Entrepreneur red flag no-no’s

Guy Kawasaki put up another informative post, “The Top Ten Lies of Entrepreneurs” and has done a pretty good job of digging up “red flags” in a given pitch. Here they are:

“Our projections are conservative.”
“(Big name research firm) says our market will be $50 billion in 2010.”
“(Big name company) is going to sign our purchase order next week.”
“Key employees are set to join us as soon as we get funded.”
“No one is doing what we’re doing.”
“No one can do what we’re doing.”
“Hurry because several other venture capital firms are interested.”
“Oracle is too big/dumb/slow to be a threat.”
“We have a proven management team.”
“Patents make our product defensible.”
“All we have to do is get 1%% of the market.”

Just about every pitch will use several of these “lies”. (heck, my last company used all but the Oracle lie) That’s not necessarily a bad thing. But what IS a bad thing is when these statements made again and again, in great fanfare, in an effort to close a deal.

That’s a red flag.

My personal opinion is that when you do make one of these claims, first, make sure it’s 100% true. Second, don’t make a big deal about it. Why?

When you make a big deal out of any of these points, you’re making it an important component of your company’s success. If any of these points fail or fall through, you will lose credibility in proportion to the fanfare you made of it.

When you do make a statement like “big company X is talking to us about an acquisition”, it helps to add in something like, “but of course that’s a long shot and right now we’re in very preliminary talks with nothing in writing”. Stuff like this lets you speak the truth, yet also communicate that you’re realistic about it.

a good angel investment round story

If you’re talking to Angels and debating between things like Equity financing vs. convertible debt, read this nice post “Milk Money” from the simple, straight, and soon-to-be-successful people from Meebo.

Althought I admit other than ad placement I dunno what their revenue model is.

Did you get a Yes or No from the VC?

Did you just pitch to a VC and you think you heard a Yes? Are you sure?

Just read Guy Kawasaki’s “The Top Ten Lies of Venture Capitalists” and out of that list, three items are lies you hear when a VC is telling you they will not invest:

  1. “I liked your company, but my partners didn’t.”
  2. “If you get a lead, we will follow.”
  3. “Show us some traction, and we’ll invest.”

See his post for complete details.

If you can’t explain it to me, how can you explain it to customers?

Ed Sim wrote a great post, “Tips for the first VC Meeting“. Read his and then read an older post of mine “If you can’t talk about your product, you’ll never sell it” and you’ll (thankfully!) see a lot of similar thinking.

Ed’s (excellent) tips are:

  • Be flexible
  • Have a well-honed elevator pitch
  • 15-20 slides will do
  • Listen and ask questions
  • Have an alpha version of your product running
  • Ask about Next steps
  • Research the VC firm in advance
  • Don’t be late
  • Don’t be arrogant
  • Don’t ask for an NDA before you start the pitch

UH Angels Presentations

If you’re going to be making a presentation to Hawaii’s UH Angels, here’s two documents you should review and use to help you prepare:

Presenter Guidelines gives a collection of bullets of topics that you should plan on including with your presentations.

Term Sheet Summary is 3 slides that detail the “deal” e.g. terms of the funds you’re raising. The info on these slides should be included w/ any presentation made to UH Angels too.

In addition, you should check out their “For Presenters” page for additional resources.

How to put together a great business plan

I go through the following steps in creating a compelling business plan:

1. Create the spreadsheet.
You’ve got to start with the numbers. How are you going to make money? What kind of volume will you need? Make sure you make this an “insane” spreadsheet that not only had tremendous depth, but also has intimately linked all the relationships into killer formulas. Ideally, I should be able to adjust the sales figures and the amount of office space required in year 3 should change.

2. Make the powerpoint presentation
Summarize your business plan in a presentation. Take a look at the other posts in the presentation category for examples and tips.

3. Make a bunch of presentations
Present your plan to anyone who will listen. On second thought, grab a few people who don’t want to listen and pitch it to them too. Listen very carefully to the questions and refine your pitch to address the issues that matter.

4. Write up the executive summary
After you’ve made tons of presentations and gotten sufficiently beat up, you by now have a pretty polished pitch. Great! Now condense the pitch to a two page (max) executive summary.

