The Guiding Practices You Need for Branding Early Stage Companies

Creating (and financing) a new company takes passion, vision, and a core idea that can be effectively branded. Our guest in this podcast is one of the most active angel investors in the country, Dave Berkus. Dave manages six early-stage investment funds and has actively participated in over 180 technology investments.

With all of his experience and success, Dave breaks down what he looks for when entrepreneurs approach him for funding. Dave also talks about the Berkus Method of Valuation and how to get to the heart of your brand story and value proposition.


Topics include:

What exactly is a mantra? And why early stage companies should have one 3:21

Three ways of looking at brand strategy for early stage companies 6:17

The Berkus Method of Valuation 9:24

The ability to pivot and why it is important 16:23

The three ways of developing your brand story 22:26

The naming challenge 26:37

Episode Transcript

Welcome to Expert Opinion, the BrandingBusiness forum where leaders share their views, insights and experiences from the world of B2B branding. And now, here’s your host.

Ryan Rieches: Hello. I’m Ryan Rieches, and today’s show is titled Best Practices for Branding Early Stage Companies. Today’s guest is Dave Berkus, a globally experienced entrepreneur. Having built and sold many companies, Dave is one of America’s most prolific angel investors, with over 190 early stage technology investments to date. Dave is also the author of 14 books on early stage business building. His Berkus Method valuing pre-revenue companies has been used by over one million entrepreneurs and investors. He shares his insights weekly via with over 400,000 readers per month. Dave manages six early stage investment funds primarily focused on technology companies. So, as an expert in startup companies, mergers and acquisitions, and positioning companies for liquidity events, I think you’ll enjoy what Dave has to say.

Ryan Rieches: Dave, welcome to Expert Opinion.

Dave Berkus: Well, I’m glad to be here. Thank you.

Ryan Rieches: Well, clearly you’re an expert on evaluating and advising entrepreneurs on early stage businesses. So, I’ve heard you say that no business plan survives its first experience in the market. So, on that topic, can you give our listeners a viewpoint on how early stage companies should think about its initial business plan, and the reality that it needs to be flexible according to the reactions that it receives in the market?

Dave Berkus: The important thing for me, as I’ve seen over I guess 10,000 plans over the years, I saw three yesterday alone, is to try and find the idea that is the core, and then try and figure out the total available market, the serviceable available market, and finally the addressable available market. And it isn’t easy because most entrepreneurs don’t know the terms and don’t know how to find them, so they over-complicate their presentation. So, I’m looking for a couple of things. First is one that’s not in the presentation, but rather in the presenter, and that is the enthusiasm for whatever it is the person is presenting. And second, I want a core idea that I think will service a total available market well enough with … a serviceable available market that would get the company to about $20 million or more at the end of the fifth year as a run rate. And that lets out an awful lot of the ideas that come over my desk. So, there are those requirements, and several more, that make it easy for me to filter very fast when I see all of these, what, 10,000 plans.

Ryan Rieches: I liked the idea there of what you mentioned, the core idea, which in our terms would really be the brand, what the company stands for, how it’s relevant to a target audience, how it differentiates, what is the most compelling way to say that story in the fewest amount of words possible to give a viewer a very, very clear understanding of the value proposition. Is that similar to how you would describe it?

Dave Berkus: Yeah. In fact, everybody talks about the mission, vision, and values. And it goes further, and sometimes to talk about the idea, the strategies, and the tactics. I want to start with something very much easier so that the listener and, in my case, the investor can understand the business in a single sentence. And so you hit on something really important. I call it the mantra. That’s something that isn’t typical in marketing lingo. But a mantra is a single sentence that usually takes a small business a lot of time to figure out. But I want them to tell me in one sentence what they do. And the best way to do that is to find another business I recognize and then associate with that name. For example, you have a bicycle delivery service in Orange County. So you want to be able to have a hundred bicycle delivery people out there at all times. And so your mantra might be, “We are the FedEx of bicycle delivery in Orange County.” And right away, I know because of FedEx’s reputation, kind of what they’re trying to do. And from there it’s very easy for me to fit all the rest of the talk and the slides, and sometimes the off-subject talk, directly into what it is they’re trying to tell me.

