How to pitch your startup…

The #1 way to pitch your startup is with a high-speed presentation, that…

• can use numbers to get its point across, but is not actually a numerical argument.
• is a selling aid, not a business-school case study
• is a glossy brochure made flesh, filled with richly-saturated emotional appeals to the audience.

And just in case you haven’t worked it out already, the brochure is you and the audience is potential investors.

But before you try out your pitch on anybody who might conceivably be able to respond, write it all up in a shiny four-page brochure format. If you find yourself unable to do that, be very afraid (because it probably means you’re lacking some important sales skills) – and then immediately find someone who can do it for you. And in fact, lots of people can – the hardest bit is admitting that you can’t do it, and that you need their help.

So, if you find that this is the case, don’t be proud, be effective – see what you’re missing and find a way to beg, borrow or buy it in.

In fact, there are three big reasons for doing this:

1. Many potential investors respond better to shiny glossy material in their hand than spoken stuff in their ear
2. Many people you pitch to will pass the material on to other investors they know (for a whole variety of reasons)
3. Finding effective soundbites for your brochure will help you do the same for your pitch presentation

But what are you actually trying to say? Actually, a pitch says nothing more than:-

“This is the world I see, and it looks totally money.“

Overall, if you’re saying much more than this in a pitch, you’re probably trying too hard. The point of a pitch is to find people who agree with you that what you see is indeed “totally money“, i.e. a great big juicy, succulent, mouth-watering opportunity for everyone involved to get rich several times over. So, work out what the top three reasons why investing in your startup is a fantastic, solid-gold, never-to-happen-again, buy-in-or-kick-yourself-for-the-next-decade good idea, and spend whatever time you have getting those three reasons across to your audience.

A pitch is not the place for carefully-constructed, highly-detailed rebuttals overcoming various sales objections you’ve encountered along the way, it is a place for enthusiasm and excitement. In modern movie terms, it is a Call To Adventure in the Hero Investor’s Journey: given that the second stage is called “Refusal Of The Call”, it is your job to find ways of dragging people past that Refusal by connecting them up with the gift of Supernatural Aid that propels them into your adventure. For example, this might be an article in the Financial Times bigging up your sector, or a shared LinkedIn connection that strongly endorses you at precisely the right moment.

However, what is arguably most important in a pitch is the way that you say all this. If you have never sold anything before in your life before trying to sell shares in your startup, be afraid. Few salesmen are particularly good at selling big-ticket items – and, let’s face it, a startup is (even at this early stage in its lifetime) a very big ticket item, making it a very hard sell.

So if you’re an entrepreneur trying to do this, look over at your bookshelf. If what you see says “Agile Development With Rails (4th Edition)”, “Linux Device Drivers, Third Edition”, “Programming Perl” or (dare I say it) “The Lean Startup”, I can only suggest that you consider broadening your repertoire… and fast. Say, “Close Every Sale” by Joe Girard, “Secrets of Closing the Sale” by Zig Ziglar, “Presentation Zen” by Garr Reynolds, “Mastering the Complex Sale” by Jeff Thull… you get the idea.

Put another way, you wouldn’t put yourself in the seat of an F1 car without a lot of training beforehand… and standing in front of a room of investors is a high-octane context where the stakes are high, one where people in the audience expect to be sold to vigorously (and to resist just as vigorously). And you’re just going to wing it, like you’re talking to some mates down the pub? Riiiiiight.

The big modern mythology that has polluted this whole discourse is that “some ideas are so powerful that they sell themselves“. Well… it may indeed be the case that this is true for one or two ideas in a generation. But please take this on board: it’s not personal, but the chances that your (say) urban social media hack falls into that extraordinarily elect group is basically at lottery-like low levels of probability. But you aren’t Mark Zuckerberg, your startup isn’t Facebook, so trying to achieve your success by emulating his outlier success is hopefulness bordering on idiocy. Let’s face it: you’re probably going to have to take a slightly different route.

If you’re an entrepreneur, 95% of what you do is now sales. If you don’t like that, tough luck – at some stage, you’re going to have to get over it, and get with the programme. Learn from people who really know how to sell. And then sell like you really mean it – because you do.

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Influence, sway, pressure, persuasion, control…

For ever and a day, startups have written business plans – miserable, useless, charm-free slabs of cruft that serve no obvious purpose other than killing trees. Presuming that you did want to kill trees, of course (though personally, I try not to).

And so it should be no great surprise that I hate startup business plans, I really do. And though I have a hundred or more different reasons why this should be, they all boil down to one useless little lie entrepreneurs try to foist upon an disbelieving world: that they can control stuff in the outside world.

