PaytobeCool_Body.jpgby Erin McDermott.


Clark Lagemann has been out on the venture capital circuit with his startup. At one recent session before a panel of investors in New York City, he watched a series of other entrepreneurs in their “raise” stages get shot down one after another, like off-key American Idol contestants.


The pitches were laden with buzzy business terms like “disruption” and “hyper-growth” and came from companies with all sorts of funny brand names and quirky features that were aimed at “wowing” the moneymen.


“Maybe 10 years ago it was all about the coolness, but now it’s all about your team, if they can execute, and the market opportunity,” says Lagemann, vice president of Health Options Worldwide, a four-person, Princeton, N.J., firm that offers technologies to reduce healthcare spending for employers while improving health outcomes for their workers. At one meeting, he recalls a VC official telling the entire gathering: “Everyone is cool. Everyone is disruptive. Everyone does something innovative. Stop talking like that and tell us what you do.”


Some investors are going back to basics

“With their first question, they cut through all the jargon and the pizzazz and got to the root of the issue,” says Lagemann: ‘What’s compelling and unique? What’s your advantage? Where are the financials, and how am I going to make money on the deal?’ ”


Admittedly, over the last few months, there have been some high-profile examples of investors who are unable to resist the siren song of the cool, even if the company’s services or products have somewhat questionable long-term value. Witness the troubled yet still lucrative Facebook IPO or the crowdfunding stampede that threw $10 million at the struggling Pebble “smart watch” on Kickstarter. Nevertheless, many entrepreneurs say solid financials and thoughtful business plans are front and center once again, particularly with rising worries about another tech contraction in the V.C. industry, and U.S. economic growth on shaky ground.


So is the concept of “cool” overrated when it comes to small businesses and their investors?  “In the era of the Facebook IPO, ‘cool’ is easy to confuse with good business,” says Rob Maurin, vice president of brand engagement for Toronto-based Wave Accounting, which makes free online accounting software geared toward small businesses. The firm recently secured $12 million in a Series B funding round after its initial launch in November 2010.


Granted, Maurin chuckles as he admits that the field of accounting software doesn’t exactly hold crowds rapt at cocktail parties. But to VCs, he says there was nothing boring about identifying an underserved niche and monetizing that market. “What’s sexy for an investor isn’t necessarily sexy for the public—and that’s OK,” he says.  “For the best investors, ‘cool’ won’t be in the conversation.”


Yet the acceptability of the “cool” factor also depends on the sector. Staid businesses like insurance and accounting haven’t ever been exactly known for their “wow” factor, no matter the wider health of the economy. So for some startups—like, say that smartphone that’s built into a wristwatch—the ability to capture the imagination of investors with something startling is an imperative. So what may be a no-no for newbies who see an edge in actuarial manipulations is standard practice for those in the creative fields.


When cool works

Steve Jones says it’s all about perception. The music-industry insider and author of Brand Like a Rock Star: Lessons From Rock ‘n’ Roll to Make Your Business Rich and Famous, says being “cool” matters a great deal for small businesses. His book examines the business strategies used by successful musicians like U2, the Beatles, and Jimmy Buffett. “Everything is about perception and storytelling,” he concludes. “A business that can tell a great story has a huge advantage when it comes to investor confidence, as well as customer confidence.”

Jones says even harsh questions from VCs are an opportunity to deliver the “wow” factor, as illustrated not only on American Idol but on the entrepreneurial competition program, Shark Tank. “Even though they’re concerned with how much you’ve sold last year and your margins and how much they can make, I do see a lot of success with people who don’t make a lot of money but really have a cool story, or they exude a really cool vibe,” Jones says. “And that’s what brings people in. Any business can have sales figures. It takes a certain kind of coolness to be unique enough to have a cool backstory or a spirit or attitude that makes people want to be part of that movement.”

Jones says many businesspeople aren’t able to discern which is better: getting noticed or being great at what you do. The bottom line: Everyone has a different perception of what’s better. When something or someone new comes along that’s seemingly unique, like Lady Gaga for instance, people are wowed because they sense they’re seeing something for the first time. “Only after you have the attention of the customer, or the venture capitalist, or a banker, is it possible to prove to them that you’re worthy of their attention,” he says.

And that’s why some see “cool” as being as important as a sound business model.

“From a logical sense, cool doesn’t matter. But nobody makes these key decisions based on logic—everyone makes it on emotion,” says Peter Geisheker, a marketing strategist and Internet marketer based in Green Bay, Wisconsin. “If you tell them something that is exciting and cool, trust me they will bite.” He goes on: “I’m a marketing guy, so when I find really cool online tools for marketing, I’m like yeah! But explain that to someone who’s not in marketing and then zzzzzzz—they’re gone. Being cool is totally dependent on your industry or niche market."

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