Ryan Rieches: And what percentage of initial pitches do you think do a good job in delivering that clear value proposition?

Dave Berkus: Actually, very few. It usually takes somebody who’s been coached to be able to get into that position, and there is coaching available from places like SCORE and TriNet and other places that allow the entrepreneur the chance to be able to try out first. It isn’t common. And so, sometimes I have to ferret out the core from a presentation that is mostly technical. And it’s true that most of the people presenting to me end up presenting a presentation that is technical when I want to know much more about the market and the availability and the uniqueness of the product.

Ryan Rieches: So after that, that first core idea, then you are hooked as a listener, as a possible investor. Now a number of questions start to emerge, and then you have to go deeper, of course, and into the value proposition. So, maybe we can talk a little bit about that because I think our listeners would appreciate that point of view. As the brand strategy firm, we do some startups, but the majority of our work is with corporations who have been around for a while that need to rebrand for a number of reasons, whether it’s mergers and acquisitions, or industry roll-up, or just the company’s evolved. But when I’m asked by early stage founders, they often asked me, “Ryan, when should I think about brand strategy?” And of course I have an opinion about that, but let me get your opinion first.

Dave Berkus: Well, first of all, if you don’t have a brand strategy, you’re one of the many. And that’s one of the problems that I get, is because often I see many presentations that are ideas that have been used, and in some cases very successfully, by other firms. And coming in fifth or sixth with an idea with very little money behind it is not a strategy that I would expect somebody to have. So, a brand strategy for me is, I coach them, if I have time to coach them, because I like their core idea, into thinking of three ways of looking at this. I call it IDC. First of all, increase revenues, decrease costs, and then customers and more customers, so I-D-C. And if they can fit themselves into one of those three, then I can hear much more and believe much more about what they can do. So it’s, in brand strategy terms, not something that is typical. Ordinarily, you hear much more about north, west, south, east — needs, wants, security, education. It goes on and on, but this is a much easier one for a young entrepreneur to understand. They either increase revenues, decrease costs, or they better serve their customers.

Ryan Rieches: One of those gets to the heart of the value proposition, right?

Dave Berkus: It has to. And often you have to tease out the value proposition from these people and find out what their intent is. Because most of these small companies, even if they’re financed fairly well at the early stage, should be focusing almost all of their money on the core. They should be hiring people for their core, and then they can rent out the rest. And there is so many.

Ryan Rieches: Absolutely. So our experience is that once we’ve done the research, the strategy, the positioning, it really allows and gives the gift of focus, so you can avoid all the other distractions, and the shiny objects, and all the things that would pull you, and your energy, and your money, your time away from the core value proposition. If you can stay focused on that it, it just adds so many gifts of time, and probably a lot of direction for the lean amount of resources that they have.

Dave Berkus: You just said it perfectly.

Ryan Rieches: Okay, good. On that thought, I did mention research. I know there’s a number of different schools of thought around this, whether you just go to market, and then your research is actually the marketplace’s reaction to your value proposition, or you do a certain amount of research in advance to understand what the market’s looking for. And I know the answer is, “It depends.” But what is your thought about doing some level of audience research to validate the business model and try and guide some of the messaging?

