Do you understand your business?
This week, we are still discussing the Pitch. In addition to the 30 second elevator story, the pitch or evaluation of the pitch includes whether the entrepreneur clearly understands their business (or business in general) and do they have an executive summary.
It may seem obvious that anyone pitching an investor or starting a business has a clear understanding but that is not the case. An investor asks many questions with the purpose of gauging how the prospect fits into the market landscape and how prepared the entrepreneurial team is to meet the many challenges.
The investor will ask questions. The entrepreneur needs to answer them. Some thinking is acceptable but it should not stump the entrepreneur. The top initial questions I hear include:
- Tell me about your business?
- What is currently going on in that market space (the big issues)?
- What problem does this solve?
- Is this a product or a service?
- What makes you different and/or unique?
- Is your product patented?
- What is your competition?
- Do you have customers?
- Tell me about the market opportunity. Who is your target market, how big is that market, and what is your expected penetration?
- Why do you not just take that to a big company and have them license it?
- Why are you seeking money?
- How are you going to use the investor’s money?
- What is your burn rate?
- How far will the money get you and when will you be self-sustaining?
- Do you have an executive summary and business plan?
- What are the big challenges in that industry?
- What is driving that industry today?
- What gives your team the edge?
- How and where will you expand?
- What is your exit plan?
Some of these questions require a lot of planning and work; but the answer needs to be as short as possible (one or two sentences). The investor is trying gauge whether this is a good opportunity she wants to hear more about and whether she is talking with a savvy profession that will be worth her time.
Unfortunately, too many entrepreneurs are unprepared. Maybe they have not written their business plan, or really have not explored the market well enough to understand how their solution fits into the world. Either way, they deliver a great pitch line and fail on the follow through when the conversation starts.
Entrepreneurs: Study these questions and prepare the answers.
Investors: Use these questions. They are great ways to decide if this person did their homework.