But they can’t – in fact, most entrepreneurs can barely control the stuff they’re building and/or doing internally, never mind anything roaming wild far beyond their work desk. Control falls in the realm of persuasion and politics (not in the sense of party politics, but of business politics), and we must have hundreds of ways to describe its shaded variants – influence, sway, pressure, give, push, shove, edge, nudge, wink, pull, yield, desire, want, need, hypnotize, beg, plead, offer, tempt, horsetrade, negotiate, and so forth. If you can’t outright control your customers’ behaviour, how do you plan to influence them? How do you plan to tempt them? How do you plan to sway them? These are things you really need to be honest about (both to potential investors and to yourself), because if you do somehow get funded (despite your rubbish business plan) these form the meat of what you’ll actually be doing for the next five years.

Yet how many times do you see any of these ‘shaded control’ words in a business plan in any way that that goes beyond mere buzzword bingo? Hardly ever, I’ll guess, even though these are arguably the key activities and forces which determine startup success and failure more than anything else. Given that (as I’ve long said) building a startup is a lot like trying to start a social revolution, it should be clear that these activities are in much the same way the basic political tools of the social revolutionary. Come the revolution, all your industry incumbents are like totally dead, mate.

Digging a little bit deeper, the underlying problem here is the (sadly widespread) misconception among tech entrepreneurs that they somehow wouldn’t need to engage with business politics because ‘people’ (some mythical perfect audience that’s never actually specified) will telepathically ‘get’ what they’re doing and start throwing gold coins the minute their crappy MVP website soft-launches in Guatemala. As if!

Recently, I’ve taken to saying that 90% of being an entrepreneur is sales, and that the phrase “tech entrepreneur” shouldn’t somehow fool you into thinking that tech is even 50% of what’s important. (At best, the “tech” part is 50% of the 10% that isn’t sales… i.e. 5%). But from writing all the above, I can see that what I’m reaching towards is more like this: that 90% of being an entrepreneur is business politics, of which sales is merely the most obvious manifestation.

So: while your pitch needs to be pure psychology (a passionate riff on hope, ambition, greed, and profit), your business plan should be pure politics. When will you start using shaded control words in your business plan? That’s almost certainly what it’s missing!

What is “strategy”, exactly?

“Whenever I hear [the word] ‘culture’… I release the safety catch from my Browning!” – Hanns Johst (1933)
“Whenever I hear the word culture, I bring out my checkbook” Jean-Luc Godard in “Le Mépris” (1963)

For many business school professors, the issue of what strategy is (or indeed isn’t) has long been a hot topic. Yet in real world corporate contexts,”strategy” is that thing you try to put together when:

• Your company has been successful in the past (though nobody actually knows why or how)
• It still has a reasonable amount of cash in the bank, but…
• Its #1 cash cow has just died a sudden death (and you can see that #2 & #3 are swaying alarmingly too)

Moreover…

• Everyone has a radically different opinion on why it’s all gone pear-shaped, but
• Nobody has any actual idea.
• In fact, nobody even has any usable data, because the company has relied on vanity metrics since Day One

Basically, the company is staring imminent financial collapse in the face, and it’s a downright ugly sight. Yes, all those carefully-staged sales meetings in Las Vegas (you know, the ones with hot tubs, hotter women, designer Martinis and class-A drugs) will soon be ancient history, and you’ll all be back to wearing cheap suits and working in Basingstoke in some database firm’s middle-management cadre.

So, things aren’t just bad, they’re baaaaaaaaaaad. Hence it’s plain as day that you all really need to do something, and do it fast. However, the practical problems the company faces are intensely political:

• You’ve got more Chiefs than Native Americans (is that PC enough for you?)
• Everyone has been told for years how clever they are for making the investors rich, rich, rich
• Everyone has somehow come to believe their own stupid hype
• Nobody wants to lose one iota of their insanely cosseted privileges
• Everyone knows that something has to give, but
• Everyone wants the thing that has to give to be someone who isn’t them.

Moreover…

• Nobody honestly trusts anyone else (which, given what a bunch of sharks they are, is completely justified)
• There are three or four extraordinarily dysfunctional silos of wickedness actively plotting against each other
• Anyone trying to change even the smallest thing would end up being kicked around for weeks or indeed months
• Nothing that happened could have been anyone’s actual fault, everyone is a consummate professional, right?
• Even though everyone’s about to lose their job, they’re extremely fond of things the way exactly they are.

