The standard entrepreneur’s story reads as follows: You talk with your friends and family about your business idea for months. You then convince a colleague or two to join forces with you. You start creating some deliverables, set up a small office, and perhaps you even make some initial sales. But it soon becomes clear that to achieve your corporate mission, you’re going to need to raise some capital. Not just a few thousand Rand, but a few million.
I recently had lunch with GIBS MBA graduates, Rory Mackay and Michael Franze, who were at exactly this place in their entrepreneurial adventure. They had decided to create a new type of financial market in South Africa known as a prediction market. The concept has been successfully developed in other countries and they are hoping that it will take off in South Africa. They have already put over half a million Rand of their own money into the business but to give it a real chance of commercial success they need a large investment from an external investor.
They have spent the last month pitching their business idea to potential investors, showing interested parties their beta website and sharing their vision for how powerful a prediction market could be in SA. Their experience of walking the streets from one potential investor to the next has taught them a few hard lessons about the realities and intricacies of pitching a business idea.
If you are creating a substantial new business, at some point you are going to have to sell the idea either to investors, suppliers, customers or perhaps even potential employees. Presenting a new business idea in a coherent and convincing way is a core competency for a successful entrepreneur.
Below are some of the key lessons from my two MBA friends:
1. Getting It Right:
Start creating or delivering the product or service so that when you pitch it is not just an idea but there is some action. You have data you can modify or adjust and you can tell your audience about your experiences. The more tangible or real you can make your business idea, the greater your chances of attracting the interest of funders. Investors love to see development, they like to be able to see, touch and explore.
2. Find The Right Team, Support Or Backing As It Helps To Refine Your Pitch:
One of the most common tenets you’ll hear from investors is that they invest in teams, not ideas. You must try to pull together a team that maximises your chance of success. A good start-up team should have some relevant experience in the industry or some experience in launching a venture. If you have a gap or two in your executive team, admit it and talk about your strategy for filling those gaps.
3. There Must Be Heaps Of Blue Sky:
The risk to your funders is big if you fail, but they must realise how well off they will be if you succeed. The more sophisticated the investor, the higher the return they’ll want on their investment. But here’s a conundrum. As much as everyone needs to hear the projected numbers, and as necessary as it is for you to produce your financial forecasts, no one believes them. The classic mistake that entrepreneurs make is to say: “These are conservative numbers”.
Inherently financial projections are optimistic not “conservative” and there’s really no way to project into the future, particularly 24 to 36 months out. Be bold but retain a sense of realism.
4. Offer Three Clear Benefits:
When you are pitching, offer Three clear benefits, reasons or advantages, five is too many two is too few. The core question any entrepreneur has to be able to address in a pitch is: What’s the problem, and how does the proposed product or service solve it? It is critical for the entrepreneur to understand his or her business and be able to communicate its advantages succinctly in such a way that potential investors can remember them. For some strange reason people find it easy and meaningful to hold onto three points.
5. Have A Maximum Of 10 Slides:
In most cases you won’t have more than 30 minutes to convey your idea. Keep the slides simple and try to use pictures with as few words as possible to make the point. Apply the principle of less is more. Do enough to capture the attention of the audience and then let them ask you constructive questions.
6. Do the Mom Test:
If you can explain to your mom how you plan to make money there is a good chance you will. The best business models are simple and easy to understand. The business must have clear revenue streams and easy to understand cost structures which can be explained to investors in simple terms. Avoid technical jargon and complicated money making schemes.