Selling Is Unavoidable
Every entrepreneur must sell her vision to various stakeholders. There is no way around the need to pitch the business over and over. Even if an entrepreneur does not need outside capital, founders will still have to convince people that their businesses will be successful prior to actual success. Entrepreneurs have to convince customers to use and buy their products when these products are largely unknown. This requires a leap of faith from prospects to make a purchase that they have never tested and are generally unfamiliar with.
Employees also need to be convinced that the new venture has a future. Many startup employees work for equity or for the promise of getting in on the ground floor of a growing company. At the very least, employees are betting on the company staying in business long enough so that job changing does not look bad on their resumes.
Founders should also try to convince employees about the value of their ventures so that they are better motivated. People like to make a difference, and they will work harder and be more dedicated to companies that mean something.
In addition, suppliers who believe in a startup are more likely to offer flexible payment terms. Skeptical suppliers will require cash up front.
The stakeholder groups that will demand the most explanation of a new venture are investors and lenders. Both groups expect entrepreneurs to defend nearly every aspect of a new business. Other stakeholder groups such as customers may not care about the company’s inner workings, but investors and entrepreneurs will ask many questions about them.
Selling Is Ethical
Many people have been raised to believe that selling anything is somehow wrong or bad. The first thing you have to get through your mind is that when you are selling something of real value, selling is not only okay but a good thing. When you sell your vision, you have the potential to create something that will benefit a lot of people. What could be more noble than that?
Pitching your business is better than just an ethical act because it can be the beginning of relationships that benefit your stakeholders. For example, consider your customers. These people have problems that your product can address. It is in their best interest for you to explain how your product can benefit them so that they can make informed decisions. Selling to them gives them the power of choice.
Similarly, pitching your venture to investors is good for investors. These people are looking for ways to invest their capital, and your pitch will help explain the merits of your project as an investment. After your pitch, they will have more options than before they knew about your venture.
Selling is more than just ethical: it is good for potential stakeholders.
Practice and Preparation Make Perfect
ince you will have to explain and sell your vision over and over again, you should get good at it. Success in presenting your venture can be achieved methodically through preparation and practice.
The Elevator Pitch
Entrepreneurs should be able to boil down their work into a 30 second to two minute explanation. This is sometimes called an elevator pitch since it is how the founder would explain the venture to someone they bumped into in an elevator. The entrepreneur should be able to present the elevator pitch in impromptu, informal situations to strangers.
The elevator pitch for a startup should answer the following questions:
What problem are you solving?
What solution are offering?
Why is this a big opportunity?
Who is your target customer?
How will you find and sell to your customers?
Who are your closest competitors and how are you better or different than them?
How will your organization measure success?
What is your background and who is on your team?
How developed is your new venture and what are its next steps?
Entrepreneurs should practice this rapid presentation multiple times and should be able to give their elevator pitches in any situation.
The Formal Presentation
Oral presentation with slides is a common presentation format used to engage potential investors. In the past this was done using an overhead projector and transparencies or a slide projector. More recently it is accomplished using presentation software such as Microsoft PowerPoint, Adobe Acrobat, or Prezi. The presenter’s collection of physical or electronic slides is called a pitch deck.
Independent of the technology used, the content of a presentation should follow a common structure that investors find comfortable. The components of a good pitch are presented below:
1. Briefly introduce yourself and your company. You should distribute business cards or use other media to quickly give the audience your contact information, the name of your company and your name.
2. Describe the customer pain you are easing and briefly introduce what the venture does. This part of the presentation should capture your audience’s attention and focus it on the problem the venture solves. A remarkable statistic, quote, visual aid or clever tagline can be used to captivate the audience before delving into less interesting material. This part of the presentation should highlight the number of people who have this problem and how much pain this problem causes them.
At this point you should introduce the venture’s mission statement. As discussed previously, the mission statement should address what the venture will do and should not be too broad.
3. Showcase the product and its benefits. Explain how the product uniquely meets the need you just described. What makes it distinct from competing products and hard or impossible to copy? Is the product protected by patent or by copyright?
This is the right time in the presentation to demonstrate that the product is more than just an idea. Bring samples if the product is currently being sold. If finished products have not been made, bring a prototype. If there is no prototype, bring a mock-up. Be careful not to let your product steal the show: you are to remain the focus of attention in the presentation. Also, make sure to check that the product you bring functions and is not broken. Bring at least one backup, just in case.
