Monthly Archives: November 2016

Winning business plan pitch

After a business plan has been written, the next stage often involves pitching the plan to prospective investors. This very fact means that the plan authors and management team should be one and the same and that ‘outsourcing’ the business plan writing process should not be considered. It is not just the content of the business plan that is being scrutinized. The capabilities of the management team are also on show and hence their ability to deliver a presentation in a clear, concise and convincing manner are vital to the overall objective – that of convincing an investor to invest in the business. These prospective investors are not investing in a physical document but in an idea and in those proposing to deliver the idea. The following is a list of tips to maximise your chances of success when pitching to investors.

1. Know your audience

All presenters are taught about the importance of knowing their audience and engaging with them on a personal level where possible. The Internet has enabled us to research more effectively than we were able to in previous years, so it is important to use this resource to our advantage. Investors have a range of asset classes to choose from as they decide on the composition of their investment portfolio. Hence it is necessary to understand the backgrounds of the prospective investors and their motivations prior to presenting. Once you have done extensive research on the investors it is then possible to tailor the pitch accordingly.

2. Tell a story

One of the most effective ways to pitch is to place the investment opportunity in the context of a story. Ideally, the story will focus on a problem encountered and the fact that the new idea being pitched solves this particular problem. If the investors can relate to the problem, they are more likely to invest in your business. After that they will be assessing how many people are affected by ‘the problem’ and whether the proposed idea satisfactorily resolves the problem. Finally, if they believe that the idea can solve the problem profitably and it is defensible (via patents, trade marks, etc.) it is likely they will be interested in investing.

3. Prepare to win

Pitching to an investor is not a last-minute afterthought – it is the culmination of weeks, if not months, of planning. All too often, entrepreneurs do not plan accordingly and then find that the preparation of their business pitch suffers. Preparation for the pitch should commence as soon as the business plan process commences. For many investors, the executive summary of the business plan is what opens the door for a presentation, and the full business plan may only be read after a successful presentation has been delivered.

4. Pay strict attention to the detail

Your typical investor will have a good eye for detail and hence the plan and its pitch need to be mutually reinforcing and containing no inherent contradictions. From the outset, there should be one owner of the process who can oversee all preparations and is ultimately responsible for the content. This is particularly important if a number of disparate contributors have worked on the plan and where the pitch consists of numerous participants.

5. Avoid death by PowerPoint®

While the average plan is produced in Microsoft® Word and Excel, PowerPoint tends to be the tool of choice for presentations. While it undoubtedly has advantages in terms of aesthetics, it can be misused when utilised at the pitch stage. The number of slides should be kept to the bare minimum, the content must be rigorously analysed to ensure relevance and clarity and time must be managed carefully. It is recommended each investor receives a slide deck, which contains more detail than the presentation itself (with Appendices used extensively). Finally, it is important to manage the subsequent Q&A process carefully as this is the stage where the investor gets to request information about details that they require to convince them that the proposal is indeed worthy of their investment.

6. Get the numbers right

Investors tend to be very focused on numbers, so all facts must be accurate. The numbers should be realistic and defensible and at least one of those pitching the plan needs to be prepared for in-depth questions relating to the projected financials. While it is easy to couch ‘the opportunity’ in technical terms, future growth projections, supporting demographic trends, etc., investors will focus on hard evidence. So if you have been trading, they’ll want to know turnover/sales figures, break-even points, gross and net margins (profits), and so on. These are indisputable facts and evidence that enable them to accurately assess the risk. If performance has been poor, the presenter will need to articulate clearly why this has been the case and also elaborate on why investment will solve the performance gap. If on the other hand you have not been trading, the risk increases considerably and there is likely to be a significant focus on supporting evidence to justify demand predictions. Remember that investors have options – it is a competition, so you need to sell your idea as the best option for their investment.

7. Practise the presentation

It is clear that many entrepreneurs have not practised their pitches before impartial observers prior to pitching. This dry run should be arranged well in advance of the presentation date with a panel of critics who have a carte blanche to critique the plan and pitch. One attractive alternative to this is to submit an entry to the growing number of business plan competitions. These contests afford entrants a low-cost opportunity to “stress test” their plans in a very realistic role play. Such competitions test a wide range of skills that are often neglected in the day-to-day tasks of entrepreneurs, who are focused on bringing their idea to fruition. By producing a credible business plan and presenting your case persuasively, you will significantly enhance your ability to secure funding.

8. Excite them

Entrepreneurs pitch to investors to sell them an idea. There must be something unique about the idea, and it must be pitched with conviction, so as to grab the attention of investors who deal with hundreds of business plans every month. This was summed up by former Dragons’ Den investor Simon Woodroffe in a BBC2 show, when he said,

“You gotta make me feel like I’m going to miss out”.

Why would the investor be better off investing in your business rather than leaving money in a bank account, shares or investing in another business? If you are seeking investment in your business, it is important to clearly describe the investment opportunity – and also to sell it.

9. Learn the lessons

Do not get too downhearted if a pitch is unsuccessful. The investors are likely to give clear reasons for their lack of interest, and this feedback must be considered carefully as it may shape improvements in subsequent pitches. The presenter should segment the various feedback points into groups – is the issue or concern with the idea, the equity share on offer, the management team, etc. Most entrepreneurs need to pitch to a number of investors before securing an investment. If you can line up a number of pitches, remember not to organise the most attractive investor up front as there are likely to be significant improvements in the pitch after it has undergone a number of presentations.

