Babar's Projects

Came across a good blog post about doing 6-minute elevator pitch. Here’s a brief version of the post, as a reference for any one who makes a pitch. As the post says, This is important. Get it right and life will be much easier. Get it wrong…and you will get a NO in 5 minutes or less.

The Problem – Start with the problem you are solving or the need you are filling. A real life story or scenario about the problem helps the investor understand the problem or need in personal terms, and agree that it is an interesting problem that needs fixing. Dave McClure says too many entrepreneurs start by talking about their solution and whiz bang technology. How they do it versus the problem they solve. If the investor is not interested in the problem…there is no way they will be interested in your solution. Once they are nodding their head about the problem, move on to the solution.

The Solution – Explain why your solution solves the problem, and why it is better than other solutions. We do X for Y, or we are the X (well known product) for the Y market. Again, not how it works…but why it works. It might be cheaper, faster, smaller, easier, more enjoyable, or whatever. Don’t waste time explaining the technology, or flowcharting the process or value chain. Just explain why your solution solves the problem better than anything else.

The Competition – If there is no competition there probably isn’t a market. Competitors help the investor understand the problem, existing solutions, and potential size of the market. Even if you think you are inventing a new market, the problem has been there a long time, and people have figured out ways to solve it. Acknowledge that there are existing ways to partially solve the problem, and companies that have part of the solution, and why yours is better. Investors will be very nervous if there is no competition.

The Business Model – Who will pay? Is your solution a vitamin or a painkiller? Vitamins are nice to have, painkillers are a must have. There are some problems that no one will pay to solve. There are other problems where the one getting the benefit is not the party that pays the money. Sometimes there are multiple players in a value chain. Be very clear about where you are in the value chain, who will pay for your solution, and how much they will pay.

The Team – What experience do you and your team have starting companies or specific experience in this market segment? Are there any well known advisors or financial backers helping you? Do you have connections to people who can help you get your first customers?

The Close – We are solving a big problem, in a growing market, with a model that works, and a team that can execute. We need X dollars to reach Y milestone. We need investor partners to help us achieve this success. Show passion and confidence. Ask them to join the crusade. This is going to be The Next Big Thing.

And here’s Don’s advice on time management.

Spend one minute on the problem, three minutes on the solution and demo, and 30 seconds each on the competition, model, team, and close. That is 6 minutes. Practice it 20 or 30 times. Every founder and early employee should be able to do the elevator pitch. Practice in front of friends, then practice in front of strangers that know nothing about your idea. Quiz them after to see if you message got through. Every potential new hire needs to buy into the story just like investors do. In many cases customers need to buy into the story too.

I came across a few good sources which provide tips for preparing business plans and thought that these might be useful. Are you ready to forget about everything you heard about writing business plans?

According to the book How To Write A Great Business Plan (William A. Sahlman, Harvard Business Review), there are only 4 important things to include in a business plan. Yes you can ignore the financial projections for the next 5 years.

The People. The men and women starting and running the venture, as well as the outside parties providing key services or important resources for it, such as its lawyers, accountants, and suppliers.

The Opportunity. A profile of the business itself—what it will sell and to whom, whether the business can grow and how fast, what its economics are, who and what stand in the way of success.

The Context. The big picture—the regulatory environment, interest rates, demographic trends, inflation, and the like— basically, factors that inevitably change but cannot be controlled by the entrepreneur.

Risk and Reward. An assessment of everything that can go wrong and right, and a discussion of how the entrepreneurial team can respond.

Another set of advice comes from John Mullins whose article about business plans appeared recently in Wall Street Journal. His piece emphasizes the things that you should NOT do when preparing a business plan. He writes:

I set out to understand why most business plans don’t deliver. Drawing on the hundreds of plans and pitches that I’ve seen over many years of working with entrepreneurs and early-stage ventures, I searched for common patterns in plans that gained no traction. The result? Five oh-so-common varieties of plans that go quickly into the trash without further consideration.

To help budding entrepreneurs avoid these traps, I also identified the three key elements that go into a successful business plan: a logical statement of a problem and its solution; a battery of cold, hard evidence; and candor about the risks, gaps and other assumptions that might be proved wrong.

HERE I AM, NEVER MIND THE PROBLEM
In this kind of plan, the writer is smitten with the elegance of his or her technology. The plan begins not with the identification of a customer problem to resolve, but with a detailed explanation of how the technology works, why it is cutting-edge or state-of-the-art, and how it is better, faster and cheaper than current solutions.

A COKE FOR EVERY KID IN CHINA
This gambit rests its case on a plethora of secondary data to show how large and fast-growing a market is. The plan then makes a heroic leap and assumes that the new venture will grab X percent of that market—it could be 1%, 10%, 30% or whatever.

JUST LOOK AT OUR (PAPER) PROFITS
Savvy investors ask fundamental questions. Do its profit margins depend on high gross margins to cover high product-development costs (think Microsoft), or lower margins to cover slimmer operating costs (Costco)? Is a large investment in development or other fixed assets required (a manufacturing facility, for example)? Is the working capital cycle favorable or unfavorable (do you expect to be paid in advance), or will you have to carry inventory and receivables that can tie up scarce cash (manufacturing and distribution businesses)?

OUR TEAM WALKS ON WATER
A business plan that identifies its critical success factors and shows how the team’s expertise and experience are suited to addressing them is much more likely to attract capital—or at least a second look.

EVERYTHING IS WONDERFUL
Investors know that in the real world most opportunities, even good ones, have some weaknesses. Typically, it’s not yet clear in an early-stage business whether the customers will buy, or buy at the price that’s been proposed.

Rather than attempt to paper over the rough spots and uncertainty, identify them yourself and deal with them candidly in your plan. A solid dose of candor will go a long way, compared with describing risks and then stating why they won’t occur.