Strategic elements that rarely appear in a startup’s presentations

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There are hundreds of books, articles, and blog posts on what should go into a startup’s investor presentation and a very large number of what should go into a customer or partner presentation, but Jeroen Kraaijenbrink‘s Forbes article The 10 Ingredients That Every Strategy Should Have has four elements that every founder should include in their company’s strategic plan. Think of this as the founder’s presentation to their company at an all-hands meeting.

The first six of the author’s core elements should be included in your investor presentation and every one of your staff should be familiar with them, though Partners, number 5, can often be overlooked.

  1. Value Proposition: What products and services you offer, how you offer them, and what added value they have for the customer.
  2. Customers & Needs: The organizations and people you serve and which needs of them you fulfill.
  3. Competitors: Others that your customers will compare you to in deciding whether or not to buy your products or services.
  4. Resources & Competences: What you have, what you are good at, and what makes you unique.
  5. Partners: Who you work with and who makes your products or services more valuable.
  6. Revenue Model: What you receive in return for your offer, from whom, how, and when.

But let’s take a more detailed look at the last four elements of Jeroen Kraaijenbrink’s list of ten elements:

Risks & Costs: What financial, social, and other risks and costs you bear and how you manage these. Any with-it founder should have the financial costs of their venture down pat. Operational costs are the easiest costs to predict and to manage. And as such they will appear in your financial statements. However, what about social risks? And what about the “other risks and costs,” such as dealing with government regulations, your startup may face?

Going into depth about social risks is well beyond the scope of this article. But founders need to be aware of such major issues of the day as: diversity in startup’s founders, senior execs and staff; income inequality; and for manufacturing and packaging companies, environmental impact issues; and work-life balance. The day when investors and senior managers only had to worry about profits and losses are long over. Today’s companies need to be active forces in their communities. Founders need to assess the social impact of their companies. My recommendation to founders is get your heads out of social media and tech news and pay attention to local, national, and international affairs. The Washington Post, The New York Times, and the Guardian, PBS News amongst other news sources, can keep you abreast of what issues you and your team need to be aware of and take into account in your tactics and strategy.

Values & Goals: What you want, where you want to go and what you find important. I’ve written previously about values in startups in such posts as Values: the bedrock of startups and Netflix Culture and Values. Values are the foundation of any venture. If you haven’t elucidated your venture’s values to your team, what are you waiting for?

Organizational Climate: What your culture and structure look like and what is special about them. I consider corporate culture so important that I devote an entire category to it on this blog. Corporate culture is the invisible hand of management and can be a key competitive advantage. It’s the layer built above the foundation of corporate values.

Trends & Uncertainties: What happens around you that affects your organization and what uncertainties you face. A VC I worked with was fond of terming this as exogenous risk factors, that is external factors over which you have little or no control, like government policy and regulations. And like social and governmental risks and costs, founders need to carefully monitor their environment and always be on the lookout for issues and trends that could affect their venture, for good or ill, in the near-term, medium-term, and far term.

When I worked for the Thomson Corporation, now Thomson Reuters, I wrote a business plan for a new startup within Thomson. I wish I had kept a copy of their format. But there were two elements in Thomson’s business plan template that I’ve not seen elsewhere: What is the absolute best case scenario for the venture? What is the worst case scenario for the venture? and What risks does the venture face and how will you deal with them?

Take a look at a prospectus for an IPO for a public company in your market. It should contain a detailed section on risks that is worth studying and comparing with your list of financial, social, governmental and other risks that are part of your strategic plan.

Finally, review the Strategy Sketch above, that contains many of the same elements as the business model canvas.  Both are excellent planning tools for founders

Pitch tips from a leading VC

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A recent megatrend that has greatly benefited founders has been the willingness of leading venture capitalists to share their knowledge with founders. Brad Feld of Foundry Group, Fred Wilson of Union Square Ventures, and Guy Kawasaki, Garage Ventures have lead the way. (What do they have in common? They’ve all met me!). Now they are joined by Scott Kupor, the managing partner of Andreessen Horowitz (a16z), whose portfolio includes multi-billion unicorns like Lyft, Slack, Pinterest and Airbnb.