All in all, this is the real-world context for corporate strategy, because in almost every other case, what will actually get the nod is the default do-nothing position (i.e. “carry on doing what we’ve always done because it’s made us all rich, hasn’t it?“). Really, how hard do you think anyone is going to bother to fight against the (small-c) conservative wisdom of “if it ain’t broke, don’t fix it“?

So, your company’s stuffed in the short-to-medium term, but what on earth can you actually do about it? Is anyone inside this organization quite so foolish and personally reckless as to stick their stupid necks out by putting a turnaround plan in front of the board? Of course they aren’t, don’t be so utterly ridiculicolous. “I pity the fool”, etc.

This is the precise point in an ossified corporate’s lifecycle that external management consultants get parachuted in to propose an unconvincing MBA turnaround strategy: but in reality, what’s happening behind that whole strategic façade is that

• Investors are steeling themselves for a big hit on their portfolios
• Competitors are being sized up to see if they’re fool enough to buy the failing company
• Everybody is blocking every aspect of the turnaround strategy
• Everyone comes in every morning expecting to find a lot of blood (possibly theirs) on the carpet
• Everyone is fleshing out their long-dormant LinkedIn profiles
• The really proactive principals have already jumped

Needless to say, none of this normally ends well.

So, you could reasonably say that for corporates, “strategy” is essentially a billboard you plaster over a failing and grossly dysfunctional company to make it look good enough for a competitor to take off your investors’ hands.

For startups, though, strategy has a different meaning entirely. The central conceit of the business plan is that you have some kind of control over things, which for startups is almost always utterly false. Startups struggle even to influence buyers, let alone control them. In the same way, the whole (business school) notion of strategy fails abysmally for startups, because almost all are trapped in such a short-term cash-flow-centric view of the world that notions of long-term aspirational / strategic bets are simply out of scale to their cash-poor grimy suburban realities.

The terrible truth, then, is that strategies are like the mythological monkeys, in that there are only three of them: two corporate ones…

1. “Carry on doing the same” (because the company is succeeding)
2. “Pretend to be doing something new” (because the company is failing)

…and one startup one…

1. “Hang in there” (until people start paying you money for what you do)

Business school professors be warned: whenever I hear the word ‘strategy’, I take out my AK47…

Securitization, patent lien, and startups…

In these post credit-crunch days, there is a lot of pressure on banks not to lend – not just to startups, but to anyone at all. That includes lending to business angels, many (if not indeed most) of whom are both wealthy and illiquid.

Yet at the same time, the innate growth logic of young business itself has not managed to magically sidestep the need for capital through some kind of hitherto-unknown financial engineering trickery. (Oh, and you can shout “Lean Startup” at me here until you’re blue in the face, tell it to the hand coz the wallet ain’t buyin’ it).

So, what kind of security could a startup offer a bank? This is something I’ve long thought about, ever since I first heard about “Bowie bonds”. Love or hate his music, you have to admire the former Ziggy Stardust’s timing, in that his financial advisors found a way to sell future revenue from Bowie’s back catalogue, all packaged up in the form of bonds. Which, given that CD sales tend to spike when rockstars die, would seem to be a neat way of profiting now from your own future death (whensoever that may arrive).

And so I wondered whether a startup could effectively secure loans against their patent portfolio – in other words, securitize their IP. As I understand it, the only UK bank that ever did this to any appreciable degree was Lloyds TSB, which for a while had a London office specializing in IP securitization. It was never really for startups, though: and my understanding is that the cost of performing an external valuation on a patent via a specialist patent valuation house is somewhere between £25K to £50K. Even then, most of what such companies do seems to involve looking at the financial inflows directly arising from patents, which isn’t exactly financial rocket science.

The short answer, then, would seem to be that startups can’t obviously securitize their patents.

Yet just now I read an American case from Massachusetts, where patent agents were owed $109,000 by an advertising agency that had gone bust. They believed that they had a lien on the patents that were gained through their work, but the liquidators handling the bankruptcy subsequently backtracked (having sold off the patents). The patent agents pursued their claim to the SJC, which in 2009 found fairly comprehensively in their favour.

The moral of the story (if anything to do with American attorneys can be said to have a moral) is simply that the outstanding money owed to the patent agents by the bankrupt agency was effectively implicitly secured against its patent portfolio, even from before they were sold.

