4 reasons not write a 40+ page business plan

May 19, 2010

When I started helping entrepreneurs plan new companies, I discovered something curious—there was a lot of confusion about what, exactly, a business plan should look like. A business plan was once a lengthy, prose-based document written with word processing software like Microsoft Word, similar to a 40+ page college term paper. Sophisticated entrepreneurs and investors moved away from that format, but the typical entrepreneur on Main Street didn’t get the message.[1] That’s no surprise, since many books on business plans still recommended a term-paper-style business plan. Were the books simply out of date?

To make sure, I decided to ask the experts. I surveyed over 50 people, including venture capitalists (VCs) from leading firms like Kleiner, Perkins, Caufield & Byers, noted angel investors such as the backers of Method and serial entrepreneurs like John Osher, creator of the Crest SpinBrush. The results: 95 percent recommend that startups use a presentation format, not a term-paper-style plan.[2], Here’s why the pitch deck has taken the place of the text document:

  1. A term-paper-style business plan takes too long to read. In this age of rampant Attention Deficit Disorder and communications overload, asking someone to read a 40+ page paper is pushing it. Why burden someone whose help you are seeking? And why take the risk that your plan won’t be read at all?
  2. A term-paper-style plan takes too long to write and update. Writing 40+ pages of prose takes months. Plus, a business plan isn’t a static document—startups modify their plan continuously. Updating a page or chapter of text can take hours. Updating a bullet point or graphic in a slide presentation takes minutes.
  3. Pitching in person is far more persuasive than sending a document for people to read. A deck is made for presentations, while a term paper is about as useful in a pitch as a doorstop. When you deliver a presentation in person, you can see how people are reacting, modify your pitch on the fly, address concerns or confusion immediately, and get feedback.
  4. Presentations force startups to set priorities. If you are working with a 40-page  plan, you can drop in every great idea that comes to mind. But when it comes time to explaining your ideas—and to executing those ideas—you’ll have to focus. Culling your ideas down to those worthy of inclusion in a short presentation is a great way to start prioritizing.

Still don’t believe me?  Sequoia Capital is the venture capital firm that backed Google, Yahoo, YouTube, eHarmony, LinkedIn, and PayPal, among many other winners. On their Web site (http://www.sequoiacap.com/ideas), they offer the following advice:  “We like business plans that present a lot of information in as few words as possible …  15-20 slides … is all that’s needed.”  And finally, New York Angels is one of the leading groups of angel investors in the U.S. They’ve invested over $20 million in 65 early-stage, New York-area technology and new media companies. At www.newyorkangels.com you’ll see the following suggestions about the format of business plans:  “Slideshows with under 20 slides are generally most effective … Use the limited time you have for your presentation to emphasize the compelling factors about your investment opportunity and save unnecessary technology details for future meetings…”


[1] There are exceptions, such as requirements from some lending organizations like banks or the SBA, but they typically lend to companies with at least three years of operating history, not to startups.

[2] Most of the others said they like to see a two- to four-page executive summary.


Frances Cole Jones interview: Making persuasive pitches

May 19, 2010

Frances Cole Jones is the founder of Cole Media Management, a consultancy that prepares clients for television and print interviews, IPO road shows, and investor pitches. She’s also the author of How to Wow: Proven Strategies for Selling Your (Brilliant) Self in Any Situation, and The Wow Factor: The 33 Things You Must (and Must Not) Do to Guarantee Your Edge in Today’s Business World. Jones has prepared clients for appearances on Oprah, Good Morning America, The Today Show, ESPN, Larry King Live, The Discovery Channel, Access Hollywood, E! Entertainment, CNN, and BBC News.

UpStart:  “You’ve advised hundreds of clients on how to make effective presentations. What’s the most common mistake you see?”

Frances Cole Jones:  “Reading off of their slides. In my dream world I don’t want anything on a client’s slide coming out of their mouth. We’ve all been reading since we were about six years old—being read to drives us mad. Slides are meant to enhance talking points, not replace them.”

UpStart: “Are there any quick fixes you recommend that can have a big impact?”

Frances Cole Jones:  “55 percent of your impact comes from what your body is doing while you are speaking. Only seven percent comes from the words we say. So body language is critical. Keep your hands where people can see them. We trust you when we can see your hands; we don’t trust you when we can’t. Also, remember the power of storytelling. When you tell a story, filler words like ‘um’ and ‘uh’ magically disappear. Speak from your own experience, and ask yourself why your audience should care.”


Chip Hazard Interview: Pitching your strategy

May 19, 2010

Chip Hazard has been in venture capital for over 15 years and has an impressive track record of success. He’s currently a general partner at Flybridge Capital Partners, a leading early-stage venture capital firm. He currently sits on the board of eight information technology companies. Previously, Chip served as general partner at Greylock Partners and was a consultant at Bain and Company. Chip is a graduate of Stanford University and The Harvard Business School—where we met—and where he graduated at the top of his class as a Baker Scholar and a Ford Scholar. You can read Chip’s blog at www.hazardlights.net.

