How to make powerful investor pitches

 

I recently attended several investor pitch competitions, and came away from them all feeling that none of the pitches gave me what I’d need to be interested as a potential investor.  So, I began to think about what might be the elements of the best, most powerful investor pitch.

I spoke with a selection of Angel Investors to learn what they look for in an investor pitch, and what causes them to want to look more deeply into a potential investment.  The following elements are those that were mentioned by all of the investors I spoke to, and so I feel are the elements that not only attract stakeholders, but represent the most powerful investor pitches.

Value Proposition.  This is a term in business parlance that most everyone talks about like they know what they are talking about, but generally get wrong.  A simple, clear definition, and the way it should be discussed in an investor pitch, goes like this.  Every problem is an opportunity for a creative solution.  So first, describe what the problem (the opportunity) is.  Now, all opportunities have a current solution.  So next, tell your audience what the current solution is.  Because yours is a better approach, tell them next what your solution is and why it’s better, faster or cheaper.  Follow this up with what you need to execute.  Make this a punchy, staccato overall statement that doesn’t take more than two minutes to present, and at the end of those two minutes the investor completely understands what you are doing.

Management Team.  Investors don’t invest in products or services.  They invest in people, because it’s people who make the business happen…or not.  So, sell the management team as full-time, committed and passionate people who intend to make this business happen.  Don’t forget to also discuss the team’s collateral resources, like a value-add Board of Advisors, who can bring an immense amount of credibility to the overall management team.

Market.  Investors are attracted to large, primary markets, although niche markets can be interesting because they often represent an underserved audience.  Investors like markets that are growing because it’s easier to enter a growing market.  Because market share is a zero-sum game, when a new company enters a market and begins to get sales, it is accumulating share, and that share is coming at the expense of another competitor.  But, if the market is growing, that competitor’s sales may actually be increasing.  If that’s the case, he may not take immediate action to thwart your efforts.  And, that all you need: time – time to accumulate strength so that you can more effectively respond when he does come after you.

Financials.  Frankly, financials are much less important than most people think.  Investors know that the management team doesn’t have a crystal ball and the numbers are no more than a projection.  However, they do have to be addressed.  What investors will take notice in though is a management team’s discussion of a clear path to profitability and positive cash flow.  That tells investors that the financial projections have been thought about and might be more than a simple guess.

Technology.  If technology is involved, and it generally is with today’s new companies, describe the technology as both proprietary and protected.  Software, for example, can be protected by trade secret.

Finally, enthusiasm is infectious.  Said another way, there’s absolutely no way that you can get a potential investor enthusiastic about the prospects of your new company unless you first are enthusiastic yourself.  So, include these five things in your investor pitch and exude passion and enthusiasm, and you will have a much more powerful investor pitch than any I listened to at the competitions I attended.

William Rossi is Professor Emeritus of Entrepreneurship at the University of Florida, having taught at both in the undergraduate and graduate Entrepreneurship Program there for 15 years.  Prior to teaching, Professor Rossi initially held several senior level positions with Ford, Goodrich and Picker International.  After relocating to Florida in 1986, Rossi worked in executive management positions in smaller entrepreneurial companies and was a principal in several.  Rossi holds a Master of Science degree in Operations Research from the University of Massachusetts and an undergraduate degree in mechanical and industrial engineering from Ohio University.

 

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“No” just means “Next”.

by William J. Rossi

Powering Up Your Team

The quality of a management team is the single most key determinant of business success.  Following are some tips to assessing, restructuring and powering up your business team.

The Importance of the Management Team. 

First, of the things that most attract investors to a company, a quality management team is nearly always quoted as the most key element.  It trumps product and market in almost every survey.  The reason: a great team can take a mediocre product and make it successful, while a mediocre team can fail with a great product.  A survey conducted by Profit Dynamics among 262 professional investors evidences this notion.  When asked in this survey what factors most influenced the decision to invest, management quality ranked #1 among all responses.  Others like market size and proprietary technology were seen as important, but paled in significance to management quality.  When asked the reasons that most drove the decision to decline investment, again lack of an experienced management team ranked #1 by a wide margin in the response of these investors.

So, what constitutes a quality management team?  The response of these professional investors was overwhelming: it means experience, track record.

