The other day I had the opportunity to watch a full hour long presentation by Mark Suster on how to communicate and present to a VC. His presentation was excellent, packed with lots of good info regarding everything from, “how to dress” all the way down to “how to answer questions.” BTW — How did I find this presentation? Xydo of course.

Here is a teaser sample of the Deck he recommends you come with to the meeting.

1) Bio of top 3 people in the company. Short sentences, bullet points, easy to read.
2) Problem definition (with the market … it’s why you exist)
3) How you solve that problem conceptually at the highest level
4) Details on the solution
[Demo could go here]
5) Why you believe there is economic value in what you do / how you think you can monetize one day
6) Competition
7) Progress to date of your company (when started, key milestones, what shape is the product in, any pilot / beta customers, financing)
Market sizing (TAM)
9) Potential future exit possibilities
10) How much are you raising, how long will it last, key milestones you plan to hit before the next round

In particular he speaks to the presentation having a narrative. That you present it in a non-lecture type fashion. He advises that you engage the VC’s with legit questions on how they are seeing the market and on how they view the competition. (Remember, they are likely seeing more than one company with “your” idea.)

He also gives advice that you have a Financial slide with 18 months of forecast. Important in the financials is that you make the “unit economics” very clear.

Okay… Here is the link. Enjoy and let me know what you think…

We’re currently recruiting beta testers for our new startup — XYDO, a new and engaging way to get news and information from people you trust. If that sounds interesting to you, leave your name and email address and we’ll shoot you an invitation!

Funding a startup is tough business.  I have written in the past lots of articles on what to say as well as what to include. Additionally, I wrote a piece back in Feburary entitled: “Startup Business Plan — How an Investor will Evaluate “Your” plan.”

Today, I’d like to include an article penned by Cynthia Kocialski on what not to say titled “How to Lose an Investor Before You Finish Speaking.”  Now, as an investor in many businesses, I can echo much of what she is saying in this piece.  Always remember, investors are very skeptical.  As much as they want to find good places for their capital, they too recognize that finding the places to not put their capital is many times more important.

If I were about to present to an investing group, I’d work hard to measure up to both of the articles referenced and linked to above.

On another topic, stay tuned to some big announcements coming soon… (teaser)

Business plan production seems to always create more questions than one could possibly answer.  The first of those questions should involve the very decision to create one.  Rosalind Resnick weighs in on the issue, and as much as I’d like to say I disagree with her findings, I do not.  I feel it far more important to get in the market and let your potential customers inform as to what you should be doing next, as opposed to a pile of often stale research and excel spreadsheets.  You show growth and revenue, you will get funded.  Really, it is that simple.

The week before last I published a post entitled Business Plan Outline I’ve Used To Raise Angel Investment that provided a detailed walk-through of an business plan outline I’ve developed/used to successfully raise angel investment. I wanted to follow up on that post by making an actual business plan available for you to download/revise/use that was constructed using the outline.

The following document is an almost a word-for-word copy of a business plan I created for my last company a year ago. The only thing I’ve changed are the names of our company, product, and team members. I highly suggest downloading this document and having a printed copy in front of you while reviewing my previous post – I think it’ll really help tie everything together quite nicely.

Example Busiess Plan

We’re currently recruiting beta testers for our new startup — XYDO, a new and engaging way to get news and information from people you trust. If that sounds interesting to you, leave your name and email address and we’ll shoot you an invitation!

You worked hard to create a business plan and now you’re ready to present.  Remember that great ideas are common; much rarer are businesses with the people and products to enter and dominate a market.  Knowing that only 1% to 2% of business plans are funded, I’d like to provide a checklist that you could employ in advance of your presentation.

Work down the list comparing your plan and presentation, to the questions found in each Bold section.  Make sure you know your strengths and weaknesses going in, and try hard to eliminate obvious gaps.

As I’ve mentioned earlier, investors buy management teams, not ideas or even products.  People build companies, and better teams build better companies.