I became aware of Scott Kupor’s book via Carmine Gallo’s Inc. article Five Essential Pitch Tips According To A Legendary Investor Behind Lyft, Slack, And Airbnb. Carmine is the best writer on how to do a presentation that I know of. You can search my blog for mentions of his books, which are all highly recommended. Start with The Presentation Secrets of Steve Jobs, a classic. Carmine has been writing for Inc. for some time and I make sure to never miss an article of his.

Despite all the books and articles I’ve read about how to do a VC pitch I learned a lot from Carmine’s interview with Scott Kupor. You can watch the video, which is embedded in Carmine Gallo’s article. Here are the five tips from Scott Kupor with my annotations.

1. Market Size

It’s interesting that Scott puts market size first. Of the three main determinants of a VC investment, team is usually put first, followed by either market opportunity or product/secret sauce. But I find that founders have the most trouble with market size. Either they make the beginner’s mistake of taking some arbitrary, and far too large, percentage of a large market (“If we just get 15% of the entire $92 billion shoe market …”), or they muddle through some proxies for their market. Read my post Sizing your market opportunity for a more sophisticated approach.  But Scott has a unique approach:

It’s an entrepreneur’s job to be a “patient and inspiring teacher.” In other words, don’t assume that your audience—even one made of up VCs—understands your market or its potential size.

This goes back to the need to tell a story rather than just recite dry statistics or show complex graphs.

2. Team

As I tell founders, there are two questions a VC has to answer in the positive to fund you: Is this a billion dollar idea? and Is this the right team to execute it? Too often I find entrepreneurs, especially students and recent grads, focus on their academic credentials – their list of degrees from prestigious universities – rather than one thing: what expertise and experience does their team possess that in Kupor’s words “… make this team – hands down – the best team to approach this idea?”

3. Product

Here’s an interesting point from Scott Kupor: “investors love to learn and are fascinated by how something works.” He uses the term “idea maze” for the twisting, turning process that turns an idea into a real world product. But that’s understanding your idea maze is not enough! Investors want to know why your product is 10X better than the existing alternatives along the typical dimensions: faster, better, cheaper, easier to use. Peter Drucker is responsible for this, as he stated that a new product must be 10x better to displace an incumbent product. And note, VCs will tell you they need to make 10X their investment to have a successful fund. Show them enough 10Xs and you may just get funded! 10X would make a great name for a company if it weren’t already taken.

4. Go-to-Market

Like market opportunity this part of the pitch tends to be a weak spot for the founders I mentor, perhaps because virtually all of them are first timers. Those who have previously founded a startup or worked an an early stage company realize how important the customer acquisition part of their pitch is. Kupor says this is often the most underdeveloped section of the pitch, especially for early-stage companies. You need to present a combination of your business model and marketing plan that demonstrates you know how you will acquire customers at a cost that is just a small fraction of their lifetime value. In other words, profitably. You don’t need complex spreadsheet models forecasting 5 years of financials. What you do need are sound assumptions derived from a lot of first hand interaction with customers.

5. Planning

Planning boils down to one thing:  what milestones will you reach with the money you are raising in this round? A corollary of this is, how long with this round last? A range of 12 to 18 months is typical. Fund raising is resource intensive for founders, so you don’t want to have to raise another round too soon. On the other hand, if you are going to grow at the dizzying rate that VCs expect, you are going to need more funding in less than two years.

I teach founders that the job of their product is to make its users successful and satisfied. And when selling to the enterprise find a product champion who will see that by driving adoption of your product for their firm they will be rewarded. If you can make your customers successful, your venture will be successful.

Scott Kupor makes a similar point about VCs. They want to look like heroes to their customers: their limited partners whose money they are investing.  So, consider VCs as your customers and thus it’s your mandate to help them succeed by making your company a success.

