Business Models & Pitching Investors. Agenda Part I- Business Models –Business Models 101...
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Business Models & Pitching Investors Agenda Part I- Business Models Business Models 101 Explaining your Business Model Groundtruthing your Business Model Part II Pitching To Investors Its a Numbers Game Pitching 101 Proposed Presentation Format Risk v. Reward Business Models 101 Part I: Business Models Business Models 101 A business model explains how you convert your idea/technology into economic value. Value Proposition Market Segment Value Chain Revenue Generation & Margins Business Environment Competitive Advantage Business Models 101 Value Proposition Identify the customer pain or problem. Indicate how the product addresses that problem. Quantify the value of the product from the customers perspective. Understanding value is KEY! Generally wholly unrelated to your cost base. What is the value of a bottle of Coke? What is the value of a painkiller? Business Models 101 Market Segment Identify the specific group of customers (aka market segment) you will target. Demonstrate an understanding that different market segments have different needs, preferences and purchasing criteria. Explain why you have chosen the specific market segment. Quantify, Quantify, Quantify. Important to be able to point to a present demand from an identifiable and targetable market segment. Business Models 101 Value Chain Where does your business sit in the value chain? Do you need telco support/partnership? Can you go direct-to-customer? Do you require the availability of other technologies (e.g. Bluetooth)? If you are reliant on others, how will you capture your part of the value created? If you require other technologies, how do you overcome consumer inertia? Business Models 101 Revenue Generation & Margins How is revenue generated? One-off purchase? Subscriptions? Freemium model? Advertising? How does that tie back to the value chain? What is your cost structure? What are your target profit margins? Business Models 101 Business Environment Who are your competitors? There is ALWAYS a competitor (even if it is just consumer inertia). Who are you complementors? Is there a substitute product/service? Does the product become more valuable to customer as a result of network effect? Are there any force multipliers that can be utilised? Position on telco portal Viral distribution / Word of Mouth Business Models 101 Competitive Advantage What is your source of sustainable competitive advantage? Examples: Costs, product differentiation, market insight, superior execution or niche strategy. SCA is a must have for investment. First to market not always sustainable. Market insight is not always sustainable. IP protection not always sustainable, and is dependent on your ability to finance enforcement. Explaining Your Business Model Business Model = Your Business In a Nutshell If you cannot explain it in 50 words or less, you dont yet fully understand your business. Summarise, summarise, and summarise again. Throw away verbiage, get to the essence (e.g. We cure cancer). Concise, powerful summary needed: Elevator pitch Investor pitch Customer pitch Friends & Family (What is it that you do?) Groundtruthing Your Business Model Business models often work great in theory, but fail in the real world. Why? Assumptions (e.g. People think like me) Research is often backwards looking Rapidly changing business environment Talk to customers LOTS OF CUSTOMERS: Confirm their pain + interest in your product Confirm their pricing sensitivity Get confirmation in writing, if possible. Be oblique (What if there was a product that did X?) Business Models 101 Part II: Pitching to Investors Its a Numbers Game Law of Supply v. Demand works against entrepreneurs/innovators: 1000s of ideas (Supply) v. Dozens of investors (Demand) Investors are very choosy: Specific niches / areas of interest (e.g. Health) Specific investment criteria + thresholds Specific stages of investment Specific regions for investment Do your research + target compatible sources of investment. Its a Numbers Game For every 100 business plans received, investors select only 1 for further investigation/discussion: 70% dont clearly articulate business proposition. Heavy emphasis on the tech, low emphasis on the opportunity and the right team. 20% dont clearly demonstrate investment return. 9% remainder arent original ideas: May have a similar opportunity on the boil Know a colleague who is investing in something similar Its a Numbers Game Important to be a pragmatic optimist. Optimists think This is an incredible product and opportunity. It will sell itself. Get slammed. Try again. Get slammed. Try again. Get slammed. Give up. Pragmatic Optimists think I have faith in my product. I have faith in my business model. I believe I will get funded, but it is a long hard slog. Far more resilient. Far less defensive. Far more successful. Pitching 101 Rule 1 Decide whether to pitch. Not every investor/opportunity is worth chasing. You have limited time, resources & optimism CONSERVE them, and spend them well. Hard to make a good second impression. If an investor your pitch (or hears of your pitch) a few times, then the idea can become stale e.g. If youre still pitching, then no-one else is interested in you, so why should I be? Pitching 101 Rule 2 Know your audience. If you have decided to pitch, it is important to know who you are pitching to. What are their interests? What are their backgrounds? What organisation do/have they worked for? What do they most want to learn about you? Can usually get these details from the pitch organiser, or the person who referred you. In short, research the bejesus out of your audience. Pitching 101 Rule 3 Understand the time constraints. If you only have 5 minutes, dont bring a 20 page presentation. 