Originally Published 2008-02-25 14:14:49
I get pitched at least once a week on some new idea. These are, almost invariably, half-baked pipe dreams. There are a lot of people out there with good ideas -- the keys to success, I believe, are based on connections (who you know), experience both in the specific business sector and as an entrepreneur, luck, and drive.
Usually, alas, the pitches I hear are from folks without a great deal of any of these. My typical response is "write a business plan and get back to me".
Well, someone did. Here's my review (with sensitive items removed, of course) of it. You don't need to read the business plan to understand my criticisms. For what it's worth, I'm looking forward to seeing the revision of this one.
Seeing this for the first time, I have the following questions:
How do you make your money? I get the basic premise -- (proprietary items removed) -- but where is the value?
The only place I can guess on value is... (proprietary items removed)
But you never say that.
The "how does your company make money" question needs to be answered right up front, before any graphs, projections, etc. I'm also skeptical that the value of [your customer's purchase is what you imply]. I'm not saying it isn't -- I don't know what I'm talking about -- but if I'm wondering, so will another investor.
This is business. Ultimately, despite the fact that you're currently selling to investors, you'll need to sell to the people that will pay for your service. The investor needs to understand not only who these people are (you say that), but why they care. "Care" meaning want your service, that is. This is a new product, something you say many times, so you're going to need to educate your consumers on the product -- how are you going to do that? A good start to answering that question is communicating the new product and why its compelling very concisely and quickly to an investor.
Basically, you need an elevator pitch, which then is presented at the beginning of your business plan as an "at a glance" i.e., "Executive Summary" It's not so very different from hitting on a hot chick: it takes practice, it takes confidence, and it damn well takes you having a clear vision of what exactly is going to appeal to her. For an investor, that means your business model. (She already knows what you want, and even if she's wrong, you can't change those assumptions in 30 seconds.)
Everything else is secondary, but while I'm thinking about it:
- I wouldn't go into such detail on sales projections and such unless you have individual investors asking for it. Venture Capitalists don't care, because it's all smoke anyway. The time-to-profitability graph is what matters here, not the results of the dart throw you took at 3am the night before your pitch. If they even get to that part, they've been sold on the model -- now they just want to know the execution details.
- Everyone knows you need to spend some money on office space, computers and a fax machine, so I wouldn't bother. Include a figure for "office expenses", yes, but use a nice round number and call it a day. The technology infrastructure required to run a digital sales system that can handle XX million transactions a day? Yeah, include that. Your phone lines, not so much.
- Don't include specific salary figures. Your rich uncle doesn't want to pay you that much ("greedy bastard!") and a VC will wonder why you're so cheap ("first time entrepreneur with no experience"). Either way, it doesn't add a whole lot of value and it might detract a lot.
From a tech perspective, as a software architect, I'll need to be able to draw some basic conclusions about what the Information Technology application is supposed to do from your business plan. Software development starts with Business Requirements, which in turn correspond to Functional Requirements that dictate Technical Requirements and finally a Technical Specification. You can skip certain aspects of this process (you kinda have to in a startup), but the basic logic flow is the same. If we skip the BRD (biz req doc), it's gonna be because the Business Plan and related collateral is so friggin' good that your software architect can extrapolate what is needed from it. The other shortcuts in the process are going to be because I rock and hire IT staff that rocks -- stuff that also costs additional money, because rock stars are more expensive.
Lastly, without a prototype, you need mock-ups. That should be included as a cost in your initial angel pitch. It costs some of that angel investment to build and support the sales process for the next step -- getting a VC round. On this point, don't kid yourself --100% of your time for the next 3-5 years is going to be wrapped up in trying to get your next round of funding. The other 100% of your time is going to be actually getting your business moving. And yes, you're minimum workweek is going to be 80+ hours for the foreseeable future.
One last peripheral question... do you know who your competitors are? I don't think that a detailed answer belongs in your business plan, but you should be prepared to answer those questions, especially regarding how you're different and why you're going to make more money.
On 2008-03-05 05:19:22 Handyblogger said:
Youâ€™ll need to sell to the people that will pay for your service. The investor needs to understand not only who these people are (you say that), but why they care.
On 2008-03-08 04:28:06 wine clubs said:
I also get hit with these ideas on a daily basis and on a daily basis I see businesses that I could do, or lets rather say I believe I could do. Maybe I could in some cases even do them better than the people that are doing them but every business needs its setup. Common mistake is that it looks easier than it is and if you want to have success within a reasonable and target time frame you will need to know the business in and out even then it is not as simple as it may seem. A sound business plan is one thing but to get a business to work is another, to have the endurance to go through the non profit phase is the biggest task of all.
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On 2008-03-16 13:04:56 Vinny said:
Most of the time, when I hear of a business idea my first thought is - someone else is probably doing it. "But no, no one is" they reply.
Lo and behold a few days or weeks later while doing their due diligence, they find out someone is - or is doing something very similar.
Passion is great, but if you can't compete on price or service - you're not going to make a profit.
No one is going to pay you money unless you make it worth their while.
Nice blog, I'll be back (in that other post about the phone company needing 5 days, that always pisses me off too. I was in telecom for a while, I know it takes a day sometimes just to get the paper from one side of building to the other (or to another building) - but then it is just a matter of throwing a switch.
On 2008-03-21 23:37:55 Expat said:
People are just not satisfied with their present possition. That is not actually their own prob. they are driven to expect more and to do more. It is a very nice way to expand business of the world now. So we all always try to earn more.
On 2008-03-28 10:21:33 SLC wedding caterer said:
It's amazing how fast the world is growing and to see the new market needs - Rich
On 2008-04-19 00:57:56 aerobatics instruction said:
The idea is only a small pasrt of what is required to accomplish something. Have several every day ;-)
On 2008-06-21 04:32:06 Betty said:
Thanks, an interesting post.
I am coming up with new business ideas all the time, and it can be very difficult to separate the time wasting ideas from the really good ones... It's somehow easier to be critical of other peoples ideas than your own. I can watch Dragons Den and think - this is a rubbish idea, or this is a great idea, but doing that on your own ideas is a whole other proposition.
Here are my golden rules though for picking a good idea
1) Do you have a market to sell your product/service to?
- No point having a great product that nobody wants.
2) What is your route to reach your market?
- No point having a great product that everybody wants, but they don't know it exists.
3) Do you like what you're selling?
- Unless you are totally dedicated you'll get bored of what you're doing before it becomes successful.
4) How do you plan to make money from your idea?
- It's important to have an idea how your business idea will actually make money. Websites are the one exception when I'd say a clear money source isn't as important as creating a site people will visit.
I'd be interested in peoples comments on my comment :)