Please find below, in no particular order, a few key success factors that you can work to improve the potential of your plan and its associated presentation:

Team — Can you demonstrate years of operations experience in a similar industry?  Do you have real world startup experience that led to a successful exit?  Are you hungry and willing to be coached?

Market – Is your market growing or stagnant?  It is truly addressable with customers ready to buy?  Are you creating a disruption in the space? What is your plan to get customers? Please explain your conversion ratios.

Technology – Is your technology protected?  What is the “secret sauce?”  Can your innovation be used to create a defensible position today and down the road?

Competition – Who is the competition? (Saying we have none is an automatic fail.)  What are their strategies?  Which have worked and why?  Which have not and why?  Why will you win?

Business Model – What is your business model?  Is it unique or disruptive?  What problem are you solving?  Is there real pain to be addressed?  Is your product a “must have,” vs. a “like to have?”  Are others using a similar model to success?  How long until you get to cash flow positive?

Risks – What are the risks to your plans execution?  What are you doing to mitigate them?  What are the your “CSF’s?” (critical success factors)  What must happen in your assumptions for you to be successful?  Which assumptions do you consider critical?  Which assumptions make you most nervous?

Financial Projections – Do your projections show a highly defensible set of assumptions that truly lead to the achievement of your plan?  What is your monthly burn projected to be?  How do you plan to deploy cash?  How frugal can you be?

Capital Structure – What type of business entity are you?  Do you have a cap table? Does your capital structure reflect your own investment? (Skin in the game.)  Have you planned for future allocations of stock?  Do you have too many investors all with varying expectations?  Are there structural burdens on the business that this financing is to relieve? (I hope not.)

Exit Strategy – Who is a likely acquirer of your business?  What deals have been completed in your space?  What were the key metrics and ratios of those acquisitions? Do you have an exit strategy?

Investment / Use of Funds – What is your offer?  Does it include a valuation backed by key metrics and rations?  Detail how you will use the funds.  How long a runway will your funding provide?  Detail expected future rounds and the uses of capital from each round.

Conclusion: No matter how hard you try, your plan is going to change.  Everything from your projections to your team, to competitors and their offerings will change.  Under all circumstances, you can expect to be making major changes to the moving realities of the competitive market.  You must demonstrate that your team is up to the task.

I trust the above will aid you in getting ready to present your plan.  Working through this exercise is much like being tackled day after day before the big game.  You now know what to expect and hopefully are ready to respond with clear and thoughtful answers.

Your comments are always welcome.  Let us know who you are.  Join a feed above and become part of our team.

We have spent a good amount of time discussing how to vet the the big idea, but we have spent precious little effort describing how to actually build a framework around testing it in actual use.  I’ve heard  Google often say, “Release early and iterate,” and while I agree, maybe if they had used the method described below by Ash Maurya, we would not have heard all the backlash “Buzz” drew.  What follows below is a strong methodology for customer development I would use for any web based startup.

Last year, Steve Blank threw out a challenge to Lean Startup Circle members to update his customer development checklist (Appendix B in his book) for their specific business. His checklist is built for Enterprise Software which doesn’t readily translate to other types of startups including web startups (especially when you get to Customer Validation).

After the talk, David Binetti pulled together a great group of people from Lean Startup Circle to create a Customer Development Checklist for web startups. I was honored to be asked. However, after a few exchanges trying to nail down the type of web startup to tackle first, we uncovered a number of tactical differences that made me come to the realization that defining such a model in a group setting is too hard to do. We would either end up with a highly generalized model or no model. I, for one, am not comfortable extrapolating a model from third-party accounts of what might have worked for other companies (like 37signals), and especially not without first-hand experience building a similar type of startup.

So I decided to take a stab at defining a Customer Development Checklist for my web startup.

