Distilling Your Business Plan Into A VC Pitch
Last month at Workbar, Jeremy Halpern (@startupboston) joined us for our bi-weekly Lunch & Learn series with a presentation on thinking, planning, testing, and re-thinking the approach to business plans. Jeremy helps early stage entrepreneurs with early stage investment and gets the opportunity to work with business owners and entrepreneurs daily. In a given year, Jeremy looks at and reviews anywhere from 500 to 1500 business plans. He’s seen thousands of business plans turn into pitches and identifies exactly where, in that process, startups fall short and lose focus and where the most common mistakes are made. According to Jeremy, just like vodka, business plans are hard to consume in quantity, which is why a pitch is much like the distillation process. It should capture the essence of a business plan: how to solve a problem in the marketplace in a sustainable and scalable way.
Your business plan should answer these three questions:
1. Who has what problem? 2. What’s my solution to that problem? 3. Who can execute what, why and how?
When creating your pitch, what you’re really doing is turning your 50-page business plan and months and years of thinking into (ideally) 15 slides. Jeremy gave us his keys to success when creating a pitch, as well as tips on how to avoid falling into the same old traps:
1. The Problem
This is what investors are most interested in - it determines whether or not they should be giving you their money. Spend time researching the problem, understanding the problem, and being able to communicate why it's a problem. When you're pitching, you need to describe the problem, who has it and how big it is. (Inside the investor's mind: You build big businesses when you solve big problems) Is the problem related to quality/time/cost? If it’s related to quality, everyone says they ‘do it better’. You need more.
2. Market Research – Understanding the problem
Just because you think there's a big problem and you have the great idea solve, doesn't that's going to solve it, doesn't mean much. Hit the streets early on and talk to your potential customers – people you don’t know. Do they think it's a problem, are they describing situations where your service or product is needed? If you called your customer today, would they say it was a problem? Warning; There’s a good way and a bad way to ask questions. Instead of asking people what they think of your product, ask them questions about their lifestyle or work style (ex. how they work, the frequency, etc) to better understand if and how your product/service is needed. Here's a hint, if they don't have the problem you thought they had, you need to go back to the drawing board. Listen and learn to as many people as possible to figure out what metrics define your problem.
3. The Solution
Caution: Most people spend way too much time talking about the solution before they completely understand the problem.
4. Competitive Advantage
Your competitors are solving the same problem you are so simply being different or better is not enough. If your differentiating factor is not something your customers care about, it’s useless, for example, poop flavored ice cream – Yuck! Investors will consider how vulnerable your innovation is and how easy it is for others to come in and do the same thing. Consider defensibility in everything you do as you create your business - there are several opportunities to build a defense wall:
- First mover advantage
- Solid relationships (vendors, partners, advisors)
- Exclusive contracts (vendors, suppliers, customers)
- Quality of your team
Your pricing model should be directly related to your business model. The more advantages your product gives your customer, the more you can charge for it. Consider how much are you're charging your customers and when? Is value increasing or decreasing over time?
- If value is increasing, your customer will be willing to pay more later for it than they will up front (ex. software tools and freemium plans).
- If value is decreasing, your customer will pay the most up front (ex. refrigerator).
6. Sales and Distribution Strategy
How will you sell to your customers? Outline your strategy of Sales and Distribution.
Don’t use phrases like social, viral and guerilla... to an investor it means you don’t have a strategy and are using fluffy language to make it sound like you do. Figure out your marketing metrics and how you're going to measure the success of your strategy and communicate why these metrics make sense for your business.
NEVER quote industry metrics, they DON’T apply to you. Also, never use a company’s revenue numbers. They don't include expenses.
Here's a simple formula to calculate your numbers:
- How many people could you sell to, total, that exist? (Industry #)
- How many people are likely to buy from anyone?
- How many people can you reach using your sales and distribution model? (This is the number to base your estimates on)
9. Go-to-Market Plan
Your sales and distribution strategy and marketing plan should work together. Assuming they do, what’s it going to cost to build, market and hire? What's it going to cost to make one sale? Crunch your numbers and boil them down to one unit.
10. Your Team
What skills does each team member have and what have they each contributed? Ideally you want to build a team with complimentary skill sets, a team who can tackle a range of problems as they arise. Advisers and mentors are also very valuable and important, however, never name people you've only talked to once... it can be a very small world. At the end of the day, Investors invest in “A” teams because they take “B” ideas and make then successful. Are you an A team?
- 10 Questions Venture Capitalists and Angel Investors Are Going To Ask
- Know what you don’t know and have a plan! ”We do not know _____ but this is how we plan on learning how …”
Want to learn more? Jeremy will be back at Workbar for another Lunch & Learn on Friday Aug 24th starting at 1PM to discuss how to identify addressable markets. If you’re an entrepreneur or startup team and would like to join the conversation, sign up to join us.
For the full list of the Lunch & Learn programs and other events happening at Workbar, check out: Workbar Events.
Jeremy Halpern is a partner in the Business Department and the Director of Business Development for the Emerging Companies Group. Jeremy’s practice focuses on private equity, venture capital, and angel financing transactions, mergers and acquisitions, equity and entrepreneurial compensation matters, and general start-up support. Jeremy spends a large portion of his time connecting with and supporting the entrepreneurial ecosystem in New England. Concurrently, Jeremy serves as the Vice-Chairman of The Capital Network, a Boston-based non-profit that provides education to entrepreneurs seeking early stage capital, and as an Adjunct Professor of Entrepreneurial Leadership at Tufts University. He is currently a Connector in the Boston World Partnership and is the co-founder of BostonIDEA, an organization promoting the entrepreneurial community in Boston’s Innovation District.
Previously, Jeremy was the Managing Director of Evolution Advisors LLC, a Boston based strategic transaction advisory firm, and the Co-Founder and Executive Vice President of Business Development for MobileTek Corporation, a developer of PC based applications enabling smarter mobility for consumer mobile devices. Prior to that, he practiced corporate law with Goodwin Procter LLP and Bingham McCutchen LLP in Boston, and with Irell & Manella LLP in Los Angeles.
Jeremy participates with or is a member of MIT’s Venture Mentoring Service, MassTLC, MDG, E-NET, ACG, REBN-East, MITX, Web Innovators Group and MobileMondays.
About the Author: Evona Niewiadomska is the Events and Digital Media Manager at Workbar. As of January 2013 she is an independent Digital Media & Design Creative with a specialty for infographic design and social media strategy. Check out her website, evonawiktoria.com or contact her via email firstname.lastname@example.org or twitter @evonawiktoria.