UpStart: “What advice do you have for entrepreneurs pitching their strategy?”
Chip Hazard:
“As an early-stage venture capital investor, I regularly meet with entrepreneurs that are just getting their businesses off the ground. During these meetings I am often struck by how much trouble the founders have articulating their strategies in a clear, concise, compelling way. I encourage entrepreneurs to focus on delivering a simple vision of what they are trying to do and why it is important, what markets are being targeted and how broad these markets are, and how the idea, customer value proposition and market translate into a compelling business opportunity. It is important to avoid in this introduction the deep technical details of how the product or service works, but rather focus on the connection between a large unmet need and your unique solution. The MadLibs exercise outlined in this chapter is a great tool to drive this exercise, resulting in a simple, short, clear message.”

UpStart:  “Please provide an example of a great strategy summary.”

Chip Hazard: “I always felt Skype did this well. Using your format, from the beginning their message was something like: For people who want to connect with friends and family around the world, Skype is a person-to-person Internet telephone service that is free, simple and easy to use.”


Bo Peabody interview: Business models

May 19, 2010

Bo Peabody is co-founder and Managing General Partner of Village Ventures, an early-stage venture capital firm. Previously, Bo founded / co-founded a string of startups, including: Tripod (one of the first social networks, later acquired by Lycos), Waterfront Media, VoodooVox, FullTurn Media, and UplayMe. He’s also an owner of Mezze, Inc, which consists of three award-winning restaurants. Bo wrote a book for entrepreneurs called Lucky or Smart? published by Random House. He is a graduate of Williams College.

UpStart:  What advice do you have for entrepreneurs pitching investors about their business models?

Bo Peabody:  “Entrepreneurs have the counterintuitive task of having to think big and act small. For any business that is going to attract venture investors, a big vision is important. But that’s the easy part. The much harder job is figuring out how to distill that vision into an actionable plan that has clear, incremental levels of success. Entrepreneurship is like a video game…you need to know what the levels are and then reach each one before going on to the next.”

UpStart:  Are there particular business models that you prefer to invest in?

Bo Peabody: “At Village Ventures, we prefer to invest in business models that are tackling mature markets. We’d rather bet on our ability to back the right team that can knock off existing competition than bet on our ability to see around corners. For instance, this is why we invest in vertical publishers in the interactive media space, rather than social media companies.


5 ways to avoid craptastic business writing

May 11, 2010

At business school, we played a silly game called buzzword bingo. Before a professor arrived, students chipped in a buck in exchange for a bingo card with words like “value-added”, “synergy”, “seemless” and “share of mind”. When a student mentioned your word in class discussions, you circled it on your card. If you got enough words for bingo, you raised your hand, and made a comment incorporating an embarrassing phrase that pays, like “I read this (homework) on the toilet…”. Back then, it was just a juvenile way to amuse ourselves and bug the professors. But the undertone was on-target: Showing people how silly they sound when they use buzzwords.

Overuse of buzzwords are just one example of ways people muck up their business writing. Here are a few tips:

1) Stop following the herd. In “Why Is Business Writing So Awful?” Jason Fried argues that phrases like “full-service solutions provider” and “value-added services” are overused to the point of being generic. “A quick search on Google finds at least 47,000 companies describing themselves as full-service solutions providers…,” explains Fried. “When you write like everyone else and sound like everyone else and act like everyone else, you’re saying, ‘Our products are like everyone else’s, too.’ ”

2) Write for your target readers. Fried cites an example of a company that does this well. Woot.com sells cool stuff cheap. Here’s an excerpt from their FAQ page….. Question: “Will I receive customer support like I’m used to?” Answer: “No… If you buy something you don’t end up liking…. sell it on eBay. It’s likely you’ll make money doing this and save everyone a hassle.” Woot isn’t trying to be all things to all people. They’d rather come off as honest and direct, which their core customers appreciate, at the risk of alienating others.

3) Avoid useless modifiers. Frances Cole Jones, an author and media coach, explains this well. Words like “amazing” and “great” are too vague to be helpful. Others, like “we’re the leader in the market” must be backed up with facts, or they can backfire.

4) Word to your mother. Imagine that your mom will read what you are writing. Would she understand what you mean? If not, simplify and clarify.

5) Size matters. Don’t use ten words if you can use five. Write in short sentences. They are easier to read. Get it?


How to create and use a one-page synopsis

May 7, 2010

Once you find a contact  (e.g. a potential investor) who has heard your elevator pitch and expressed interest in learning more about your new business, it’s time to introduce the one-pager. The one-pager is a brief synopsis of your business plan, used for a very specific purpose:  To get someone to meet with you, so you can present to them in-person.

