Archive for category Pitch
Facts or emotion
You can either go with facts or emotion. The problem with using too many facts is that people tend to get bored, forgetful, and unsure of how to digest all the data. As Seth Godin writes in his article, Too much data leads to not enough belief, too much data crowds out faith. Rather, too much data overwhelms and causes the listener to stray.
Going with emotion leads to the wrong choices being made because the facts are not really thought out.
If you are the persuader, then using facts or emotion does not matter as long as you get your idea across and people to your side. To the persuaded, emotion counts NOW but facts count later.
I think the best approach is a balance of the two. Carefully chosen facts that can lead to an emotional response: This choice feels right. However, if the person just chooses not to believe the facts, then you have to address the cause of the emotional need to not believe. In some cases, you just cannot win – with that person.
Move on and persuade other people.
Invest or Not in a new fuel
Posted by Steve in 14 Point List, Pitch, Valuation on December 23, 2009
In Sunday NY Times (Dec 6, 2009, pg 2) there is an article titled KLM Tests a Biofuel That’s Made From Weeds.? They are using Camelina oil as part of the fuel to run a Boeing 747. The question is: Should you invest in Camelina Oil?
What would be the first questions?
1. What is the economic advantage? Is it more efficient or cheaper or both?? Not mentioned in the article.
2. How safe is it? This is being tested according to article.
3. Who is producing it? Not mentioned but a Google search can find it.
4. What is the likelihood of it being picked up as a fuel? No idea.
5. What is the investment target?? Companies producing it, the oil or seed itself, or companies using it?
6. Finally, if it is patentable, who has it?
Lots of questions.? From the point of this blog, the best bet may be to invest in a company producing it. Why? It will be the efficiency of production, conversion, and delivery that will make this a viable fuel.? The seed can be grown in many locations by a variety of people.? Too much competition there. Assume the fuel can be used by anyone, it would only decrease the costs of that business by a fraction.
The real win is in the producer and deliverer of the oil.? The exit plan would be to go public or get acquired by another energy company.? The two key entry criteria would be an existing customer and demonstration by the company that they can deliver; or at least their managers have the experience of delivering on their promises.
A point I am making is that the methodology described in this blog is the ability to quickly evaluate an opportunity and determine if you should spend the due diligence on a deep dive.??I would look at the 14 points and see how well it fits and then make the recommendation.? If it passes all 14, I would only recommend this if I was looking at a viable concern.?? Oh, and one more thing, if the investor has experience in energy then I would make it positive; but if they are not experienced in energy, then I would suggest they get some before they invest.
Startup charities have to earn our attention.
Startup charities are like any startup business; they have to earn our attention.
My premise is that startup charities do not command it because of the nature of being a charity. There are plenty of fakes that hurt the real good ones. They need to be treated like any other startup business: validity of the people behind the cause first and then the worthiness of the cause.
The number of charities in the United States that are considered tax exempt are between 40,000 and 50,000 and could number more. Although these charities are registered with the IRS, the number of charities indicates that they may exceed the IRS’s ability to vette them completely each year; some of these charities may exist for dubious reasons.
Those two points appeared in an article in the New York Times, this Sunday (December 5, 2009) on page 1 and page 29, titled Grab Bag of Charities Grows, Along with U.S. Tax Breaks (written by Stephanie Strom). You can read it here.
Remember on Nov 30, I wrote Believe in your charity by believing in other charities? The point of that article was that just because a person is running charity does not entitle them to get the services for free.? Some people tend to use their charity as an excuse to get free or discounted services.
On page 29, there is an article also by Stephanie Strom: Seeking Profits At a Nonprofit. It is a fairly unflattering piece about an energy company.? This energy company is accepting federal funds and donations to develop alternative sources of energy and patent them.? However, the reporter discovered that their one and only patent is NOT in their name but in the name of one of the founders. Given that we are not given any details, or the circumstances of the patent, we are left to believe that this is someone using the veil of charity to profit.
It is also a piece of terrible marketing for the energy company.
Unfortunately, some worthy charities have difficulties because they are just not popular as a way of showing that you are good citizen.? Last night I sat in a fund raiser for another charity, one that provides education for adults. One of the speakers, a professional fundraiser, pointed out that it is much harder to get donations for them versus a hospital. Why? Education is not sexy like a hospital. You gave money for books? Ho hum. You gave money to cure a disease!! That is very good of you. That is the mentality they deal with every day.? I donate to them.
Someone asked me why I should donate to them and not to someone that is more worthy. I said, They are worthy. I checked them out. The big charities get a lot of money already, but this small needs it too.
To reiterate my points:
- Just because you are a charity does not mean you should get services for free.? You have to earn that privilege.
- You CAN earn that privilege but you have to do deeds that demonstrate your intent.
- Talking about deeds and planning deeds do not count. You can try to convince me of the worthiness, but then I am going to judge you by you and your validity (just like any investor).