Dave Berkus: I don’t know if you’ve ever heard of the Berkus Method of Valuation, but it’s been used by over a million entrepreneurs since 1996 when I developed it. It was kind of blessed and became famous when Howard Stevenson of Harvard published a book called Winning Angels way back before the term angel was really well known. And he used something I had been using for two years and elevated it in the book into something very important. And from that point on, you’ll find over 300,000 references to it now if you Google Berkus Method. And what I’ve done is to take the simplest possible way of evaluating a company. And the reason that I bring all this up is because one of those is the core idea, and what’s it worth. And the second one is, have you a strategic partner or some way of validating what you’ve done? That could be from wire frames, it can be from initial drawings, it can be from just proposing the idea to somebody who would be willing to buy if the idea turns into a reality. And that’s a worth about a quarter of the value of a company, if they’ve taken the time to do that.

Ryan Rieches: Wow. So you can tie it, definitely, back to financial evaluation.

Dave Berkus: And that’s what I’m trying to say. And there are two others. One is the quality of the management team that would get the company to profitability, which is a proxy for success, or at least a proxy for stability, and that’s an important one, too. The final one is technology. Have they actually developed the product, or are they just dreaming? Dreaming it sometimes means they’ll tell you they can do it in six months when it takes three years, and they run out of money again and again. So there are four basic elements of early, pre-revenue valuation that can get a company to a value of two and a half to four million dollars, depending on if they get all of them right.

Ryan Rieches: Dave, before we move on, how would our listeners find this Berkus Method?

Dave Berkus: Just a Google it, and you’ll find it anywhere. We’re actually turning it into something new. That won’t be out for another month. But I gave a keynote on the Berkus Method in Orange County about two weeks ago. And there were 200 people in the room. And I asked how many would be interested in paying for a certification where I actually did the a certification and the valuation, and 10% of them raised their hand. And that was enough for me, so we’re building a website for them to upload information. And there’s a medallion that goes with the final evaluation. And I will do the valuation for these people to kind of help the investor candidates to understand how the value was derived. And I just gave you the four elements.

Ryan Rieches: Well, I think I already know the answer to my question here then. But in terms of this research and this validation, it seems to be pretty valuable to potential investors, right? It builds confidence and assurance.

Dave Berkus: That’s true. And the one thing that is difficult for me to find independently is the total available market. A minute ago, I talked about TAM SAM SOM. And if you’re familiar with the three terms, total available market, we all know.

Ryan Rieches: Sure.

Dave Berkus: And usually the entrepreneur will invent a number, or have found a number through research, but then what is serviceable? In other words, what portion of that market does their product actually cover? And then the most important one is obtainable. With the resources they have, how much of that market can they really obtain? And that’s something they really can’t figure out.

Dave Berkus: What I often get is what I will call the Chinese glove syndrome. If there are 1.4 billion people in China, and each has two hands, then I can sell 2.8 billion gloves. All I need to sell is just 1% of that, and I’ll be rich. It doesn’t say anything. It doesn’t tell me anything about market research, nor does it tell me anything about their ability to get 1%.

Ryan Rieches: Very good point. Well, you mentioned earlier topics around purpose, vision, mission, values, and those type of things. We help our clients develop … These are what we call guiding statements and, once again, primarily working with existing companies with a workforce from 50 to 5,000 to 20,000 people. They become very important to really align and inspire these internal teams. But we’ve also developed these statements to provide clarity, an additional layer of clarity around the organization, where it’s going, how it’s going to get there, what it stands for, why it exists. And we found that some of the investors also appreciate that clarity of direction. What is your thought?

Dave Berkus: Absolutely. Sometimes, as I said, you have a technologist that gets deep into the technology without realizing that the investor has already lost it. We need to know in the first minute what it is that’s important about the offering, or we kind of tune out. We give the entrepreneur, once they’ve gotten through the initial submission and our interest, 15 minutes at the most, sometimes only 12, to tell us the entire story. And the rest of it is our grilling them after that time. And if they can’t mold their story into that short a period of time, then they really haven’t thought out, not only their value proposition, but the process.

Ryan Rieches: Right. I think Ted Talk was modeled after this example, right? You have to be able to develop this compelling presentation in what, 12 minutes or less?