First Some Background

This model is based on my experiences building and running 2 products: BoxCloud andCloudFire. Both use a subscription pricing model. BoxCloud was built using a release-early release-often development model and was initially launched with a Freemium pricing model – later changed to a free-trial only model. CloudFire is being built using a lean-startup/customer development model and was launched with a free-trial only model.

For SaaS product like mine, I strongly believe you need to
a) charge for your service, and
b) validate pricing sooner rather than later.

Free trials, Freemium, free introductory periods, etc. are all tactics to lower sign-up friction and should be applied (split-tested) judiciously on a case-by-case basis. However, my key takeaway is that even if you’re considering Freemium, you should validate the premium part of Freemium first before giving anything away.

I’ll cover Customer Discovery in Part 1 and Customer Validation in Part 2. Hopefully, I’ll get to write Parts 3 and 4 one day.

Customer Discovery: What should I build and for whom?

Here’s my Customer Discovery Flow (you’ll probably want to click to enlarge and skim it before reading on).

Click to Enlarge

The 3,000 Foot View
For a web startup, the purpose of Customer Discovery is to identify a problem worth solving, defining the “right” minimum viable product to build, and testing the business model using 3 separate Build/Measure/Learn loops. Most web startups rely on a product website for distribution and blogs, SEO, SEM, for initial customer acquisition channels- leaving price as the biggest unknown in the business model.

Sidebar: There is a somewhat loose definition of how the term MVP gets used. Many have used it (myself included) to refer to anything (a landing page, a problem presentation, screenshots, etc.) that allows you to learn about customers with the least effort. Here, I am using the stricter definition of MVP to mean the minimum set of features needed to learn from earlyvangelists. In other words, Release 1 of your Product.

It All Starts With Stating Your Assumptions

Before you can test what you think you know, you have to write it down. It’s normal to try and short this step but I found it to be a very worthwhile exercise. Apart from minor terminology changes, most of Steve’s questions in his hypothesis worksheets hold up even for a web startup. I am not going to reproduce them here but if there is interest, I’ll make my versions available as a separate download.

Test the Problem

This will look very similar to Steve Blank’s flow. That’s because when it comes to Customer Discovery I haven’t found a more effective way for maximizing validated learning than “Getting out of the Building”. This is coming from someone who used to prefer to stay in the building and talk to customers over email. Now, I have an 800 number tied to my mobile phone andschedule for face-time opportunities with customers.

With my last product, I used a teaser/landing page with some pre-launch buzz to collect email addresses and measure interest. While it was encouraging to have interested users, it told me nothing about what problem they had, who they were, what I should ship first, or what I should charge. What does 10 email addresses a day tell me? What does 20, 40, 100? Why did the other 70% abandon my landing page? Was it the product, was it the copy, graphics, something else. What?

Building a good landing page is hard. Unless you have exceptional customer insight (or are your own customer), iterating without talking to customers is slow and painful as you split-test one page against another with very little initial test traffic. Yes, it feels like more legwork to find people who will have a conversation with you but a 15 minute unscripted conversation has more validated learning pound for pound than all the data you can crunch from web analytics.

I have never tried using surveys with my landing page registrations because I hate filling them out myself. Plus, to make them easy to fill, you have to be very specific which assumes you know exactly what you want to know, which is hardly the case.

The beauty of Steve’s process, is that it tests the problem separately from your solution.
To paraphrase Dave McClure:

Customers care about their problems NOT your solution.

During the “Problem Presentation”, you state the top 3 problems, then shut-up and listen which is key to getting it to work. It works because you aren’t asking customers to validate or design a solution which addresses the “Customers don’t know what they want” argument. It works because it isn’t a pitch. Actually, I take that back. It is a pitch. But it’s the customer that’s pitching their problems to you. I know I’ve hit the right “problem nerve” based on how passionate a customer gets during an interview.