While other qualities were mentioned like integrity, vision and dedication, only 17% of respondents did not include successful experience as one of the most key components.  While it’s clear that experience counts the most, those starters among you who haven’t yet achieved that track record should not be discouraged.  A flexible management team, one that recognizes its shortcomings and is willing to recruit the right team members, was quoted a close second. 

Fine Tuning the Team.

The first step in upgrading a management team is to assess both your current talents and your needs.  This has to be an honest assessment.  Remember, investors want to know either that you have the requisite experience, or that you know that you need it and are flexible to get it.  If you find that current talents don’t meet your needs, consider the following in restructuring the team.

• Be expert in your industry. Focusing on whether you have significant, demonstrated experience in your industry is especially valuable.  Lack of recognized expertise is killer both in terms of directing the company and in securing investment.
• Drive diversification of disciplines. No company can survive with only techies.  Even Apple has marketing and finance people.  Make sure that the functional disciplines requisite in your business are resident on the team.
• Mix and match thinking types. Try to incorporate both linear thinkers along with visionaries. Visionaries are creative people and come up with initiatives to take the business in new directions.  Linear thinkers will concern themselves with what has to be done this month to insure that you are there next month to do all those cool, visionary things.
• Encourage disagreement. While it might be comfortable to have people who always agree with you, make sure you have people who are willing to disagree with you.  Challenging the current thinking of any management team is always healthy.
• Arm yourself to attract the right, new people. In talking to prospective team members, sell the company and its value proposition.  Remember, this is an investment.  While investors invest their money, new team members are investing their careers.  Sell the current team as this is marriage of sorts.

Advisory Board – Power in a Package.

 An advisory board is not a legal entity, and has no fiduciary or financial responsibility.  It simply operates at the discretion of the company to advise the company in its areas of expertise.  This a critically important, collateral element of the management team, and can provide powerful leverage in both operating and financing capacities.  Populated with people of recognized experience, your board brings instant credibility to the company.

In terms of recruiting an advisory board:

• Mine your contacts for introductions. If you knew the right people to get, you wouldn’t need contacts.  But, most don’t.  So, rely on your contacts.
• Don’t be bashful. There’s nothing wrong with cold calls to identified prospects.  The worst that can happen is that the prospect says “no”.  Like in sales, “no” just means “next”.
• Aim high for demonstrated experience, but be reasonable. Apple’s Tim Cook likely won’t have the time to help you.

Finally, once you have an advisory board, use it.  Have regular meetings and listen to your advisors.  If you decide against taking a suggestion, (since, of course, it’s your business) explain why so that they know you are paying attention and their guidance is valued.

In conclusion, the quality of the management team is critical for both company direction and financing.  Experience counts the most, but willingness to recruit the right team is a close second.  An advisory board can be a powerful addition to any business team if populated and used intelligently.

William Rossi is Professor Emeritus of Entrepreneurship at the University of Florida, having taught at both in the undergraduate and graduate Entrepreneurship Program there for 15 years.  Prior to teaching, Professor Rossi initially held several senior level positions with Ford, Goodrich and Picker International.  After relocating to Florida in 1986, Rossi worked in executive management positions in smaller entrepreneurial companies and was a principal in several.  Rossi holds a Master of Science degree in Operations Research from the University of Massachusetts and an undergraduate degree in mechanical and industrial engineering from Ohio University.

On failure and innovation

Failure and Innovaton by William J. Rossi

 

Fail Early, Fail Fast; Failure is OK; Learn from Failure; Failure is the Successful Entrepreneur’s Right of Passage.  These phrases, like thinking out of the box, have become commonplace, even trite.  They are a part of every academic entrepreneurship program that I know.  They are used by most speakers in speeches to young entrepreneurs throughout the world.

People have known for at least several hundred years that one learns from failure.  You tell a child to not touch a stove because it’s hot.  So, what is hot to a child?  Some things simply have to be experienced, and failure allowed to happen for the learning to take place.  But it’s only recently that we have begun talking so much about it, and integrating it into entrepreneurship education.

I began teaching Creativity to entrepreneurship students about 15 years ago, and wondered at the time whether creativity could actually be taught.  After developing the course and teaching it the first time, my skepticism was put to rest.  Due in part to an initiative by a colleague at Stanford, Tina Seelig, who put forward the notion that there was value in teaching creativity by having students write down their failures, I asked my students in that first class to create a Failure Resume.  Of course, initially my students thought that was stupid and I was crazy, but subsequently it became a favorite part of the course.  My objectives in this assignment were three-fold.  First, I wanted students to acknowledge that they had experienced failures.  (Their failures were acknowledged by writing them down.)  Second, I wanted them to learn from their failures by examining the specific changes made in the conduct of their lives to prevent reoccurrence of those same failures.  (If changes aren’t made, one is destined to repeat the same failure.  Learning occurs.)