Pitch tips from the founder of Canva

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I consider Carmine Gallo as one of the foremost experts on presentations and pitching. He has written several books, including my favorite, The Presentation Secrets of Steve Jobs, and often writes articles for the business press about presentations. Four Remarkably Simple Pitch Tips From An Entrepreneur Who Turned Her Idea Into a $2.5B ‘Unicorn’ is a typical Gallo article in which he elucidates tips from Melanie Perkins, co-founder and CEO of Canva, a provider of online design tools. Here are her four presentation tips:

  1. Share your origin story. This is one of my favorites tips. I advise my mentees to start their presentations with the story of how and more importantly, why, they started their company. Story telling is one of the oldest and best communications techniques. The origin story is a great way to introduce the problems you are solving. While teaching design at university Perkins observed how difficult tools like Adobe Photoshop or InDesign – the students were completely overwhelmed.

 “They were struggling just to learn the very basics. There were so many buttons and it would take months to learn…I wanted to make design ridiculously simple.”

  1. Use feedback to refine your pitch. Melanie Perkins was rejected hundreds of times. But rather than give up, she and her partners used each rejection as an opportunity to improve their pitch or their strategy. Your pitch has to help investors understand the market and the gap you are planning to fill.
  2. Make each slide as simple as possible. Again this is advice I give virtually every founder, as virtually every founder crams two or more messages onto each slide.  I’ve found the reason that they do this is that they are afraid they will leave out an important point. Well, putting two or more important points on one slide insures the audience won’t remember either!

Perkins recommends that each slide contain just one point—one key message. Trying to include more than one message per slide results in confusion, and confusing messages are easy to ignore.

4. Show it in pictures. Steve Jobs was a master of pitches and he followed this rule religiously.  I’ve been on a one-man crusade against bullet point presentations. But let’s face it, creating graphics in PowerPoint is hard; it’s so much easier to create a slide full of bullet points – violating principle three. This was one problem the founders of Canva set out to solve by creating a drag-and-drop tool to make it easy to add and edit photos while staying in Canva.

When Perkins and her co-founders learned that former Apple Macintosh Evangelist Guy Kawasaki was using Canva they arranged to meet with him. Within a few weeks, he had signed on Canva’s Chief Evangelist. I knew Guy slightly as he was a consultant to the Silicon Valley Bank when SVB was an investor and strategic partner of Throughline. And I’m a big fan of his book Startup 2.0.

Canva’s presentations must be pretty good as the company just announced a new round of funding, valuing the company at $2.5 billion!

 

Some refreshingly different tips on presentations

 

presentationI’ve read several books on presentations and innumerable articles. I even have an entire category on this blog about pitching. But the article on Business Insider by Troy Wolverton, This Silicon Valley founder is an expert in designing presentations, has some excellent advice I’ve not seen before from Mitch Grasso, founder and CEO of Beautiful.AI.

Grasso is a former software designer and serial entrepreneur who has raised millions of dollars in venture funding. Two of his startups, including Beautiful.AI, have focused on presentation software.

Here’s his list of what to include in a pitch deck:

Founder-market fit. Outlining how your team is the team that is best suited to solve this problem or pursue this opportunity is paramount. Aside from the West Coast bias in favor of Stanford, most investors could care less about your academic degrees. What they want to know about the team is what experience and skills they bring to bear on the problem they are solving. I almost never seen pitch decks do this; founders tend to list all their academic degrees and maybe jobs they have held at hot startups.

Product differentiation. Ok, you’ve heard this one before. But Grasso lists it number two for a good reason. There is a sea of products and services out there. What makes your product not only different but why it is better than anything else on the market?

Why now? Founders tend to totally overlook the issue of timing. But timing is critical: too early and you won’t have the necessary infrastructure to support your product; too late and the competition will have staked out the market. Founders need to explain why their product couldn’t have been successful previously.