I like to structure my “Problem Presentation” like this:

1. State the top 3 problems
2. Ask customer to prioritize problems and identify any higher priority problems
3. Have customer describe how they solve the problem today
4. Very briefly describe how you might solve the problem
5. Ask Customer whether your approach would solve their problem
6. Would they use your solution if it were free?
7. Would they pay $X/yr?
8. Ask for referrals to other customers

Build Your MVP

Unlike Enterprise Software, which can be chock full of features, web startups need to focus on the smallest feature set needed to learn from earlyvangelists or the MVP. After the first reality check, you should end up with a prioritized top 3 problem list which drives the features for your MVP. I stress the importance of then building out the MVP to the point where it’s demo-able. It will be hard for customers to visualize your solution without one. Screenshots and mockups may be used as stand-ins only if a demo is absolutely out of the question.

Test Your MVP

With the MVP built out, you then go test it against the original set of interviewees plus some.
I like to structure my “Product Presentation” like this:

1. State the problem
2. Use the demo to tell a story of how your solution solves the problem
3. Test pricing again
4. Ask for referrals to other customers
5. End with a call to action: sign-up, or commitment to sign-up

Tip: I practice delivering the demo using screencasting software which not only lets me iterate till it’s short and crisp, but I also end up with a video I can use later on the product website.

Iterate or Exit

The last step in Customer Discovery is to summarize what was learned and make a decision to iterate or exit.

Source: Ash Maurya

Ah the business plan. Many entrepreneurs and startups slave over these documents, pouring countless hours into building and revising them. Why? For a number of different reasons, most of which don’t produce any real value once the document has been completed.

As previously discussed, I believe there is really only one reason to write a business plan: to raise money. I highly suggest reviewing my previous post, “Business Plans – When and How to Use Them,” before using this outline to construct your own.

This post provides a detailed breakdown of a business plan template I have developed/refined over the last couple years and which I have used in raising multiple rounds of angel investment. In my opinion this template is most appropriate for a company that has been operating for a period of time, has a product in the marketplace, and is looking to raise a larger round of financing.

I will be following up this post on Tuesday with an example business plan I created using this template that you will be able to download/revise/use. There is no Holy Grail business plan template, however, I’m confident that if you answer the questions outlined below, you’ll be able to create a solid business plan that you can use to raise angel or venture investment.

COVER PAGE

There are two goals to strive for with a cover page: 1) make it aesthetically pleasing/distinct and 2) make sure to include your company name, plan title, date of the plan draft, and your company’s contact info. In general I’d recommend making friends with a freelance graphic designer to help assist you in designing a cover.

TABLE OF CONTENTS

Provide a quick breakdown of the information contained within your plan. Be sure to keep your table of contents to around a half page; no need to reference every little point or section, just the big stuff.

EXECUTIVE SUMMARY

Please refer to my previous posts – Executive Summary Template and Downloadable Example – for information on how to write a solid executive summary.

REVIEW OF THE MARKET

• What business are we in?

The first paragraph! You may recall this and the next question are also part of the Executive Summary Template I went through in my previous post. There are three elements that I would encourage you to include in your answer to this question: 1) company name and the market you compete in, 2) your product name and what it does, and 3) how your product is sold. The goal in answering this question is to provide your reader with a clear (albeit high-level) understanding of who you are, the market you compete in, what your product is/does, and how you sell it.

• What have we accomplished?

Investors want to see that you’ve made progress towards your goal before you ever thought about raising money. Even if you’re just getting started, it’s key to include some of your accomplishments right up front. Doing so makes you real, as opposed to all those other business plans that are simply pitching “good ideas”.

• Who are our competitors?

Rule #1 regarding competitors: never say you don’t have any! Saying that may cause investors to burst out in laughter and/or get up and leave the room. Seriously though, everyone has competitors; knowing who they are and how to position your business against them demonstrates you have a firm understanding of the marketplace and that you’re prepared to fight and win. My general rule of thumb is to break competitors into two groups: direct and indirect.

Direct competitors are companies that are going after the same customers as you are with products/services that fulfill the same need as your product/service. Indirect competitors are the companies you think you should keep your eyes on; maybe they aren’t going head-to-head with you today, but they could in the future.

