The Sixth Minute
I’ve met a zillion entrepreneurs who say they are starting a company. What I’ve noticed is that the first five minutes of meeting any entrepreneur, you can see a characteristic flavor of enthusiasm and fervor. Entrepreneurs are passionate about their idea, can answer any questions about it, love to talk about it, and know it inside out and upside down.
It’s the sixth minute of conversation that separates the dreamers from the successful business people. The moment the conversation drifts away from the idea, and moves towards the business plan, and intellectual property. It is in that sixth minute that an investor, mentor, or startup professional can tell who will be still be standing 6 months down the road.
Business Plan Mistakes
Of the inordinate number of startup bloggers out there, I have no doubt that they’ve stressed the necessity of a business plan at one point or another. There are always links to where one could go to find free business plan templates. I always direct mentees to the SBA site which has a simple bare bones generic business plan. That’s a good place to start if you have absolutely no idea what you’re doing. Once it’s sketched out, there are a number of business plan tutorials from experts from all disciplines. With the wealth of information available to anyone with internet access, it’s a wonder how some entrepreneurs make so many business plan mistakes, or equate a business plan to a power point slide presentation.
Based on what I have seen, I would not suggest that entrepreneurs merely put more time and effort into online research with respect to business plans. I am suggesting they find a person with business experience to help them create one, or at the very minimum create an experienced advisory board that can answer questions and give valuable feedback. I’ve seen a number of business plans where the five year projections are outrageous and have no data to support even a shadow of the plan. If you do not understand all of your numbers and have a good reason for the marketing strategy you propose, that tells investors you do not know what you are doing. If an entrepreneur has an idea and has never started a business before, how can they write a business plan? Internet research can help begin an outline of the plan but if you feel like you need a partner who is a business person that complements your own skills, then you are probably on the right path. I hear pitches from technical people all the time…
- If someone does not have any professional experience in marketing or sales or finance, would you hire them to develop your marketing or sales strategy?
- Would you hire them to field questions from seasoned investors about your company’s revenue model?
- Do you understand how to value your own company and what to ask for?
Understand How to Prepare a Pitch Presentation
I sigh every time I’m watching Shark Tank and startup companies present their offer to the Sharks and it is clear that they only thought about how much cash they need and what percentage of their company they are willing to give up in exchange for cash. Often times the Sharks berate the presenters about how they came up with such a high valuation of their company and it is clear the presenters do not understand the disconnect. Investors like to see numbers and a good business plan will have numbers that illustrate exactly that – the plan for the business as well as data to support claims of valuation and financial projections.
I’ve reviewed many business plans for entrepreneurs, and more than half the time the plan is a presentation geared towards consumers, not investors.
Often times I am on a conference call with other investors and we always listen patiently to the very passionate entrepreneur who wants to change the world. These are screening calls and our job is to scrutinize the business plan in order to determine whether the startup warrants an opportunity to pitch to the entire group of investors. It is my job to evaluate the intellectual property, assuming there is any. Sometimes there is a person who asks about the marketing strategy because that person was a marketing officer at a large corporation and another personal with two decades of experience in the finance world asking about the revenue model and projections. These are type of experts that may be evaluating your startup company’s business plan. Anyone can prepare a pitch about their new company. Anyone can prepare a power point presentation. But it’s that moment the Q&A begins that I often watch entrepreneurs fall apart as if they were thinking about their idea in the context of a business plan for the first time. If it’s your first company and you have a number of years in a technical field, get someone on your team that understands how to prepare a pitch presentation. Consider partnering with a person who has a number of years in a business-related field.
To be successful in your casual and formal pitches, get into the mind of the investor. Do you research on what they will want to hear, and be sure to pull together all the proper supporting data. You will likely need help for this, from a business partner who fills in these skill sets, an advisory board, and/or from a startup business advisor. If you want to be successful, the extra effort or cost is worth it.
Katherine Kim is an IP attorney and founder of Spark IP Law. She is deeply engaged in the startup community, and serves as mentor, advisor, and investor.