1 slide = 2 minutes of conversational paced talk. Ideal presentation format: 10/20/30 10 slides 20 minutes 30 point font Adjust slide numbers to suit time, not font size! Pitching 101 Rule 4 Get to the point, FAST. Within the first 60 seconds, explain what your business does, why, and why they should care. Before you open your mouth, assumptions have been made about you (often subconsciously): Age, sex, appearance, demeanour, clothing etc. You have 1 minute to recapture and refocus attention. Skip the autobiography or background story (if it is important, bring it up during Team discussion). Pitching 101 Rule 5 Explain the obvious Your audience doesnt know what you know. They havent lived it for 6 months, have your skills/experience etc. They are coming in cold. Assume every time you make a claim, theyre thinking So what?. Answer the So what?, then follow through with a concrete example. e.g. We make triple-density mobile batteries. [So What?] It increases the powered-on lifespan of mobile devices by 300%. [Example] If you are a road warrior, this means you can go 1 week without having to plug your phone in. Pitching 101 Rule 6 Dont try Law of Big Numbers razzle-dazzle Every entrepreneur claims a multi-billion dollar market. 1% share = Hundreds of millions in revenue. Investors dont believe it, and you damage your case if you use this logic. Hone in on the true total addressable market. What is the actual market you can realistically target with your product, in your launch market, with your start-up budget, during early market penetration? Pitching 101 Rule 7 Remember the end game and only tell enough of the full story. You cannot assume they have read your business plan (99% wont have). But you dont have time to tell them everything. No one is going to write you a cheque after a single pitch. So you need to tell them enough to get them interested and secure a follow-up meeting. Objective of a pitch is to stimulate interest, not close the deal. It is the start of a l-o-n-g process. Pitching 101 Rule 8 Dont pitch too high or too low. MISTAKE: Sticking to your comfort zone. Tech/logical types pitch too low (coalface) they get into the nuts-n-bolts of the solution, how it was put together, why it is so innovative etc. Business/creative types pitch too high (blue sky) they talk about massive markets, first-mover advantages, changing business paradigms etc. Both frustrate investors it tells them too little, or too much. You must present a balanced story. Provide enough coalface detail to prove you know the market + can deliver, and enough blue sky to demonstrate you know the market well. Pitching 101 Rule 9 Listen, Take Notes + Revise Always take notes during the session. It shows youre conscientious and willing to learn. It compliments the person speaking (I think youve said something important/smart). Demonstrate you have been listening by summarising their point/question before answering. Use your notes + learnings from each pitch to refine + evolve your pitch. It should improve with each presentation. HINT: Dont pitch the No.1 choice first. Pitching 101 Rule 10 Avoid common traps Turn up early. Dont assume you will get full time allotted (e.g. previous meeting runs over etc.). Always bring equipment, spares and backups (inc. projector + printed copies of presentation). Only 1 person should speak. Do not read verbatim from powerpoint (it should provide a framework for the audience only). Animations are verboten! Use dark backgrounds with white/light text. Proposed Presentation Format Title Business Name, Your Name, Contact Information Problem The problem/pain you are trying to solve, in laypersons terms. Solution How you solve the problem and the value it creates for customers. No in-depth technical discussion. Identify target segment. Business Model Who will pay you, how much, how often, at what margin, and how you get it into their hands? How big is the market? Financial Projections 3-5 year forecasts. Explain and validate your underlying assumptions. Investment Sought + Next Steps How much are you seeking? How will it be spent. What does the investor get? Proposed next steps (meeting, demo etc.). Risk v. Reward The key to successful pitching is to reduce the perception of risk while increasing the perception of reward. Start of Presentation: 100% Risk, 0% Reward During Presentation: Demonstrate market demand: 80% Risk Demonstrate well-targeted solution: 60% Risk Demonstrate coherent business model: 40% Risk Demonstrate sizable, addressable market: 30% Reward Demonstrate sustainable competitive advantage: 60% Reward Risk v. Reward Remember your audience THE INVESTOR. Investors always want to see: What they get for their $. A billion dollar market. 10X return within 3-5 years. Investors have a portfolio approach: Of 10 investments, 7 will fail (money lost), 2 will break even (nil return), 1 will be breakaway hit (10X return). They pick every investment for its potential to be breakaway hit. Recommended Reading Business Models & Pitching Q&A