5. Write the business plan
The business plan should be an expansion of the exec summ and a written detail of the presentation. By now, you should have this so locked up that writing the plan should be pretty easy.

Keep in mind a few things:

If you’re lucky, investors will read the 1st paragraph or two. I remember one VC telling me that any “business plan” he reads has to fit on the upper part of his car’s steering wheel because he reviews new plans while stuck in traffic. DFJ says to summarize your whole plan in a paragraph and I couldn’t agree more. I like to also include the “deal” (amount of money you’re raising and the ROI) in that same space.

No one reads the business plan until the last minute
By last minute, I mean that investors will read the business plan after they have already made the decision to invest and now need to perform a collection of due diligence. You don’t need the business plan to open doors or even get in front of an investor. For that you’ll need good introductions and a great exec summary.

What VC’s look for in a business plan

Draper Fisher Jurveston posted this powerpoint presentation on a business plan competition site in India and I’ve mirrored it here. It provides a very clear collection of bullets that serves an excellent checklist of what you should have in your business plan. I would also think you should be able to summarize these things in your executive summary and presentation as well.

I suggest you download and take a long, hard look at it.

Great VC and Angel Pitch tips

Long ago I read this collection of 3 articles, “How Software Entrepreneurs can be Successful Presenters to Investors” from Angel investor Edward Harley and it really made a profound influence on how I did my own presentations. I was so impressed by this that I created a blank powerpoint slide deck that incorporated his comments in the notes section.

Anyone that feels anything less that 100% confident about their presentation should take a serious look at Edward’s articles and then if you find my powerpoint deck helpful, have at it!

Article Part 1
Article Part 2
Article Part 3
Powerpoint Slide deck embedded notes.

Have you Googled your Market Lately?

I just read Paul Kedrosky’s post “Marketing 101 in the Google Age” and he brings up some simple, so-obvious-I-don’t-do-it things that every marketer should do:

    The top five site referral words/phrases from Google searches (and how that compares to the previous period).
    Where your company appears in Google results for keywords of your choice and how that is trending. Raw numbers of Google hits don’t matter — no-one goes past the top half of the first Google results page.
    A list of the companies that have bought the main AdWords describing your business. For example, if you’re in sales force automation, list everyone who has Google text ads on the search page, and how that list has changed since the last time you did the search.

Now, ask yourself, when was the last time you did this for your company?

If you can’t talk about your product, you’ll never sell it

I’ll never forget a recent conversation I had with an entreprenuer who was trying to raise money for his product. The conversation was a complete disaster for both of us.

Why?

His plan was to take me through his powerpoint slides (which for some reason never made it to my inbox in the first place) and then ask for my advice on helping him put together an investor pitch.

What happened was that instead of sitting through powerpoint slides, I started asking him questions over the phone about his company, product, etc. I forced him to think and act on his feet, peppering him with questions about how his product worked, how I might use it myself, and things of that nature.

He wasn’t prepared. Some of the telltale signs were that he…

  • …kept referring to a slide deck that I didn’t have.
  • …was unable to quickly and easily explain what his product did.
  • …couldn’t explain how I as user would use it.
  • …couldn’t answer my questions on how I would configure the product.
  • …was getting increasingly agitated because I kept asking questions.

At the end, the guy got really pissed off and we ended up hanging up on each other. Not good for either side.

So many times I get approached by entrepreneurs who are expecting to make a well-rehearsed presentation. And so many times their whole house of cards falls apart because I start asking them questions, attempting to engage them in dialog instead.

And the reason why it falls apart is not because they can’t present or can’t hold a discussion or because my questions are too stupid, it’s because they really don’t know their business well enough. They either haven’t explained how their product works to enough of their friends, or haven’t really looked into their competition sufficiently or really don’t understand the customer.

Now, all of would have been OK with me because that’s what I’m here for: to mentor. In this specific case, the entreprenuer also had an extremely bad case of “I’m smart, you’re stupid, I’ve read all the books, so shutup and just polish my presentation so I can go and raise some money”.

So what’s the moral of the story? I’ve got two of them:

  • Know your stuff enough to have an informal conversation well enough to sell your product to a customer.
  • If you don’t know your stuff, know that you don’t know your stuff and be open to assistance.