A startup charity is just like any startup business in the sense that you have to not just believe in the cause, but believe in the people behind the cause.
Short, quick, to the point ideas
Posted by Steve in For Job Seekers, Pitch on November 6, 2009
I like ideas presented short and simple. I want ideas presented to me on one sheet of paper, maybe up to four pages if it’s a process. That’s like an executive summary. Maybe we need a format for it?
New product idea: the standard format for short ideas
Problems addressed (or are they solved): people do not have a lot of time and need to determine quickly if it’s a worthy idea to pursue, need to understand the basic solution and how to implement it without a lot of fluff.
Examples already out there: Harvard Business Review Breakthrough Ideas for 2009 (Harvard Business Review Lists). The book is really short with each idea taking up a couple of pages (one or two pages in Word).
So, what should this format look like? I’ll leave that up to you to think about.
Take it to the next step, how about a web site that has ideas and then ways you can send these ideas to people with the following?
1) Please develop this
2) Hire me to develop this.
Get the idea? Create short ideas, present them in a concise manner, and then create an opportunity for yourself or someone else.
Features, Benefits and Advantages
Everyone talks about features and benefits. Well, almost everyone. A lot of people confuse the two, and then they do not even consider a third category: advantages.
Three simple ideas.
Features are the tangibles of your product or service. How big is it? How long does it take? What color is it? How many calories is it (or isn’t)?
Benefits are what it does for the buyer. Enables the buyer to do more. Saves the buyer time and money. Helps the buyer lose or gain weight.
Advantages are a third category. It comes in between features and benefits. Think of it answering the question, “What does this feature enable me to do with this product?” If all the appliances are white, the advantage is that you can put them into pretty much any kitchen and they will match. If
Advantages are not really third since they come between Features and Benefits. Really, it should be presented as Features, Advantages and then Benefits. I put them third because most people forget about advantages and mix them up with Features and Benefits.
Benefits are important because that is what you are selling to the buyer. It is important to sell the “what is in it for you” because that not only differentiates you from others but also addresses the needs and wants of the buyer. You can call it the “trigger” for the sale.
There are many sites on the web for Features, Advantages, and Benefits. Do a Google Search and you will find many examples of how to do this. One is at Presentation Pointers titled Sell Features, Advantages, and Benefits.
In the end, remember to divide up your product qualities into these three groups when you are developing your sales and marketing message. With this exercise you have a better chance of hitting the trigger points and making the sale.
Part 4 of 5: The Startups for Tech Wildcatters
Posted by Steve in Miscellaneous, Pitch on October 22, 2009
The last three days, I introduced Tech Wildcatter micro-seed project, their program, and some of their philosophy for a successful fundraiser. Today, we look at the startup selection program and how discussed their program for entrepreneurs.
Gabriella Draney and Jon Feld started Tech Wildcatters. On Sept 3, I had the great opportunity to sit down with Gabriella and talk about her new venture. I organized her responses into each of these general question categories.
What types of companies are they looking for?
Tech Wildcatters will target IT professionals: one to two people with a good idea and some prototype.
What areas of interest?
In no particular order or priority:
- Transportation and logistics
- Energy
- Retail/Consumer Goods
- Education
- Real Estate
- Travel/Leisure
What stage should the startup be at?
They would like to do something that has an alpha or prototype already developed but can do a pre-seed company.
Does the product need to be patentable?
Not necessarily! The idea is to get early to market, and be best in market.
What are the characteristics of the team?
Two or three founders with the skills of business, product development, and designer spread between them. They need to have the entrepreneurial spirit.
A big question for them will be their ability to devote 100% of their time to this endeavor. This is not something that can be done in a typical 40 hour work week. Will their other commitments be manageable? Will their spouse be able to handle it and be supportive?
Key questions they will consider:
- How well have you thought out your idea?
- How much have you worked on it?
- How dedicated are you, especially when the 12 weeks end?
- Can you develop your own product? (If it is going to take 30 programmers, this will not work.)
- Can you be in Dallas for three months? (After the program ends, you can be anywhere)
Two or three people? Why not one?
Gabrielle described how Tech Wildcatters do not want someone working in a vacuum. “Companies are not built in isolation,” she said. It is unlikely to find someone that is great in the business, development, and design. With two people, they have the other person who can review their ideas and offer critical feedback.
What will be their selection process?
Their criteria they are keeping to themselves for now, but the process is fairly simple. They will have three passes. The first will be whether or not the entrepreneurs fit the criteria. Based on these criteria, Tech Wildcatters will select who they will contact.
The second will be an email to the entrepreneurs and their response. See other comments in this article about the biggest mistake being lack of follow-up. If you are applying to be a part of this, definitely return all email as fast as possible.
Finally, they will do phone calls and interviews. They will narrow it down to 10 to 15 companies for the first group.
Ultimately, there will be a selection process and it will start soon. They plan on selecting companies starting December 2009. Tomorrow, I will tell you how to contact them (if you have not already done a web search for the name Tech Wildcatters).