10. Remember the purpose of the pitch

Finally, while the emphasis may well be on an idea, it is important to remember that the pitch has a very specific purpose. This must not get lost in all the details. If the purpose is to secure funding, the presenter needs to ask questions after the presentation to ensure the audience has gained sufficient information with which to make a decision. If an offer is made, the presenter must have a full grasp on whether it meets his requirements, and options if not. So as to maintain credibility, the presenter needs to consider all the various eventualities before undertaking the pitch so that the pitch does not go flat at the end when the issues of substance need to be agreed.

The numbers you need to know for master class business

Those familiar with the BBC2 show Dragons’ Den will be all too aware of the following scene. The entrepreneur is tasked with presenting his business plan to a panel of investors (i.e., the Dragons). The business plan pitch is going well, and then one of the dragons asks the simplest of questions,
”What was your turnover last year?” The camera pans in, the participant stutters, eventually he declares that he is ”not sure” and before you know it, he is sent packing. Why do entrepreneurs consistently fail to appreciate how important it is to have financials in hand when pitching an idea? Why do they consistently present a business plan without even a rudimentary knowledge of basic financial concepts, such as turnover or margin? This article highlights some of the financials that any aspiring entrepreneur needs to know before submitting or pitching a business plan to a ‘dragon’ of any hue.

Firstly, let’s consider the context. Investors have a range of investment options available to them. While depositing cash in a bank is low risk, it is not the most exciting option and associated returns are likely to be low. Angel Investors or Venture Capitalists are looking for investment growth opportunities that offer the potential of a greater return; which naturally come with a commensurate increase in the risk. The level of risk is dependent on a number of things; the market risk (whether there is a market opportunity and the extent of it) but also risk relating to the decisions made by the agent (i.e. the entrepreneur).

With debt funding such as a loan, the investment is typically secured on some assets and the repayment schedule will guarantee monthly income streams to repay same. When it comes to equity financing, the risk dynamic increases considerably. Why? Because decision-making is in the hands of the entrepreneur, not the investor. An investor must endeavour to ensure that the incentives of the agent (the entrepreneur) are aligned with his or her own. This ensures that investment is not spent on non-income-generating investments or perks. This is commonly referred to as the ‘principal agent problem’ by economists.

Potential equity investors will also be keen to assess whether the entrepreneur will be a competent business manager. To address these concerns, the investor will be looking to not only understand the product and market opportunity, but also to understand the abilities of the management team tasked with delivering the opportunity. Hence, the entrepreneur needs to be confident, knowledgeable, and trustworthy but also au fait with the underlying financials for the business.

In assessing these risk factors, historic data will play a crucial role in the investors’ decision-making processes. Investors will be trying to assess the existing cash generation capability of the company and also the free cash flows that remain once all other obligations have been met. Hence, someone claiming to not know turnover or net profit figures from past trading probably has something significant to hide. If figures are low, that is fine, provided you can explain why some of the figures were not as you would have wished. If you have not begun trading, the risk profile increases dramatically and as a result you should expect an increase in the equity stakes required by interested investors. The three headline figures to be particularly cognizant of are Turnover/Revenue, Gross Profit and Net Profit. The figures for these provide an indication to the investor as to the level of demand for the good or service and also whether this demand can be met profitably. If you have been trading, you need to have a firm grasp on the P&L figures and also a good explanation for the underlying performance to date.

Lessons for Entrepreneurs

I recently watched Al Gore’s documentary, An Inconvenient Truth, and found it compelling viewing. It is an excellent production and helped shine a powerful spotlight on climate change, the challenges we face and some steps we can take to reduce the effects we are causing[1]. It painted a very bleak picture for the future of the earth unless we all act to modify our behaviour immediately.

The documentary is produced in the form of a pitch and consists of a mix of PowerPoint-type visuals with Mr. Gore presenting (interspersed with video footage).

Aside from the powerful messages it successfully conveys, it also struck me that there were a number of very strong lessons in it for those of us interested in the field of business planning and specifically, the pitching of business plans.

Unlike most business plan pitches, the purpose of his presentation was not to secure investment. However, like those pitching business plans, Mr. Gore did seek to persuade, to gain mind share and to influence behaviour. In my view, in these he clearly succeeded. I left the film convinced of his assessment and keener to play my part in helping to reduce CO2 emissions.

Another difference between the documentary and pitching a business plan is, of course, the one-sided nature of film as a medium. In a pitch scenario, the observers have a role to play in challenging assumptions, interrogating data and scrutinising every single claim. They then make a decision based on what they’ve heard. Watching a film is a passive experience where the right of reply in real time does not exist. Not surprisingly, a number of commentators and critics have claimed some bias and scientific inaccuracies (which have then resulted in counterarguments)[2]. That limitation aside, it is a great documentary which contains some powerful lessons for entrepreneurs that I believe are worth pointing out.

As mentioned, Mr. Gore’s choice of medium to deliver his message was one that many of us are familiar with – a presentation. In this he excelled and the following represent some of the main techniques that I felt really supported his strong delivery:

  • Very clear structure
  • Strong focus on factual data to support arguments
  • Lack of bland slides such as bullet-point lists
  • Powerful use of graphs/ visuals
  • Passion and conviction with the subject matter
  • Effective use of props, i.e. his use of a lift to demonstrate scale.

In short, Mr. Gore has succeeded in producing a documentary that presents a very persuasive argument that is likely to galvanise people. In fact, in the UK, it has been made required viewing in schools (a copy was sent to every secondary school in England).[3] Alongside the powerful environmental message, he has produced a master class in articulating an argument and using graphs, props and images to support his argument convincingly. These are skills that every entrepreneur pitching for investment should learn. I suggest a viewing of An Inconvenient Truth before presenting any pitch would be valuable time spent!