Dave Berkus: It’s 18 minutes, and it is, I don’t know, frightening. The one I gave, it went to 17 minutes and I think it was 40 seconds. So, yeah, you rehearse, and you rehearse. And when you stand in front of everybody, you end up not using your rehearsed script, but rather just talking to the subject. It’s a lot of fun, but it is frightening.

Ryan Rieches: Well, I watched that Ted Talk, and you had a commanding presentation. So, well done. So, speaking of that, you’ve heard probably more pitches than anyone ever.

Dave Berkus: I don’t know if that’s true, but there are a lot. But usually means it’s a bigger firm. I’m a one person firm. Although I do manage a fund with five partners, the pitches come to me first. So, yeah, you’re right. It is something to filter very quickly, yes or no.

Ryan Rieches: Do you have an example of one of the best you’ve ever heard? Or our listeners love stories.

Dave Berkus: Oh, I have many examples, far too many for the program. My favorite one has to go back 19 years. Do you allow me to do that?

Ryan Rieches: Sure.

Dave Berkus: Okay. So it was in the year late 1999, right before the crash of 2000. Steve Streit, who was a radio disc jockey, came to the Tech Coast Angels and made a presentation about how he wanted to create a way in which people could pay for internet items without having to have a credit card, because kids don’t have credit cards. That was the concept. And it was developed because he and two friends had been talking to the head of interactive for Disney. This goes back way back when. And so I invested the largest amount, other than his next door neighbor, a woman who loaned them 300,000 bucks, in the idea, knowing that there was going to be a pivot. But that wasn’t enough. There was no way that just having some way for kids to pay for trinkets within applications on the internet. And it turned out that very shortly thereafter, Steve pivoted and renamed the company. And it turned into what was the first debit card. And you’ll recognize the name Green Dot because it’s at every store in the world, it seems. It’s in 75,000 stores in this country alone. And Green Dot is the inventor of the debit card. It is the largest debit card company. And the pivot was to be able to serve the under served who couldn’t have bank accounts and sometimes no checking account.

Dave Berkus: And so, with those types of changes, that company has become monstrous. And you know that they had a public offering 11 years ago, 10 years ago, and I was the largest seller in that public offering at three and a half percent of the entire offering. There is the ideal pivot. He recognized his market was too thin. He pivoted toward an idea that created an infinitely large market, and is executing and has been executing. He is still the CEO. One of my favorite stories.

Ryan Rieches: Well, I can see why you like it so much. Great financial gain on that one. That’s wonderful.

Dave Berkus: Mm-hmm (affirmative).

Ryan Rieches: We have time for another story. Do you have another example of a great pitch and how they went forward?

Dave Berkus: Yeah. This is an interesting one. It goes back quite a bit of time too, but it’s another Orange County company as well. The pitch was, “We design web systems,” or web applications. And that wasn’t interesting to me. But at the end of the day, the eight of us who are in this company stop and play internet games. We have a million people playing using the software that we’ve licensed. And that was interesting to me. And so, I was able to be the first investor in that company, change its name and its focus to just this million users. By the time we did that, we were up to 4 million users. And we increased the value of that company to a point where we were worth half a billion dollars within 14 months, and then came the crash. And we ended up taking four or five more years to sell the company at a lesser amount, but a great, great profit. And it all came because the pitch was innocent, disorganized, but really powerful as far as the way in which he’s proven this product.

Ryan Rieches: So is it the founder, the CEO that you buy into, or his management team, or the technology? Give me an understanding of what you’re looking for there.

Dave Berkus: Okay. So, in the Berkus Method, the management team is another 25% of value. And we mentioned that. They can get you to profitability, which is a proxy for stability. So I look for the jockey, not the horse. And this has become for us early stage investors so trite that I almost am afraid to say it. But it means that we’re looking for the management team or the entrepreneur to be able to shine with his passion and ability to execute, far above everything else, again, because everybody’s different.

