Lenny's coffee out to his curbside table. The center's shopkeepers were all arriving for their various businesses—a women's boutique, a video rental-cum-post office, a liquor store noted for its fine wines. Everyone stopped by the Konditorei for their morning java, exchanging pleasantries. No virtual mall could ever replace this small town feel. Technology does have its limitations.
Still preoccupied with his phone call, Lenny was surprised to see me and started to get up. “I'll get the presentation,” he said. “We can finish out here.”
“Sit down, Lenny. Let's just talk.”
“What will you tell Frank?” he asked as he sipped his coffee. Concern and frustration passed over his pallid face.
“I don't really know. If Frank called me right now, I'd have to say I don't completely understand Funerals.com—or you.”
Lenny leaned forward to protest, but I cut him off.
“Lenny, I've seen some great ideas—Palm Pilot, WebTV, Intuit. They all struggled in their early days but persevered in the face of many skeptics.”
“Struggled? I've got people interested,” he countered, obviously eager to reassure himself.
“Any term sheets?”
“Not yet.”
“What interest do you have, then?”
“Four or five VCs say it's a great idea. They want me to get back to them when I'm further along. If I can produce a credible lead investor, others will follow.”
Ah, it was what I thought. VCs have no percentage in telling you “no” outright. A “no” from a venture capitalist is as rare as the “no” of a Japanese salaryman. Unless you mug the receptionist on the way out or spray graffiti all over their German sedans, VCs seldom turn you down outright.
The other day, a prominent VC described how cutthroat his business had become. One-time friends are bludgeoning each other to win deals. My buddy had gotten cold feet on a deal just as another firm made a move on the founder. “I went crazy to close that financing before it walked out the door,” he said. “Wait a minute,” I protested. “It was a bad deal.” “Sure,” he said, “but I couldn't let somebody else steal it.”
So, I asked Lenny, why would they tell him “no”? He might improve the idea or his team, or some other investor might get excited and then those on the sidelines would swarm in and create a frenzy. Or, who knows, if not this time, his next idea could be a winner. Might as well keep the door open.
My news was a splash of cold water. Lenny leaned back in his chair. He pursed his lips and shook his head. He had probably suspected as much after all these months, but hadn't been able to admit it to himself or his partner.
“They were still interested,” he persisted. “I could tell.”
“Listen, why don't we look at Funerals.com the way a VC actually would,” I suggested. “A VC asks a set of threshold questions about every business proposal. Let's walk through those, and see where they come out.”
I took his silence for assent. I'm sure he would have preferred to finish his pitch, but I didn't give him a choice.
VCs, I explained, want to know three basic things: Is it a big market? Can your product or service win over and defend a large share of that market? Can your team do the job?
VCs like to target markets with big potential, especially tiny markets growing quickly into big markets, like the Internet. If it's a small market, the chance for a portfolio-levitating, reputation-making home run isn't there. A VC's portfolio return is an average of all its investments, so he'd rather have a huge winner and some no-ops than a bunch of minor successes. If you're off-target slightly in a big market, you might still make it, and, if you make it, it can still be big. Off-target in a small market means you're dead.
“So,” I asked, “how big is the market for all this funerary gear?”
According to Lenny's research, there are more than two million funerals every year in the U.S. The average funeral and burial costs close to $7,000. That makes a $14 billion market. About a third of that is for the items Funerals.com was slated to sell. That made Lenny's overall market $4 to $5 billion, a sizable target.
“How much of that will be sold on-line, do you suppose?”
“Maybe 25 percent in three years.”
“But isn't that a problem, Lenny? Your projected sales of $100 million in three years amount to what share of the Internet slice of that market?”
“Ten percent or so.”
“Do you expect a lot of competition?”
“Hell no. Maybe a couple, but we'll be the leader.”
“With 10 percent of the market? It doesn't foot.”
Perhaps a billion-and-a-quarter-dollar Internet market was too big a guess, but one hundred million in sales suggested he wasn't headed for market leadership. If that was true, it was a problem, because top VCs only want to invest in potential leaders. As most markets grow and eventually consolidate, only the leading one or two players are likely to make money and see their share prices rise. So plans ordinarily promise that the new company will “dominate” its market. If Lenny didn't think this way, VCs would conclude something was wrong with his projections or his ambition. On the other hand, his market share might be much greater than 10 percent, because the total on-line market for funeral gear might be smaller than he projected. Either way, he would have to sort it out.
Funerals.com would face the same issues other Internet retailers face: How much of the market for their goods will shift to the Internet? In the case of Funerals.com, would the business find a way to redirect sales from local funeral homes?
Lenny could only guess. Fundamental to his plan was the assumption that the children of baby boomers would be more willing than their parents to buy these goods electronically. So, following his reasoning, it was important to stake out the territory now and prepare for the growing numbers of baby boomers who will start swelling the funeral market in the next few decades.