And yes, it really does need to be on just ONE PAGE!! That’s the whole point. Don’t try to jam everything from your business plan into this document. It’s not supposed to be comprehensive. Instead, think of it as a teaser—a sales document used to whet the appetite of your audience and leave them wanting more. Write in short, simple sentences. Make sure it’s easy to read and understand. Use headlines, so readers can scan it in seconds. Take out any unnecessary words, or empty descriptors (e.g. “the leading…”, “the best”…. “amazing…”). Here’s what to include:

1.) Team. Name the founders and their titles and primary roles. List just the experiences they’ve had that say to the reader “this person is a great fit for this role, at this startup, given where they are right now”. If you’ve got room, and impressive advisory board members, list them and the primary roles they’ll play. Here’s an example:

TEAM

XYZ’s founders are JOHN DOE (CEO, “mr outside”, sales and marketing) and JANE DO (COO, “mrs inside”, product development and operations). They developed XYZ in after working together at ABC startup, where John served as President and VP Marketing, and Jane as VP Operations. Together they helped launch ABC and grew it to $10 million in revenue within five years. Previously, John ran marketing at BlahBlah. He’s a graduate of IO University. Jane’s previously founded DIY Software. She has an MBA and a BA from AAA University. Advisory board members include Mary Smith (sales) and Sam Jones (design).

2.) Opportunity. First explain the context – including the market size, growth, and critical trends. Then describe the customers you’ll serve, and their needs. Finally explain why the needs of those customers are not being satisfied today. Here’s an example:

OPPORTUNITY

There are over X00,000 self-published authors in the US and the UK, and their numbers are growing at over Y% per year. Services such as Lulu and CreateSpace make it easier for authors to self-publish, but only allow them to generate Z% margins. By working with LightningSource, self-published authors can generate margins three times higher. However, the process of shepherding a book through the LightningSource requires technical skills most authors lack.

3.) Elevator pitch. Explain how you intend to give customers what they need, and how you’ll make money.

XYZ Corp

XYZ sells online tools that let authors self-publish via LightningSource quickly and easily.  XYZ runs a blog and newsletter with self-publishing advice, and generates revenue by selling online software packages that range from $150 to $500.

4.) Progress. Explain what you’ve done to date. Focus on the metrics that investors care about, not the pain you’ve endured. Spent a year and half your savings on this project? That’s your problem, not theirs. Instead, tell them you built your team, designed your prototype, and have paying customers. Quantify your results wherever possible. Here’s an example:

PROGRESS

XYX launched in January of 201X. Within 9 months, we attracted 15,000 free subscribers. In July of 201x, we conducted a test of our paid services. We got a 4.5% response rate, which exceeded our expectations.

5.) The ask. Describe what you are looking for now, why, and how to proceed. For example:

FUNDING

XYX is seeking $350,000 to fund the next 12 months of operations. During that time, we’ll test and roll out our marketing campaigns, and reach a revenue run-rate of at least $50,000 per month. At that point we plan to raise our next and final round of $3-5 million. To learn more, please contact John  Doe at john@xyzcorp.com or 222-333-4444.

When you are finished, save the one-pager as a PDF. That way, when you send it via email your recipients will see it the way you created it, no matter what kind of software they are using.


Slide zero

May 7, 2010

You’ve secured a meeting with your audience—let’s say a potential investor. Before you pull out your business plan pitch, you’ll have a window of time from when you shake hands with your audience to when you present the first slide in your business plan presentation. I call this window of time “slide zero.” Slide zero is something most people forget about, but it can have a significant impact on the outcome of your pitch. Here are two examples from the real world:

  • Allison. It was one of those mornings for Allison. At 9:00 a.m. she had a pitch in the mid-town office of a leading venture capital firm. At 8:50 a.m.  she was still stuck in downtown traffic, thanks to an intense thunderstorm. She arrived late, soaked and frazzled. When the investor came out to meet her, she started a conversation about weather. That conversation continued as they walked down the hall and took their seats in the conference room. Knowing they were behind schedule, Allison jumped right into her pitch. The pitch came off a bit stiff and impersonal, and a day later Allison got an email telling her it was a great idea, but they’d like to see her make more progress on it.[1]
  • Vincent. Before his meeting with a potential investor, Vincent did his homework. He learned that the investor had made a previous investment in a company—similar to his—that had failed. He also discovered that he and the potential investor had a mutual friend—a well-respected entrepreneur in a related industry. Vincent arrived early enough to camp out for a coffee nearby and gather his thoughts. When he met his investor in the lobby, he mentioned their mutual contact. The man lit up and told Vincent about a time he had sat on a panel with their mutual friend. Then Vincent mentioned the previous investment and asked what had gone wrong. The investor told him that when the company’s customer needs changed, the company’s technology took too long and cost too much to modify. Vincent made a mental note to demonstrate the flexibility of his software. He nailed the pitch and landed the investment.

So, what should you cover on slide zero?

  • Establish rapport. If you have a mutual contact that will serve as a confidence-building bridge between you and your audience, mention it. Demonstrate your social skills. Ask an insightful question with a follow-up to show you were listening. See the recommended reading list at the end of this chapter for good tips on how to act, talk, and think when you are in the spotlight.
  • Apply your super-sleuthing skills. During the banter, try to ferret out a little information that could be helpful to your pitch. Try to find out about experiences or perspectives that could shape the way your audience will react to your material. Are there land mines you should avoid? Hot buttons they’ll want you to cover?

[1] That means “no” in venture capital-speak.