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.