Ryan Rieches: Well, no matter what size of company, we have, I think a pretty similar belief that the brand needs to be owned by the CEO, not the marketing department. The brand is, simple terms, the entire corporation/organization’s reputation, and that needs to be protected very carefully and communicated very clearly. And marketing and sales can make a brand promise, but the rest of the organization needs to keep it, and the CEO is the one that needs to be the evangelist communicating it very clearly. So, it sounds like you agree?

Dave Berkus: Oh, very much. And remember, I’m dealing with early stage businesses entirely, so many of them have no brand. They’re usually attempting to emulate somebody else’s brand. That’s not necessarily the right way to do this. And they’ve never tested their brand, which makes it even more difficult. So, some of the names of these companies and these brands would embarrass me to tell you about. At the same time, I know that again there will be changes along the way, name changes for companies, name changes for brands. And then you heard it in my first story about Steve Streit, name changes for product.

Ryan Rieches: Right. When we do our branding, we try to tell our clients that consistency and continuity equal clarity. First, let’s get that very concise story prepared, and then tell it consistently and continually. So, let’s just chat just a bit about storytelling because people relate more to the emotional connection of a brand actually than the rational side. So, what are your thoughts around developing that very, very clear and concise brand story?

Dave Berkus: Well, first of all, I tell everybody if they don’t have any kinds of testimonials, whether it is from people who say, “I will use it, when you complete it,” down to saying people have used your product, and it’s the best thing I’ve ever seen. There has to be some sort of testimonial to prove that somebody from the outside has validated the brand. Without that, then it’s just talk. So, I do coach them to find somebody. And remember the idea of having some kind of a strategic customer, or supplier, or somebody is one of the elements of the value.

Dave Berkus: So, I like to talk to them about going viral, but that doesn’t come in the first conversation. It comes if I’m interested enough to be able to help coach as well as invest. And going viral to me ends in the pivot, but starts in the planning, whatever they have decided to plan. It goes into, how many channels do you plan to distribute through? Because if you’re going to create a website and expect the world to come to it, I’m not interested in investing in you because there’s nobody that has enough money to do just that, to cut through the noise and bring people to a single website to market. So, we need multiple channels, and they’ve got to figure out a way of distributing their product, service or app through multiple channels, many. I have one company that has 150 different channels.

Ryan Rieches: Wow.

Dave Berkus: And third, is the cost tested. Can somebody tell me that people will pay the amount that you plan to charge, however you’re doing it? And there are so many ways of charging for a product that brand is very much dependent upon the price, the way in which people look at the brand, whether it’s going to be a luxury brand, or a low cost brand, or a brand that demands people thinking that it is high cost, therefore it must be high value, and on and on. And then I want them to measure, and then I want the reaction to that measurement so that I can begin to see the data that comes from it. And finally, obviously from our conversation a minute ago, what will you do as a result of what you found? And the answer is always a pivot.

Ryan Rieches: And it sounds like, especially with early stage, you have to pivot early and possibly often, just to react to the market conditions. And that’s I guess the beauty of the world we’re in today. With technology and the digital transformation, you’re able to get the answers and these insights to the reaction to the value proposition very quickly, and be able to adjust accordingly.

Dave Berkus: Exactly.

Ryan Rieches: So, are there any other technologies, or digital tools, or distribution thoughts that you find to be real effective, or is it just always case by case?

Dave Berkus: It is case by case, but it’s so easy today to be able to divide a mailing list, if that’s how you’re going to start, into small elements and make different offering propositions to each, just like you would if you were a big company. But most of these small entrepreneurs have never done this before and don’t know how to. So, again, it is after I have fallen in love with the company and the entrepreneur that I have to begin to teach these kinds of things that you already know and the larger companies have already internalized.