The even bigger macroeconomic picture is that the shadow banking sector – where such securitization is now utterly commonplace – was worth $60 trillion as of late 2011. Yet it is not clear to me that even a cent of that is going to non-traditional funds trying to support startups. All of which strikes me as a massive market inefficiency – the part of the economy that has arguably the greatest capacity for rapid growth in the economy is being run in a way that consciously reduces its access to finance, just in case that kind of funding accidentally proves to be an inflationary bubble. And the one thing that they genuinely have – IP – is excluded from the whole game. It makes no sense.

At the same time, the whole shadow banking sector is coming under increasing scrutiny from lawmakers and economists. It is now widely believed (with plenty of justification, I think) that the way that shadow banking is largely unregulated may well have been the root cause of much of the credit crunch (and don’t even start me on rehypthecation churn, I’ll be typing here all night).

But securitization against patent assets would go against this trend, in that it would be adding assets to the world’s trade balance sheets rather than simply trading against multiply leveraged existing collateral. (And we all know where that led to not so long ago).

I therefore wonder whether groups of startups specifically with patent IP could pool them into securitized funds that were somehow partially liquid, for them to loan against from the fund.

But if they could, they would almost certainly need patent administration removed from each startup’s day-to-day running to prevent it accidentally messing the application up (and thus trashing the fund’s collateral). Yet the requirements for this kind of arrangement would probably run counter to the ownership requirements of the new Patent Box tax regime coming in. So it could be that the Patent Box works as an effective mechanism to prevent companies from looking for ways to securitize their patents. All very confusing!

Top 10 reasons your business plan blows chunks…

1. You found a business plan checklist on a celebrity VC blogger’s site, and followed it right to the letter.

• Wrong! VCs almost never invest in startups, so why on earth are you taking their stupid advice?

2. Your plan does exactly what Steve Jobs / Mark Zuckerberg / Alan Sugar / Anita Roddick / etc etc said in his/her book.

• Wrong! Most super-rich people got there in spite of what they did to get there, not because of it.

3. You’ve got an MBA.

• Wrong! Make money consulting for clients who have money and no brains, not for entrepreneurs with brains and no money.

4. The plan sells your business on its rational merits and a modest growth projection.

• Wrong! People will only back your plan if they think it’ll make them stupendously rich, despite all your flaws.

5. It’s a bit of an unsexy industry, but the figures are terrifically strong.

• Wrong! The cocktail party test = “Hey, Steve, what’s that company you’ve just invested in?”, “Oh, it’s a bit dull but…”

6. We have two patent applications pending, and a really strong IP angle going forward.

• Wrong! Patents scare the pants off most investors, who worry they will drain the coffers dry before you’ve sold a thing.

7. Though I’m a solo entrepreneur, I have deep experience & a fantastic industry network.

• Wrong! Angels worry that you’ll turn out to be a deluded nutter from an episode of Dragon’s Den they missed

8. I have a fantastic Advisory Board, including a former government minister & a retired general.

• Wrong! You gave away points in your business to know-nothing idiots like that? What were you thinking?

9. I follow Lean Startup principles religiously.

• Wrong! You’ll obviously believe any fairy-dust solution that drops in your virtual in-tray. Get real, OK?

10. I wrote it with the help of several mentors and a professional business plan writer.

• Wrong! You’re so anxious to hand your cash to startup parasites that none if it will go towards actually making money.

What Is A Business Plan?

A business plan is a tool you use to persuade somebody to support you in some enterprise. So, it’s not only a sales brochure for what you’re hoping/aiming to do, but also an evangelical gospel for your unique way of seeing things, as well as many other kinds of things simultaneously. Out of all these parallel aspects emerges a “Virtual You” – the self-constructed profile of yourself and your company that you present to potential backers. Remember that to them, you are so inseparable from your plan that, to all intents and purposes, you are your plan.

Yet if you look a little closer at what’s going on, you’ll find that business plans sit awkwardly in a limbo zone between financially-general persuasion tools (such as elevator pitches and executive summaries) that tend to contain few actual figures, and financially-specific persuasion tools (such as financial models, cashflow analyses, and management accounts) that are usually built around more detailed figures. So, which of these are they? The confounding answer often seems to be: both of them and none of them. Yes, it’s a mess.

The fundamental problem with business plans, then, is that nobody really knows what they should aspire to – at heart, should they be general or specific? As a result of this confusion, what usually happens is that they end up being amorphous catch-all documents containing a rag-tag mix of both, and with insufficient genuine focus to satisfy either kind of audience.

