Archive for September, 2009

Preparing To Pitch To VCs

Tuesday, September 29th, 2009

I went to the Microsoft Bizpsark Conference on Monday which was really interesting.
There was one seminar in particular on pitching to VCs that I really enjoyed. This approach to business planning can be useful even if you are not pitching for VC money but can serve as a framework for business plans.

1. The opportunity

What is the size of the market you are targeting. It is more attractive to an investor if you are targeting a large market that provides a lot of growth.
It is also useful to know who your target market is (in as much detail as possible) and how you will get them to buy.

2. Cost and revenue drivers

Are your financials realistic? What assumptions have you made?
Have you stress tested these assumptions to check that any changes will not materially affect your projections.

3. The team

A list of the management team, their experience and role in the venture. Also list any advisors you have on board.

4. Product

What is the problem you are trying to solve and how does your product solve this burning issue?
What is the current stage of your product development. Do you have a prototype? Have you made any sales yet? Is it still in the conceptual phase?

5. Use of funds

How you will use the funds, list of outgoings, levels of working capital and how much you will spend in each main cost centre: HR, marketing, product development etc

6. Competition

Who are the competitors to your business. Compare your strengths and weakness to their so see where you need to focus your forces. DO NOT say that you do not have competitors then you are really going to annoy your audience, everyone has competitors.
How are you competitors likely to act when your product launches? Is there a possible competitor who might be interested in acquiring your company?

I think this is a good list, but there are a few more points that I think you need to think about if you are preparing a VC pitch

7. Barriers to entry

Do you have any patents? Once established are there any significant barriers to entry that will stop others entering the market?

8. Exit

When do you plan to exit. An investor will expect an exit plan in 3-5 years. Do you plan to float on the stock market or do you think that you will be acquired in a trade sale?

If you are going into a pitch make sure that you deliver the presentation with passion and show a complete belief in your proposition. You should be prepared to face a huge test to your plans as a professional investor probes your assumptions and tries to ascertain if you are the right person to lead the venture. Most of all do not lie anything you say will be checked and double checked during due diligence it is much better to be up-front and create trust in your relationship.

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Innocent Drinks – Mastering Creativity

Tuesday, September 22nd, 2009

I went to a seminar at Imperial Business School yesterday “Innocent: Building a Business through Creativity and Design“with Dan Germain who is the head of creative at Innocent. Before the event I bought the new book documenting the first 10 years of innocent so I had a lot of context for the seminar. A lot of the content was taken directly from the book but it was still a worthwhile seminar.

It was an interesting talk and it was good to see a business that places so much emphasis on creativity. The main points I found interesting were:

In-house creative team

Innocent have quite a large in-house creative team relative to their size. This means that every aspect of the brand, design and messaging go through the one department. This means that there is a lot of consistency with anything that leaves the business.

Creative team veto

Dan and his team have a veto on anything that leaves the business. That means that if they are not happy then they have the power to stop anything even if all the other departments do not agree.

Focus on the product not the brand

The product is the most important thing, branding and design do not matter if your product is not good enough. This resonates with pretty much all successful start ups. You need to obsess over the quality of your product, always listening and making it better.

Solve a need

Giving people what they want or solving a need will make it much easier to sell your product. Sounds obvious but I know a lot of people (myself included) who have built products do not have a market that can sustain growth.

Honest and listening to your customer

Use any opportunity to listen to your customers. When Innocent started they had a phone line for people to ring up and chat about the product. They used to write on their bottles, “if you are bored call us for a chat”. They also invited people to drop into fruit towers if they were in the area. The routes to communicate have increased over the last few years and Innocent take advantage of their blog, Facebook, Twitter and email newsletters, to constantly keep in contact with their customers.

As a result of all of the communication when someone attacks the brand (such as when Innocent sold a stake in the company to Coke), the community around the brand will fight Innocent’s corner and often win customers back to Innocent.

Grandma test

This is another obvious one but something that is often overlooked. If you cannot explain your business or product idea to your grandma in a sentence or two then  you need to re-think. In my opinion this is only for business to consumer businesses, there are a lot of business to business solutions that are very complicated to explain but ultimately very successful.

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Do Old Guys Rule Successful Start-Ups?

Wednesday, September 9th, 2009

Last night I was reading an article on TechCrunch called When It Comes To Founding Successful Startups, Old Guys Rule which was saying that the average founder of a high-growth company launched his venture at age 40. The article argued that one one reason the failure rates of VC firms are so high is that they concentrate on 20-something entrepreneurs.

It really got me thinking as a lot of publicity is given to young guys, fresh out of school who go on a create successful businesses. I am sure that this does happen but like anything else becoming an expert at business and entrepreneurship takes time, dedication and focus. In his book “The Outliers” Malcolm Gladwell says: “The best way to achieve international stardom is to spend 10,000 hours honing your skills”. Now to clock up 10,000 hours of experience takes many years and is not something you can fast track in a few months.

I started my first company when I was in my early 20s and I cringe at some of the decisions I made and the methods I used. For example in my first company I spent about 6 months building a financial services wealth tool that was well ahead of its time. I worked day and night programming, building and refining the tool. When I thought the tool was perfect and ready to show the world I realised that your product is actually only a very small piece of the business. The most important thing for a start-up is marketing, buzz, distribution channels, partnerships; I had worked on none of those during my frantic product development, so that put me back another 6 months.

Every business I have started or run I have learned from the previous experiences and as a result I get better, more experienced and hopefully more successful each time. Like anything the more you practice and learn the better you get. Experience counts for a lot in business.

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Bootstrapping Technology Businesses

Monday, September 7th, 2009

In this climate it is harder to get investment as a start-up company without a track record, but that does not mean that there are not opportunities.

The Internet has matured a lot in the last 4-5 years meaning you can get your idea developed a lot quicker and more cheaply using languages such as Django and Rails. Once you got your prototype launched the hard work begins and it takes a lot of work to make an Internet business successful. The great news is that it does not cost a lot of money to run and promote your technology business. You have to be smart, make good use of the tools that are available and be prepared to bootstrap.

What is bootstrapping?

Bootstrapping is starting a business without external finance; you fund your business through your own savings, internal cashflow and most importantly by being cautious with your expenses. You do not hire plush offices until you can afford them (actually I don’t think there is a need for plush offices unless you need to entertain clients a lot), you do not pay yourself a big salary until you can afford it. Every time you spend money on something non-operating items you are potentially reducing your business growth.

How can it help you?

I think that bootstrapping is under-rated as it is not glamorous and could mean that it takes a bit longer to grow your business, but the upside is that when you try to raise finance you will have a profitable business and working prototype with real customers. As an investor it would be very central to my decision to see that the money invested in a business will be put to growing the business and not wasted on luxuries.

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