• What have they done recently?
  • Product?

For each of your competitor groups, you want to talk about what they’ve done and what they’re currently doing in terms of products/services. How have they positioned their products? Are they focusing on any new features or services? Are there any general product-related trends you can identify? Who are the innovators versus the followers? The purpose of answering these questions is to provide a general assessment of your competitors’ offerings. Don’t worry about directly comparing their products to yours – we’ll get to that shortly.

• Strategy?

In this section we want to identify the go-to-market strategies for each of your competitor groups. How are their products sold/delivered? How are they pricing their products? Who are they selling their products to? Have there been any major changes over the last 6-12 months? The goal with this section is to paint a picture of how your competitors do business and to show where the holes/opportunities are that you plan to exploit.

• What do we think will happen next?
  • Market actions?

Time to take a step back and talk about market size and trends. There are a couple things that you should strive to address in this section: size and growth of 1) the overall market and 2) the market segments (i.e., the markets within the market). The richer the information you’re able to gather the better picture you’re going to be able to paint. As I’ve mentioned in previous posts, I’m a big believer in spending a little money to get a real market research/analyst report (e.g., Forrester, Gartner, IDC, etc.). Getting a real report does two things: 1) it provides you with a trusted source and 2) can provide a level of detail you straight up won’t be able to get by trolling through newspaper/journal articles.

While you could probably stop there, I usually add a little extra to this section regarding how the market movements/changes have or will affect how you and your competitors do business. Again, a key here is to show that your ahead (but not too far ahead) of the curve – the market is moving/growing/changing and you’re in the best position to take advantage of how business is and will be done.

• New solutions/competitors?

We’ve already talked about existing competitors, their products, and market strategies (i.e., the playing field). Here is where you want to discuss the likelihood of new competitors/solutions being introduced into the market over the next 9-12 months. Is your market getting a lot of attention/investment? Are general market shifts/changes creating opportunity for more or new types of entrants? Point being, you want to show that the course your plotting across the playing field is going to be relatively unobstructed.

• Competitor actions?

What are your competitors going to be doing over the next 9-12 months? Extrapolate your competitors’ product and market strategies forward and try to identify where you think they are going to be in 12 months.

As an aside, I think this is always a great spot to put as analyst quote that reaffirms your predictions around product, market, and competition. If you’d like to talk about how to get an analyst quote, shoot me a tweet @roachpost.

STRATEGY GOAL

• What do we want to achieve?

You’re going out to raise money because you want to do something. The strategy goal is that thing and includes three components: 1) where you’re going, 2) when you’re going to get there, and 3) how you’re going to get there. It’s important to be very clear and concise in defining your strategy goal – this really is the heart of why and investor would put their money into your company. In general your strategy goal shouldn’t be more than two sentences.

• Short term?

You’ve defined your strategy goal, now you need to talk about timing. I tend to use the short term as an opportunity to talk about what we’ve done over the past 3-6 months, and what we’ll be doing over the next 2-3 months to better set ourselves up to achieve our long term goal. In general, your short term goal should 1) be in support of your long term goal and 2) a period of time no longer than 6 months.

Your short term goal doesn’t need to be more than a paragraph in length. Again, the purpose is to show investors that you’re already moving forward with achieving your overall plan. You always want to be giving investors the impression that you’d like their involvement, but that the train is already pulling out of the station.

• Long-term?

Your long-term goal is really how you’re going to go about achieving your strategy goal. For a startup, you probably shouldn’t be talking about a period of time more than 12 months (multi-year financial projections, exit plans, and other business plan appendices are a different story). Keeping the long-term timeline to between 9-12 months is going to help/force you to talk about how you’re going to achieve your goal in a specific manner. Specifics are good. ☺

Unlike your short term goal, describing how you’re going to achieve your long term goal is going to take a few more words. Personally, I like to do this by addressing the specific goal associated with each element of my business. This concept will be explained in a future post, however we view the core elements of a business as Cash, Customer, Prospect, Product, Team, Infrastructure, and Brand. All businesses are made of up of these elements, and using this breakdown will help to provide investors with a complete understanding of how you intend to achieve your long-term goal. So, lets go through each of these elements and talk about what you should think about putting down.

