The spectrum of describing your business

There are times when you will need to explain what your start-up does in full detail, and times when all you get to provide is what will fit on a bumper sticker.  So, here's my shot at the entire spectrum of forms that explain your business, from longest, to shortest:

1)  Full written business plan (some start-ups don't do this anymore)
2)  Business plan presentation (your presentation slide deck...sometimes a proxy for a written business plan)
3)  Executive summary (1-2 pages, typically the first section in your business plan)
4)  Elevator pitch (explain your business in 3-5 minutes)
5)  Mission statement (1-3 sentences that describe your company's purpose)
6)  Bumper Sticker (up to five words that describe what your company does)

So, as you move forward with your start-up, have each of these ready for whenever you need them.  Who knows, your next customer or next investor might be sharing an elevator ride with you tomorrow.

I have to write a business plan...where do I start?

Comprehensive advice on writing a business plan requires much more space than a typical blog post can provide, and there are those who even question the necessity of a true, 70-page business plan.  Today, many business plans just take the form of a slide deck (e.g., PowerPoint presentation).  But, how does one even get started?

First, identify the Problem you're trying to solve.  Don't provide your solution yet, but clearly state the problem, and the magnitude of it.

Next, provide the consequences of the Problem.  What is the current outcome of the Problem?  Again, make sure this is quantified.

Next, state your Solution.  Make sure your Solution is disruptive and revolutionary.  Just making something a little better isn't going to fly with investors.  They are looking for home runs, and you need disruptive solutions to hit home runs.

Next, state the consequences of your Solution.  And quantify this.

Once you've done the above steps, you have a great foundation for your business plan and executive summary.  Then you can go on to address the other essential topics in the business plan (market, management, competition, financials, etc.).

Angel investing is changing...does your company still look attractive?

A number of my fellow angel investors and I are finding that the "angel model" of investing just doesn't work in many cases.  We come in at an early stage, and if the company needs multiple rounds of VC investment, we are vulnerable to getting squashed...diluted to nothing, or at least watered down to the point that the return just isn't nearly what it should have been once subsequent investment "preferences," etc., are honored.  So, to make your company attractive, you either need to convince your angel-level investors that a) there really will be a significant step-up in valuation before the next round, b) there will be at most one more round of angel or VC investment after this one (this includes A-1, A-2, etc., rounds), and/or c) you really will reach profitability or cash flow break-even with the money you're raising.  Are you still an attractive angel investment?

Anti-wrinkle cream phenomenon...what?

Well, you've found that your product really doesn't work that well.  But you've found a customer who really needs your product for use in their product.  They need it because they need an "edge" over their competition...something they can use to market a new version of their product and get more market share.  In fact, your product doesn't even really have to work, but it has to be "perceived" as making a difference.  I encountered this situation once, and coined it an "anti-wrinkle cream phenomenon" (because, well, do anti-wrinkle creams really work??).  One can generalize this phenomenon to many "gimmicky" consumer products out there (just tune in to late-night infomercials for some examples).  I'm writing about this today because, while your product might sell in such a situation, do you really want to be part of a company that fakes out its customers (or customer's customers)?  Your company will be much more rewarding for you and all involved if you can build and sell a product that truly has value, and not just a placebo.

Crowdfunding...you need to know what this can offer!

Crowdfunding (google it, and at least check out what wikipedia says about it) has been around for a while, more commonly known as a way to raise capital for musicians, disaster relief, and other charities.  But crowdfunding can successfully be used to raise capital for a high-tech startup as well.  A company I'm currently working with recently raised over $24k this way!  And their goal was $20k.  They did this through IndieGoGo.  But wait, there's more to this.  Not only did they get $24k and kept 100% of their equity, they now have hundreds of eager consumers, who contributed small amounts of money (for a T-shirt, or a mock-up prototype, etc.), just waiting for their product, and giving them early feedback on design features, etc.  Pinch me...am I dreaming?  No losers found here.

Here's an outline of the best 20-minute investor pitch you could make!

The most important items to emphasize in a 20-minute investor pitch are:

1) Team – you guys have done this before, know the space well, and are confident (but not cocky) in your execution.  There also are no holes in your team for the next 6 months or so.

2) Market – you have a solid understanding of the market potential and dynamics, and have a solid go-to-market strategy.

3) Product – you’re not in R&D, you’re way past prototype and over the “technology risk hump.”  Also, you’re not just a hardware play…you’re a systems play:  a complete solution for those wanting/needing a complete package for <whatever you do>.  Don’t emphasize the hardware aspect (if you have one) too much…this will scare some investors away…focus on the complete, “shrink-wrapped” solution that you provide.

4) Sustainability – you’re not a one-trick pony…you have a product family.  You also have IP, but you’re not resting on just that…your product roadmap is solid with products that go beyond just the first product, which will keep you ahead of anyone trying to do the same.

5) Customers/Partners – you’ve already got a list of companies wanting to buy the product.  And, perhaps you have a partner interested in you…a possible early exit for investors.

6) Competition – who’s out there already in this space, and how are you so much better; how are you going to keep knock-offs from cutting into your share and/or margins.

7) Financial sustainability – ASPs, COGS, margins, realistic growth, cash flow, minimal need for and size of future rounds.

