You must have your business plan in place before you start pitching to investors.
How many times have I seen this? An entrepreneur wants a hand to develop a pitch. We sit down together to go through the structure of a good pitch.
All OK so far.
Then it’s time to start adding content to the pitch structure. The entrepreneur starts thinking out loud…
- “Well we have a few options on our pricing strategy so I might include the options in the pitch.”
- “We haven’t really worked through our marketing plan but we have some good ideas on what might work in our market.”
- “Market research? Well, we’ve checked out the net and found some interesting numbers so I suppose we could put those in for our market research.”
If this is what you do when getting ready for a pitch, then you are not ready to pitch. It is that simple. This is the single most serious omission by entrepreneurs who want to pitch to investors.
Your pitch is not just a 10 minute talk about your company. It is the purest distilled essence of your business. It is the result of days of strategising and discussing the options. It is about coming up with the best possible path to market, a detailed investment structure and detailed financials that have been worked and reworked many times.
In other words, you need to have your business plan in place.
And you and your team are the biggest beneficiaries of the thought and discussion that goes into developing your plan.
The process of committing your ideas to paper provides both structure and discipline. It clarifies ideas into real achievable objectives. You will feel a sense of comfort knowing that all the options have been researched and you and your team have made decisions based on real information, not the opinions of a few people.
A plan also helps to ensure that all the team members know exactly what’s expected and what the company plans to achieve. The process avoids misunderstanding and tension. It’s best to sort out the issues before you get in front of an investor. I’ve seen deals fall over because there were points of tension in the management team.
I know that plans are rarely played out in full. That’s not a reason to forget about putting a detailed plan together. Investors know that the plan will probably change. That’s not the point here. First, you do a plan for all the reasons I mentioned above, and more.
Second, the investor wants to see what you and your team think is the best way forward. Have you made decisions that stack up in the investors’ eyes? Is your knowledge and logic sound? Have you come up with innovative ideas and nailed the competitors?
It’s all part of the screening process. Investors want to get inside your head to see how you tick. They want to understand as much as possible about your business and your team before they invest.
The financials play a big role. It is from these spreadsheets that you will determine how much equity to provide in exchange for the money and what the return in investment will be for the investor. These figures provide the starting point.
There’ll be a lot of sweat and tears going into the final equity position – it will be very heavily negotiated. But you need that starting point. The more “evidence” that you can provide to support your price then the better the chance of getting a good deal.
Before you get in front of an investor to pitch your business, make sure that you have a business plan in place. You will be well rewarded for your troubles.
Till next week…
Gail Geronimos, is the founder of Achaeus, which helps entrepreneurs develop their businesses and she has just started a new site www.pitchingtoinvestors.com with tools and tips about how to develop killer presentations to raise capital.
To read more Gail Geronimos blogs, click here.