Grasso sums up with this advice:

All this stuff about traction and go-to-market and business plans, that becomes important as you move further along, but in the earlier stage, it’s more about that vision. Its about convincing rather than showing the data.

But here’s what separates Grasso’s pitch advice from everyone else’s: he outlines what to leave out:

Potential acquirers. Doing this signals to investors that the entrepreneur isn’t committed to the company long term.

Top down market analyses. Painting a picture of a very large market then promoting the idea that the startup just needs a tiny fraction of that market is one of my pet peeves! If you want to demonstrate to investors you are a rank amateur take this route. Otherwise you need to present a bottoms-up analysis: how will your sales and marketing efforts acquire the early adopters? Then later adopters? etc. You should be able to defend your customer acquisition cost projections, as well as your lifetime customer revenue projections.

The five-year business plan. This is a holdover from the last century – I did my share of them. I call this Excel fiction – and it won’t make the best seller list. Even three years is a stretch, but stretch you must.

Here’s Mr. Grasso’s bottomline: “At the end of the day, the pitch is about you, and if you can’t convince somebody of your idea without a pitch deck, then you probably don’t know your idea well enough.”

Bigger fonts, less words, greater impact!

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The most common and most serious problem I’ve seen in the hundreds of presentations I’ve reviewed over the past few decades is presenters cramming far too many words into a single slide. Just to recap, here are the problems with this practice:

  • Try as they might, people actually cannot multi-task. Thus they cannot read your many words while at the same time listening to you talk. If they try they will just get frustrated. e.
  • Too many words on a slide necessitates type that is too small: it is hard to read, especially for middle aged people, many of whom have developed age-related vision deficiencies. Smaller text has less impact than large type.
  • Less room for graphics, which have a higher impact and recall rate than text.

So I was pleased to read the Inc. article by presentation guru Carmine Gallo, Guy Kawasaki Explains Why Steve Jobs Used 190-Point Text on Presentation Slides. The sub-title presents the benefit: Make your presentations stand out with fewer words and bigger text.

Using larger text forces the presenter to user fewer words, which need to be more carefully chosen.

… most presenters try to put as many words as possible on a slide–Jobs did the opposite. He removed and removed and removed through every iteration. The result was strikingly simple, often just one word on a slide.

Jobs would go so far as to have a slide with just a single word, in 190 point type! And he would show slides with no text at all!

According to cognitive biologists, the human brain is far more capable of recalling information when it’s presented as pictures with few words–one or two words to accompany the photo. If you take a look at some of Jobs’s presentations, you’ll see he followed the guideline.

There is one other tip from Mr. Gallo’s interview with Guy Kawasaki: “He [Jobs] really practiced,” Kawasaki says. “He made it look easy because he practiced for weeks.” When was the last time you practiced your presentation for weeks?

How to take advantage of the serial-position effect

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I came across the what are called the primacy and recency effects in an article on fake reviews.

Consumer psychologist Cathrine Jansson says some sellers might be aware of what is known as the primacy and recency effects. These theories state that people tend to remember the first and last items in a series better than those in the middle.

A little web searching turns up the article Serial-position effect on Wikipedia. “Serial-position effect is the tendency of a person to recall the first and last items in a series best, and the middle items worst.”

Clearly from the serial-position effect your first and last slides are by far the most important in your entire pitch deck.

What if you only had two slides to convey your entire message to investors? What would be the message on each slide? The graphic? Should these two slides be the first and last slides in your deck? What I’ve noticed is that most entrepreneurs do not pay enough attention to the very first slide in their deck, which typically just lists the name of the company and often the contact information for the founder (which belongs on the last slide, not the first!)

Clearly you need to spend a lot of time on that first slide. That should include coming up with a tagline that summarizes your product in a short and punchy line of text. Secondly you need an impactful graphic that supports your tagline. Try several variations on this slide until your mentors or advisors feel you have nailed it.