8) Use of funds – this round will take the company into initial production with revenue not far behind (right???).

9) Terms – make them attractive

Overall, you want to give the investors that “I can’t miss this deal” feeling substantiated by the content of the slides you make from the outline above.

When to fish, and when to cut bait...or wait, is there another option?

So, you're in a high-tech start-up, and the technology doesn't seem to be performing as you expected or the product development is hopelessly behind schedule.  What do you do?  If you're part of the founding team, or at least one of the decision-makers, when do you decide that it isn't going to work and close up shop?  When the money runs out?  Key to this thought process is to do an assessment of just exactly what intellectual property the company does have, even if it turns out that the technology has no legs.  I mention intellectual property not just in the patent sense, but also in a most general sense:  just what does the company have that is of value?  Does it have really sharp people that can recast the technology or its intellectual property into another market?  Has the company developed expertise in its original market such that even though the technology doesn't work, it knows the market and customers so well, that it can use other technology to build a product that will sell into this market?  Find out what your company has or does best, and build on that expertise to reinvent yourself.

Fancy titles, but no worker bees...a red flag to an investor

Let's see, you have five persons in your start-up, and three of them are VPs.  Yikes, I actually saw this once.  So, who's doing the real work here?  This looks really bad from the outside, especially to a prospective investor, and indicates naive management.  In a start-up, one should only have a fancy title if (a) s/he has earned it from previous experience at that level, or (b) s/he needs it to convey decision-making authority when talking to customers, suppliers, and partners.  Oh, and if someone will join your company only if he gets the title he wants, kindly show him the door.  His priorities likely are not in making the company successful.

Step back and look into your company from a fresh perspective

You grind along day after day, trying to make your start-up a success.  You already know you're doing everything you can, because you're "heads-down" 24/7.  But sometimes we get so caught up in the day-to-day tactical stuff, that we miss grand opportunities to step back and take a new perspective.  Some of my best insights in whatever start-up I happened to be involved in at the time, were when I was stuck on a plane or somewhere with no email and minimal distractions, and I was forced to be idle.  That's a golden opportunity to step back, and "re-view" how you've been approaching the challenges of the company, whether they are technical or business-related.  That's when new insights into how to approach a technical problem, or new ideas of how to attract that first customer, etc., come about.  (This, by the way, is effective in any job and any career, even flipping hamburgers.)  Another way to accomplish this is to find a consultant who has domain knowledge in your space, and bring him in for a design review, or a business review.  A well-respected person from the outside can bring new insights and ideas to your company.

What should a start-up CEO be doing?

Well, one answer to this question could be:  "Anything and everything."  In some sense, this is true...a start-up CEO needs to be *able* to do just about anything and everything except perhaps some of the deep technical stuff.  But I've seen CEOs get bogged down in the science way too much, and the business side or fund-raising side of the company then suffers.  I've also seen CEOs being penny-wise and pound-foolish...spending too much time trying to save a few bucks, at the expense of losing much more in opportunity costs, or missing the market window.  What are the most important jobs of a start-up CEO?  Raising money.  Refining the business strategy.  Talking to potential customers and partners.  Keeping his team motivated and the development plan moving forward.  Keeping agile as the market evolves.  Hiring the best talent.  Keeping the company financially responsible.  Wow, now that company has a good chance of succeeding.

You have to think and act like an entrepreneur.

Starting a company is tough.  It takes lots of hard thinking, lots of busy-work, and lots of time.  It's not a 9-to-5 job, and it will be taxing on your marriage and family life, if you have one.  You will be thinking about the job almost 24/7.  And you will absolutely love it, which enables and justifies this commitment.  Now, if this description doesn't fit you, then you probably aren't a 100% entrepreneur.  Sure, you can put your toe in the water and be half-committed, and maybe you'll be successful (or ride on the coattails of others who are committed), but most companies these days don't succeed with a part-time effort, and if you're the only one who isn't committed, then your job is in jeopardy.  No easy ride.  Feel free to reply with any stories or insights you have on this topic.

But I don't know how to do that.

Starting a company requires many disciplines, not only in the formation and administration of a real company, but also in solving some of the really hard issues that your company will encounter.  Whether it's how to enter a certain expense into your finances, or even finding a bookkeeper who knows how to do this, or solving a technical hurdle that your technologist just encountered, or whether you're suppose to draft a term sheet first (or let your investors do it), don't think that you have to know all of the answers.  Your first go-to place should be your co-founders and your own database of contacts, then your board, if you have one yet.  These sources will probably have a vast database of contacts, several of which will have your answer, perhaps after one more level of reference to the right person.  Don't hesitate, thinking that they might think you should already know the answer.  Few CEOs and founders can run a company without support.  Tap these resources for your answer and move on to the next challenge.  Now!

Analysis Paralysis!

Okay, I can be nerdy and analytical, too, wanting to test, optimize, test, refine, test... all to make the product even better before I finally release it to customers.  But it's easy for this process to continue with no end in sight.  At what point do you say enough?!  "But the customer would love to have this new bell/whistle that I just thought of."  "But I need to try this slightly different formulation...I think it will work better."  Enough already.  Save something for a follow-on product.  Get the product out-the-door, and get some feedback from your customers before you do any more analysis/optimization.  That feedback is so much more valuable than continued optimization in a vacuum.