It is not possible to build a business without a plan. An early-stage plan often exists only in the mind of the entrepreneur, and it changes as you experiment and learn. The business does not need the plan as much as it needs the planning.
In preparing for battle I have always found that plans are useless, but planning is indispensable. — Dwight Eisenhower
To get outside investment for a startup company, the plan must be documented and communicated to investors. That’s why entrepreneurs produce investor decks or pitch decks – slide decks that present the essence of the business plan.
Many investor decks suck
Most of the time and for a variety of reasons, the investor decks are not very good:
- Successful entrepreneurs excel in building businesses and serving customers, not in writing business plans. Investor decks end up with too much detail, too many irrelevant or naïve market claims, and slides that lack a consistent thought.
- Entrepreneurs often try to make their investor decks look like perfect execution plans with detailed projections and no unknowns. In reality every business changes over time, and every entrepreneur has unanswered questions. Trying to portray complete knowledge is a mistake.
- Many entrepreneurs produce innovation-centric investor decks. However, real success comes from understanding the customer and applying the innovation to a real customer problem. A useful investor deck will present the business from the customer’s point of view, not the innovator’s.
- Entrepreneurs often believe that the investor deck is THE BUSINESS PLAN. It is not. The deck is just one view into the plan. The plan must be present in everything that the entrepreneur is doing and saying. The investor deck is written not only as a presentation to investors but also to ensure that you fully understand your own business.
Even a great investor deck is just a bleak shadow of the business that is being built. More impressive are concrete proof points in the form of code, prototypes, mockups and other practical experimentations with the product. Much more impressive is real customer experience and feedback, whether positive or negative.
Vital ingredients of an investor deck
Whatever form the business plan takes, here are the key things you must understand deeply and present in your investor presentation:
- The problem your company is solving. The customer has a job that needs to get done. How does your company do that for the customer? Do you make it easier, faster, cheaper, or better? Or are you perhaps introducing a true innovation for the customer – a solution to a problem that the customers do not know they are having? How dire is the customer problem, and as a result, how valuable is your solution? Nice-to-haves (think vitamin pills) are more difficult to sell than must-haves (think painkillers).
- Your target customers, described in great detail. Not just the type of customers, but their specific characteristics. Are you selling to pioneers or conservative customers? Big companies or small? Wealthy or poor? Using a particular technology today? Having a particular problem with their own customers? Within the customer organization, what job functions will make the decision to buy from you? If you don’t know exactly whom you are selling to, you will not be closing deals.
- The customer relationship lifecycle. How do you create awareness for your value proposition? How do customers find out about your offering? How do they evaluate it? How do they purchase it? What is the typical deal size, and will it grow over time? How long will they keep using it? How will you serve them while they use it? How do you build a sustainable business?
- The market and the competition. How large is the market that you can address? How fast can you grow? How does the market in which you operate behave? Who are the competitors? Many times, the main hindrance (i.e. competition) is “non-consumption” or a “do-it-yourself” culture. Why and how is your offering superior to the alternative that the customer is using today? What is the category to which your offering belongs? This has profound impact on where in the purchasing budget of a customer you belong. Can you become the leader of your category? Are you perhaps creating a new category (difficult but can be highly rewarding)?
- Market reaction. Any information about how the market is receiving your offering (even if in beta or in prototype stage) is vital for the company and its investors. Note that “market” means customers, not press or opinion leaders.
- Your unique abilities. What skills and assets does your company possess that will produce sustainable competitive advantage? Usually this is a mix of novel thinking, great company culture, specific industry or technology experience, some early prototypes or technologies, and perhaps a novel business model. There needs to be a unique design or architecture that only your team can produce.
- Facts about the company. Who are you, what did you do before, how do you operate, how large is the team, and what are you planning to do in the coming months and quarters? What questions are you trying to find answers to? How much money do you think you should raise now, and what can you achieve with the funding?
A business plan and an investor deck can contain much more information. The above are the main points that you must nail down if you intend to be successful in your chosen business.
These are also the topics that you will be debating repeatedly within the management team and with your board of directors. A business strategy is a living document that evolves as you learn more, and as the external conditions change. This is why it is so useful to get critical feedback and refusals from potential investors. For each refusal, you will go back to the drawing board and improve your plan.
A great plan does not just describe the product or company plan but builds a business case. This means that it shows that there is product demand, a competitive opportunity and the ability to grow explosively (and/or operate at good margins). Too many plans read like a checklist rather than a story that builds the business case.
There is more to it
A special challenge in building a business plan is finding the right balance between a broad market opportunity and a focused plan. The entrepreneur you are, you will have a tendency to believe that you can solve practically all problems for practically all customers. However, to grow rapidly and be successful, you must be laser focused. Make sure that your plan starts with a highly focused problem area and a clearly defined customer segment. Later on, when you start seeing success, you can broaden the scope of your business. Remember what a narrow focus some of the biggest companies (think Microsoft, Google, Facebook, Amazon) had when they started. Big things start small, and focus is the foundation of growth.
Even more important than focus is timing. Studies have shown that timing is a main contributor to success and a key reason for failure. Why now? Why was it not possible to build this business earlier, and are you sure that you shouldn’t wait a few more years before starting it? History has seen many great business ideas turn into failures because they were started a decade too early.
Once you have your business plan and investor deck ready, you may think that it will be easy to raise capital. It rarely is. Finding the right investor is hard work. Typically you have to talk to many VCs or angel investors before finding one that’s a good fit. The clearer your business vision is and the more concrete your plan is, the quicker you will be able to identify the most suitable investors.
As you do your VC presentation, use just 10 or so slides, finishing your presentation early to allow for questions and answers. The meeting should also finish early so that the VCs can do their own internal de-briefing immediately afterwards. Wasting an investor’s time is worse than wasting their money.
It’s about you
What is crucial to know about investors is that whatever attention they pay to the market opportunity, the technology and the company, there is one aspect that always makes or breaks the investment: the CEO and/or founder.
No matter how good your investor deck is, an investment happens only when the investor and the CEO or founder see eye to eye. The investor is placing a bet on the intelligence, ability to execute, and passion of the CEO and the team. There needs to be mutual respect and a willingness to work together. If that part is missing, not even the best investor deck will bring you funding.
On a highly personal level, you need to know why you are solving this particular problem. That’s an important question for entrepreneurs to ask themselves even if they never tell anyone.
Good luck in creating a compelling deck and raising funding!
P.S. As additional reading, here is an excellent blog posting by Bill Gurley och Benchmark Capital: In defense of the investor deck