4. Estimate the size and scope of the product’s market. Which target market segment will be captured first? Why is the market ready for the product at this time? If the venture is delving into a completely new market, explain how this unmet need has changed and its current state today.
5. What is the venture’s marketing strategy? If the venture does not yet have sales, what is the expected cost of customer acquisition? If the venture has sales, explain the actual cost of customer acquisition, the lifetime value of a customer, the actual sales revenues and pricing.
6. Describe the venture’s closest competitors and similar ventures that have been launched in the past. Even if the venture is entirely new, there are competitors which meet similar needs or the same needs in different ways. Never deny that there are competitors or that other ventures could spring up to compete.
The presentation should mention likely competitor responses to the success of the venture. Will competitors launch similar products? Will they lower prices? Will they sue? Explain how the venture can meet these threats. What “economic moat” or sustainable competitive advantages will the venture have over future competition?
7. Describe the team behind the venture and how they are the right people to solve this problem. What prestigious education or notable experience is found in team members? If there are impressive board members or advisors, mention them. Describe only what is relevant and do not waste time on biography.
It is important to note which roles or competencies have not been filled. Explain which roles are likely to be filled in the next year, for example, chief financial officer. If there are key areas of talent that must be added, such as social media expertise or C++ programming skills, note this as well.
8. Explain the goals for the venture and the current progress that has been made toward these goals.
How big is your vision for the organization and how far have you gotten? This is where thinking big and imagination will not be ridiculed. What are the perfect circumstances needed for maximum potential? Explain if all the circumstances work out, what the total potential could be. A discussion of how investors can see a return on investment by selling shares in the company in future “rounds” of equity financing or by selling the company to an acquiring firm in the future.
Next, explain the current status of the venture and a reasonable timeline for future progress. What milestones have you met, what milestones are coming up, and when are they going to be met? If the venture has sales, quantify past sales and current sales and project future sales. Quantify customer retention.
9. Forecast reasonable projections of financial statements for three to five years. If the company has existing sales, provide past financial statements. List assumptions such as sales growth rates, any changes to margins, and any changes to major expenses and why these changes are to be expected.
In your presentation, you should focus on the most relevant aspects of these cash flows, not the details. In particular, sales and net income projections are critically important and must be mentioned. How long will it take for the venture to become positive?
Projections for future balance sheets, income statements and cash flow statements will be needed. Any shortfall in cash flows from operations and investing will have to be met by financing cash flows. That financial cash flow shortfall is an estimate of either loans that will need to be taken out or shares in the company that will need to be sold.
10. Ask for funding. Ultimately this presentation is being made to get funding, so this final part of the presentation should be a compelling call to action. The amount you need should be consistent with over a year of financing cash flows needed. You should explain how much of the company is currently held by outside investors, how much is under your control, and how much money you need to raise by selling this interest in the company. You should relate back to the cash flow projections earlier to explain how long this money will last before more will be needed.
11. An appendix should be included after the last slide in the presentation as a resource for any questions asked during or after the presentation. Information in the appendix is for reference and will not be presented unless it is needed to answer a question from the audience. The appendix should be easy to search through and should contain answers to anticipated questions. It should also contain complete projected financial statements.
Presentation Tips
Delivering a successful pitch does not have to be about talent or luck. Instead, the following tips can be used to make better presentations:
1. Confirm details about your presentation. Double check when you are scheduled, when you should show up (you may need to fill out some introductory paperwork before the presentation) and what technology (for example, projectors) you will have access to. Confirm a dress code, the size of your audience and who will be in the audience.
2. Target your audience. A manager should have a good understanding about the target audience, and presentations should be designed keeping in mind the specific audience. The fundamental rule is that you should always speak about what your audience is interested in hearing. Try to present your company according to what the audience members value, not what you think they should value. You should not expect to change the beliefs of seasoned professionals with a brief oral presentation. Their perspectives on venture capital investing will not change so quickly!
If possible, try to learn about how the audience members think about investing in venture capital. What attributes of their current venture capital investments were attractive to them? Are there themes they are currently interested in?
3. Practice. One rule of thumb is that you should practice your presentations for six times as long as it will actually take. That means if you have a 30-minute presentation, you would spend three hours practicing it. When you practice you should speak out loud with a timer and your presentation materials. Ideally, you would do this in the venue you will present in. If possible, practice at least once in front of other people and ask for their feedback. Once you have practiced many times, you will be able to say the words of your presentation while you think about something else at the same time. This ability to multitask will allow you to make eye contact and field questions without disrupting your speech.