Hence if you’re ever told “you need to write a business plan to do [whatever]“, be very wary of what you set out to do! Different kinds of potential backers look for different things at different times: for example, quite a few UK angels (typically accountants and cashed-out Finance Directors) only actually want to see an executive summary and a cashflow analysis, while many others (typically cashed-out financial service professionals) look for a pitch deck and slides from your financial model. But don’t get tied up in the generalizations – everyone is different, and you may well need to prepare a whole raft of documents and presentations to give you a reasonable chance of “hitting the spot” for more than just a handful of them.

Personally, I think that there’s something a bit more subtle going on here, and that we should look more to the psychology of investing for our clues into the kind of sales documents we produce.

Specifically, the more speculative kinds of presentations play to investors’ desire for success, their aspiration, probably even their greed. So if a pitch or exec summary doesn’t leave them downright salivating, it has failed in its job. Similarly, the more detailed, empirical kinds of document are there to overcome technical financial objections, to assuage potential investors’ primal fear of losing their shirt – basically, to dampen down their fear of failure. That leaves a big space in the middle between the two: but what should go in there?

Ultimately, I believe that though they don’t tend to talk (or even think) about it much, business angels tend to be ruled by Two Big Fears – not just fear of business failure, but fear of being led up a bizarre garden path by someone who has become so good at fooling themselves that they end up fooling you too. That’s the whole “delusion” thing that Dragons Den / Shark Tank producers take such delight in foregrounding – is “bone marrow scented shaving foam for dogs” an incredibly brilliant idea or an unbelievably stupid one? Do you really want to invest £50K to find out which?

So having been thinking about this for years, I’ve come to believe that what should primarily be in business plans is simply things to do with the market – both macro-marketing (genuine market research you’ve personally carried out, together with brief analysis) and micro-marketing (genuine opinions of customers within the sector you’re aiming at). Things that validate your claims about what is going on in the big wide world. Things that ground your high-concept presentations and pitches in reality. Things that mean you’ve probably taken a bet against the market that is going to pay off.

Really, whatever the merry band of semi-retired forensic accountants posing as UK business angels may think, few startups have genuinely enough historical data to genuinely produce workable financial models, cashflow analyses or indeed management accounts. (I suspect that most of the time angels use these as a way of getting entrepreneurs to commit to unreachable milestones under impossible conditions… you have been warned.)

Hence the best-case scenario at such an early point in a startup’s history is simply that (a) the principals aren’t spending money very fast, (b) they’ve taken the time and effort to listen to their market first so as not to get taken in by a whimsical delusion, and (c) they have the wit, common sense and practicality to communicate that research to you.

So that, for me, points to what a business plan really is: a means of communicating the genuine market research you’ve carried out to test your ideas about (i) how the world works in your particular corner of it that forms your marketplace; and (ii) how you plan to improve it. Don’t be too general (leave that for your pitch) nor too specific (unless you genuinely happen to have a load of data), but concentrate on the view from the other side of the table – your customers’ side.

Let me know how you get on!

What would a genuinely credible 2012 business plan look like?

Over the last few years, a large part of me has come to despise business plans and formal pitches, the means that entrepreneurs typically employ to try to communicate their BBGF (“barely believable growth forecast“) to potential investors. It’s entirely true that almost all of these are formulaic, clichéd, and template-driven, with their Advisory Boards, edgy American clip art and dinky little hockey-stick curves: but the thing that “totes gets mah goats” is much, much bigger than any of these pettily lazy annoyances.

No, the big issue I have with them is this: that even though pretty much every startup has an interesting story to tell (particularly if you ask the founders about it in the pub), pretty much every formal startup presentation I’ve ever seen – including most of my own, ashamed as I am to say it – tells the company’s claimed growth story as viewed from the wrong side of the table. Which side is that? The company’s side. So which is the right side? The customer’s side.

Furthermore, it may sound like an obvious thing to say, but almost all the tech entrepreneurs you’re likely to meet are more interested in the tech part than the entrepreneur part. And the two parts aren’t 50-50, far from it: doubtless I’ll have to keep on saying it until I’m blue in the face, but 90% of entrepreneurship is sales. And the art of sales is the art of seeing things from the other side of the table.

So, here’s my challenge to you for today: what exactly is stopping you from building a business plan – or indeed a presentation or pitch – where at least 50% of it is from the point of view of those sensible-headed people who you claim will be buying whatever dog-shit fairy-dust your startup plans to sell? How can you find a way of putting their words into the presentation rather than yours?

Business isn’t about what you think ought to work, it’s about what will actually / slowly / eventually work for the largely rational consumers on the other side of the table. What does the world look like from over there? Do you really know? If you do, why aren’t you even remotely getting it across in your presentations?