Shark Tank or License Tank?
Which is a better deal for your business?
Offer 1: $35,000, the investor owns 100% of your business, and you get a 2% royalty.
Or
Offer 2: $50,000, the investor owns 51% of your business.
It depends on your belief on whether you will be successful or not with your own business or you should do a licensing deal. Offer 1 was a licensing deal.
Last night I watched about five minutes of an ABC show called Shark Tank. A regular group of investors review pitches from entrepreneurs and they offer a deal right there. Whether or not they consummate a deal depends on negotiations later but the deal offers are in good faith.
The owner of turbobasters.com was pitching her business. You can visit the web site to see it. She was given the two offers. She chose offer #1 because the investor had the network to get her product sold. 2% of something was better to her than 49% of nothing.
I stopped watching. Instead, I started doing my own little due diligence on the internet, visiting her website, texasstartups.com, and the show website.
A few things came up:
1. She does not have a working prototype. All she has are some drawings and a good idea. No business plan, or marketing plan. However, she may have mentioned that on the show.
2. The show does not do any business due diligence; only background checks.
3. Evidently other inventors get on there and instead get an offer to license their product.
As one poster put it succinctly on the texasstartupblog.com: some of these people have no business running a business…they are much better off licensing their product. In this case, the lady took the right deal between the two, if it really was a license.
As for my thoughts on the show; I have not watched enough of it. I do wan to point out one idea: This is on TV so it is supposed to be entertainment and there is a big difference between that and what investors do make sure they make a solid deal.
Quick note:
Offer 2 valued the business at $98,000. Offer 1 said the business was worthless and it was just the idea that was valuable. Big difference.
Executive Summary does NOT need a conclusing paragraph
In this series of installments I am discussing the executive summary and how to make it stand out. The executive summary should present the compelling reason for the investor to buy into the company.
At this point, we have discussed nine sections of the executive summary. Since this is a very short document, that is all you need. Do you need a concluding paragraph that summarizes the entire page? Typically no, unless you have a good way of wrapping up the most salient points on the page in one or two sentences AND you can keep it within the limited space. Most people will have a tough enough time keeping the necessary information to the confined space. If you run out of space, then do not worry about the concluding paragraph.
There are a few extras that are useful, which I will address in the next few posts:
- A summary table of financials
- Flow chart of the business process
- Flow chart of the business plan
Bottom Line it to the Investor in the Executive Summary: How will you pay them back
In this series of installments I am discussing the executive summary and how to make it stand out. The executive summary should present the compelling reason for the investor to buy into the company.
Another common mistake is that entrepreneurs do not worry about how they will pay back the investor. Imagine you were going into a bank to by a CD. They say it will cost you $5000 but they do not know when it will mature or for how much. Would you still buy it? Of course not. The same thing applies to investors putting money into a business. Without knowing the intended rate of return and when they will get their money out (with profit) why would they invest?
They would not.
The focus on this last section is how much the investor will get out, when, and how. Consider the following two points:
- Are you going public, selling privately, doing an LBO (levered buyout offer), paying back in cash over time?
- How much and when?
Question 1 is not necessarily written in stone. The best way to answer this question is to first consider how do the other businesses in your arena exit? Do they go public, or LBO? The next consideration is what is currently in favor at the time of the presentation: IPO or cash flow stream for example. Any investor knows that you will consider other methods, and this can be discussed in the business plan.
Question 2 needs to be within the typical timeframe of most investors (5 years, ranging from 3 to 7) and for the typical target amount.
The target amount can be as high as 100x the original investment (or more) and as low as 10x to 20x. Anything lower should be like a cash flow stream from the company. A cash flow stream from the company is lower risk, more likely, and thus does not need to be as lucrative.
Investors like to see that the entrepreneurs have considered their point of view. By showing the investor what they will get out of investing in the business, the entrepreneur also shows that they consider the investor a key customer that must be satisfied.
Address the Executive Summary to the Audience: The Investor
In this series of installments I am discussing the executive summary and how to make it stand out. The executive summary should present the compelling reason for the investor to buy into the company.
The primary audience of the executive summary is the potential investors. Their primary concern is what do you want, and how do I benefit?
First consider how you address the question: “What do you want?” Essentially, you want money from the investors. More importantly, they want to know how much, when, and how does this money IN translate into money OUT. This can be broken down into several key issues:
- How much money will you need from the investor?
- Over what time period will you use this money?
- How many months from the time you get this money, or part of this money, until you start making money?
- When do you expect to start making money?
- What are the total revenues in the first year, first three years, and expected lifetime (and how long)? If you are using NPV calculations, what is your cost of capital?
- Where is this revenue coming from?
- What other revenue sources could there be, that you are not including in the dollar value?
Although you can also get guidance, key barriers dropped, potential customers, key members of management, and myriad of other things. What makes an investor the investor is their infusion of money.