Ryan Rieches: Well, Dave, we’ve spoken about research, the opportunity and ability to reach the target audience and get their reaction initially and on an ongoing basis, the ability to develop a clear and concise story, the importance of developing a branded value proposition, guiding statements. You mentioned some naming examples, and we do naming for many clients. As you know, it’s very difficult to find legally available names today. And when we create them, they’re usually fairly obscure because those the ones that are legally available. And then we have to develop a visual identity to reflect the value proposition. I know this all comes later, after the things I mentioned earlier, but just what are your thoughts on developing them, the verbal and visual branding elements.

Dave Berkus: First of all, I’m sold on what you just said. So, I’ll repeat it, and say that that is something that I would love to internalize and have each of these entrepreneurs internalize.

Dave Berkus: They often will come with a brand that they’ve invented that is some kind of a combination of terms that are technical, so you find names that just don’t seem to fall off your tongue, but they’re names that they think have high value because they were derived through some form of analysis of their product. So, I’m not sure I want to talk much more about naming propositions because that is one of the sore points that I often come across, companies that have … either names of the company or, more likely, the brand, that just aren’t going to be remembered by those who are your target audience.

Ryan Rieches: Right. Well, I guess just one piece of advice for the listeners, and you mentioned it. If you come up with a technical name, often as your company pivots and evolves, that name becomes no longer relevant. So, that’s actually when we’re brought in quite often is to change names that have outgrown themselves. The company’s changed, and the name is holding it back. So, that is one piece of advice we give our listeners. That sounds like both of us agree that the technical names are not effective. You’re better off with a more of an evocative name that you can give meaning to and evolve and grow with. And that becomes much more effective.

Dave Berkus: Let me expand that to say that I kind of teach them that everything changes from concept to release. And if they’re not really ready to know that, internalize that, and make those changes as they discover things, then it is not somebody I want to associate with or invest in. And if that’s true, I want them to find somebody who is willing to be their teacher customer, the customer that feeds back to them what the customer needs, where they’re in a listening mode. The entrepreneur’s in a listening mode, and that the customer begins to help to develop the product by association because they’re so interested in what might be the result that they’re willing to spend the time. And in branding and marketing, often that is where the real truth comes out. The customer says, “I understand what you’re trying to do, but I don’t understand the way in which you’re trying to tell me about it.”

Ryan Rieches: Very well said. Well, Dave, we’re almost out of time. You’ve been a great guest. I really appreciate the insights. Any final thoughts or insights that you can share with our listeners?

Dave Berkus: I guess in the case of branding, I have to go into marketing. And the three biggest questions that, again, I’ve taught because I think they’re the most important are: Why buy it? Why buy mine? Why buy now? And if the sales and marketing department can figure out the answers to that in a single sentence or two, they have a much higher opportunity to close the sale. And that ties in branding with marketing with sales.

Ryan Rieches: Perfect. Great advice. Well, Dave, thank you for being a guest today. I really appreciate it. And if listeners wanted to reach you, how would they go about reaching you?

Dave Berkus: Well, if they go to, B-E-R-K-U, S like Sam, dot com, they’ll find several things. There’s lots of contents there as well, including videos. And they can also subscribe to my weekly newsletter, which gives one of these ideas we’ve talked about each week … Gee, there’s 600 of them on there already. But every Tuesday morning at 8:30, a new one comes into their mailbox. And so that’s where, gee, 200,000 people a week get that. So, it’s a powerful way to distribute information.

Ryan Rieches: Well, I would agree, and I endorse that greatly. I follow it on a weekly basis.

Dave Berkus: Thank you.

Ryan Rieches: You’ve been on my list for some time, Dave, to get in touch with. I knew you’d have a great point of view, so I really appreciate you sharing today. Yeah.

Ryan Rieches: This concludes our show for today. This is Ryan Rieches, and you’ve been listening to another edition of Expert Opinion, a branding business forum where thought leaders share their point of view. If you’d like to listen to past shows or read our blog series, visit Until our next show, grow your business by living your brand promise.