• Cash?

How much is it going to cost to achieve your strategy goal? Where are the three or four primary areas where you will be putting these funds to work (i.e., use of proceeds)?

• Customer?

How do your customers relate to achieving your strategy goal? How are you going to keep them happy? Do you have plans to develop/leverage them in any way?

• Prospect?

How do your prospective customers factor into achieving your strategy goal? How will you be qualifying and selling prospective customers? What are you doing today and how will this change to better position you to achieve your goal?

• Product?

How about product? Are you going to be enhancing an existing product? Do you have plans to launch additional offerings?

• Team?

Do you need to expand your team to achieve your strategy goal? What are your key leadership hires going to be?

• Infrastructure?

What infrastructure needs are you going to have? Infrastructure should include everything from the things that produce and deliver your product (e.g., servers/hosting services in the case of a web software company) to the equipment and services your team needs to support their activities.

• Brand?

What brand and marketing activities are you going to employ to achieve your strategy goal? Such activities can include press relations, direct marketing, developing affiliate/partnership programs, attending industry events, etc.

EXIT

• How does this end/what happens next?

The exit strategy is an area I’ve personally tripped up numerous times in the past. It took me a while to realize that without having an exit in mind, no matter how far off an exit was, I wasn’t addressing one of the most important items to any investor: how they’re going to get their money back. Whoops!

While the purpose of the plan is to define the where, when, and how of your business over a specific period of time, the exit strategy should show the investor that you have an understanding (more like a belief) of how you’re ultimately going to realize a return for their investment. Exit strategies can range from going public, to selling to a strategic acquirer, to simply scaling. Defining your exit strategy is less about making big promises (e.g., “we going to sell”) and more about demonstrating you have some understanding of where and when the likely exits will be for your company (e.g., “we’ll be in a position to explore a sale in 12-18mo).

APPENDICIES

• Legal and administrative

Angels and VCs don’t like signing NDAs. Further and in consideration of the fact fundraising is more a kabuki dance than a binary process, I don’t think it’s a great idea to kill the mood by asking someone to sign an NDA just so they can get a copy of your business plan. It’s like asking a girl to commit to a second date before the first one is even over! That said, I always append my business plans with a simple, one-page disclaimer that states the plan is confidential, shouldn’t be shared with anyone, etc., etc., etc. I will include a copy of this appendix in the example business plan I’m going to post on Tuesday.

Parting thoughts…

You’ll notice that I’ve left a number of things out of this outline, including detailed information on team, financial statements and projections, and product features/services/pricing. Whether you decide to include these items in your business plan should depend primarily on the stage of your company. As mentioned, this plan template was last used for a web application provider that had been operating for a couple years, had a product in the marketplace with customers using it, and was going out to raise a second round of financing. All of that other information was either attached to the business plan as appendices, linked to on our company website, or contained in a separate document.

While I encourage you to take whatever you like from this outline, if your company is just getting off the ground, I’d suggest using the Sequoia Capital template we included in a previous post.

As mentioned, I’ll be following up this post with another on Tuesday that will include an example business plan I developed using this framework that you’ll be able to download/revise/use. Although I’m sure there will be many future adjustments/iterations, this outline has served me well over the past few years and I’m confident it’ll do the same for you. Please feel free to leave any comments or shoot us a tweet @roachpost if you have questions or would like to discuss any items included in this post.

We’re currently recruiting beta testers for our new startup — XYDO, a new and engaging way to get news and information from people you trust. If that sounds interesting to you, leave your name and email address and we’ll shoot you an invitation!