Your last slide needs to neatly summarize your pitch supported by a graphic. You may want to repeat your tagline as well.

When presenting give both your first and last slides more time on screen. Speak to those slides! Work on exactly how to open your presentation, perhaps with a venture origin story and how to close it, with why your product will be hugely successful. Keep in mind when doing a pitch at a contest or demo day when you may be one of many presenters that your last slide may stay up on screen until the next presenter gets to the stage. Take advantage of those few seconds with a killer closing slide.

One final point. As I tell my mentees, most people can only remember three things from a presentation. Due to the serial-position effect; the primacy effect will bias them to remember the message from the first slide, the recency effect will bias them to remember the message from the last slide. What other message will all those intervening slides convey that will be memorable?

 

Are business plans back?

 

Screen Shot 2019-04-12 at 10.24.13 AM.pngI was very pleased to see business plans die out, replaced by pitch decks. IMHO no one reads, and even fewer people actually read business plans! By the time these plans were completed they were obsolete. They tended to be more fact than fiction and were usually accompanied by voluminous Excel spreadsheets showing the classical hockey curve of revenue growth.  A giant waste of time for all involved!

But the Business Insider article by This serial founder thinks pitch decks are passé. Here’s what his startup used instead to raise $45 million in new funding argues that pitch decks are so over, replaced by a “pitch memo.” The pitch memo sounds exactly the wordy business plan of yore. But Parker Conrad, who founded three venture-backed startups — SigFigZenefits, and, most recently, Rippling, argues that a pitch memo is far more effective than the typical pitch deck. He clearly understands that pitch decks are meant to be presented, not read and thus must leave out a lot of detail that is provided on the fly by the presenter. So yes, pitch decks rarely standalone, in fact they shouldn’t. As I’ve written previously, founders need two versions of their decks: one to enhance their standup presentation, they other meant for sit down reading by an investor. I encourage founders to start with the highly detailed version, then edit it down for presentation usage.

There are two advantages to the written narrative, one is obvious, it can contain a lot more detail; the second is much less obvious and relies on a deep understanding of how VC firms work, which obviously Parker Conrad possesses. Investment decisions are made at weekly partners meetings – usually on Mondays – where the partners who are seeking an investment by the firm need to convince their colleagues it’s a good investment for the fund. By providing a “pitch memo” the founder can make it very easy for the partner championing their cause to write the memo to their partners for the firm’s investment decision meeting.

Riplings’ pitch memo is included in the article. It’s only 11 pages long and basically covers the same topics as a pitch deck, just in much more depth. In other words it looks just like the “business plans” that were de rigeur in the VC game back when I was raising money in the last century.

But while Parker Conrad has had great success raising money with his pitch memos, I’m not convinced pitch memos will replace pitch decks for two reasons: one, it’s so much easier to get feedback from friends and mentors on a pitch deck than on an 11 page memo, and two, people don’t read! The safer play is just to send a more detailed pitch deck that can be read by your target investor instead of taking the risk that 11 pages of dense text will not only get read, but not get passed around the firm either.

So I’m not convinced by the Business Insider article that founders should take the time to do both a pitch deck and pitch memo. These things change often and trying to keep both of them in sync is not easy – simpler to keep two different version of a deck in sync.

But that doesn’t means founders can skimp on detail – they need to foresee all the questions an investor may ask in the detailed version of the deck they email to them.

To recap my recommendations made previously here’s what you need in your search for capital:

  • A short executive summary of your business plan – one page or less with one eye popping graphic
  • A great subject line for the email you send to prospective investors
  • A body of text for the email that is so compelling that the recipient will open the attached file – which is your one page business plan
  • A pitch deck designed to be used as part of a presentation
  • A very detailed version of the deck to be emailed to prospective investors

With these documents in hand you can contact are large number of investors. But keep in mind the goal is not to give a presentation but to engage an investor in a conversation. Pitch decks and pitch memos are a means to an end, not an end in of themselves.