4. Tell one story. A good pitch starts at a problem that the company is going to solve and explains, step by step, why solving that problem requires the amount of money that is being raised. The presentation should not provide extra information or go off track into side stories. A presenter should have good clarity about what he or she wishes to express. If you are undecided or try to tell multiple stories, you will end up confusing your audience.
5. Target 20 minutes for an early-stage pitch. No matter how complicated and innovative the business, the presenter should be able to present a pre-sales opportunity in 20 minutes.
Professional venture capitalists and prolific angel investors see hundreds, if not thousands, of pitches. Many of them own portfolios of tens or hundreds of startups. Their time is precious, and it is unlikely that you are showing them something they haven’t seen before. Nothing will turn them off like someone who wastes their time. Keep it short.
If the venture you are presenting is generating revenues, you can probably get away with a slightly longer presentation. Actual sales warrant extra discussion about actual customers, who they are, and how the venture has done in the real world. In this case your target time should be between 20 and 30 minutes. Thirty minutes would be justified by a mid-stage company that has multiple years of sales and has been profitable for multiple years.
6. Maintain a professional appearance. The impression you make is mostly made by how you look. Dress professionally, make sure you practice proper hygiene and that your clothes are neat. Confirm the dress code. Unless you are explicitly told not to, wear a suit and tie or a professional blouse. Do not dress provocatively.
7.Show up to the meeting 10-15 minutes before you are required to be there.
The Pitch Deck
The pitch deck is the set of slides that a presenter uses as a visual aid for presenting the venture to potential investors. The pitch deck for a new venture should follow a standard structure which audience members have come to expect from entrepreneurs. Below are tips for constructing a pitch deck:
1. The first slide of the presentation should include the name of the company, contact information and the names of the presenters. If the venture has a tag line, it should be on the first slide, too. The following slides should follow the structure of a venture pitch presented in the section “The Formal Presentation” earlier in this lesson.
2. It should be between 10 and 12 slides for an early-stage venture and up to 15 slides for a venture with sales. The complexity and detail of a pitch deck should be somewhere between a business plan and an elevator pitch.
3. Make slides that stand alone but will not distract attention from you. You should be the focus of your audience, not your presentation. Do not create slides with multiple sentences or enough text that audience members will read it instead of listening to you.
On the other hand, your slides should be able to tell your story without you. The slide deck could be passed around between investors and other decision-makers. They should be able to get your point across in your absence.
4. Include more information as an appendix or footnotes that follow your slides. You can refer to this appendix to answer technical questions while not distracting from your main points. This extra content should address questions which you anticipate. It should also include full versions of your projected financial statements and other critical foundations of your presentation.
5. Use appropriate technology. Oral presentations can be simplified with the support of technology, particularly when some complex information has to be shared with the audience. This can include computer-facilitated slide shows or projectors using visuals, videos or graphics to make the presentation more interesting and engaging.
6. Make sure that you have back-up ways to deliver your presentation. Computers freeze, projectors burn out and internet connections terminate. You can prepare for these contingencies by keeping multiple versions of your presentation on hand. Ideally, computer presentations will be backed up in the Cloud and on a tablet or other mobile computing device. You should also have hard copy printouts of your presentation.
7. Format slides to match the venture’s product. A startup that makes teddy bears should have cute backgrounds and formatting. In contrast, a startup that makes industrial products should have a more professional look.
8. Use one readable font for all the presentation’s text. Do not use excessively fancy fonts. Sans-serif fonts are preferable to serif fonts for presentations and other media that are read at a distance. (Serif typefaces such as Times New Roman and New York should be reserved for the body of printed text.) Sans-serif fonts include Calibri, Veranda and Arial, among many others. Your font size should be fairly large. As a rule, the typeface should be at least one-half the age of the oldest audience member. If there is a 60-year-old audience member, your smallest font should be at least 30. Do not use multiple fonts: stick to one font for all the text of your presentation.
Get Ready for “No”
People who sell or pitch new products and businesses will be rejected over and over again. They should not take this rejection personally: any salesperson is told “no” much more often than “yes.” Stay positive, treat people with respect and keep selling!