The third objective was therapeutic: I wanted them to realize that despite all those failures they had acknowledged, things came out pretty well for them.  (They all were students in a premier program at a premier institution.)

Today everyone seems to be talking about learning from failure, and the Failure Resume now is a pretty common tool used at a number of institutions.  At the end of April a professor at Princeton University, Johannes Haushofer, published his Failure CV on Twitter…to encourage others to keep trying in the face of disappointment… and had an almost instantaneous 33,500+ shares and 473 comments.

While I’m glad to see that many are talking about learning from failure, my concern is that it’ll be relegated to obscurity by becoming as commonplace as thinking out of the box, simply by too many people taking about it without thinking about it.  The reality in business today is that firms that do not continually innovate will die.  Innovation and failure go hand-in-hand.  Innovation requires taking risk, and when you take risk, you will sometimes fail.  It simply is not possible that one can continually succeed when taking risk.  Failure is inevitable.  The key is to examine each failure when it occurs to understand its causes, and make specific changes to prevent reoccurrence of that same failure.  Then try again.  Failure is OK; it’s part of the innovation process.

Remember though that if you fail nine times at some initiative, it doesn’t follow that you’ll be successful on the tenth try.  Success depends on you having learned nine lessons from those failures.  Ultimate success after failure is not a numbers game; it’s a lesson learning game.

William Rossi is Professor Emeritus of Entrepreneurship at the University of Florida, having taught at both in the undergraduate and graduate Entrepreneurship Program there for 15 years.  Prior to teaching, Professor Rossi initially held several senior level positions with Ford, Goodrich and Picker International.  After relocating to Florida in 1986, Rossi worked in executive management positions in smaller entrepreneurial companies and was a principal in several.  Rossi holds a Master of Science degree in Operations Research from the University of Massachusetts and an undergraduate degree in mechanical and industrial engineering from Ohio University.

 

Take an A-Team with a B-idea over a B-team with an A-idea

High Impact Initiatives for Creating an Organizational Culture by William J Rossi

William Rossi is Professor Emeritus of Entrepreneurship at the University of Florida, having taught at both in the undergraduate and graduate Entrepreneurship Program there for 15 years.  Prior to teaching, Professor Rossi initially held several senior level positions with Ford, Goodrich and Picker International.  After relocating to Florida in 1986, Rossi worked in executive management positions in smaller entrepreneurial companies and was a principal in several.  Rossi holds a Master of Science degree in Operations Research from the University of Massachusetts and an undergraduate degree in mechanical and industrial engineering from Ohio University

A famous quote by George Doriot, who started one of the first venture capital funds in 1946, still resonates very strongly with me today.  He said: …any day of the week I’ll take an A-Team with a B-idea over a B-team with an A-idea.  Doriot essentially was saying that a strong A-type team can take a mediocre idea and make it successful.  A less strong B-type team can take an absolutely sterling opportunity and end up with nothing.  Great companies don’t just happen; they are created by great people.  In the end, it’s people that make a business happen … or not.

How do you create that great team?  While there are many tools to build and nurture a strong team, it all starts by hiring well.  Hiring well is a process, and that process is framed by four key notions.

Hire up.  Surround yourself with winners.  A-type leaders, confident in their abilities, strive to find and hire A+ people.  B-type leaders, frequently less confident in their abilities, look for C+ people so that their subordinates don’t overshadow them.  Hiring managers often operate with a misperception of how they are viewed, measured and compensated by their superiors.   Remember that your performance as a leader has little to do with how your superiors perceive you relative to your subordinates, and much more to do with the results produced for the enterprise by your organization.

Add thinking diversity.  Hiring managers often make the mistake of concluding that an organization’s cultural fabric is compromised by diversity of thinking within the organization.  Quite the opposite is, in fact, true.  Psychologically mixing and matching thinking types within the group, linear thinkers with creative thinkers with visionaries, actually enhances a culture where team members challenge, complement and respect each other.  To do otherwise will likely lead to a monolithic organization where group-think is the norm, few new ideas ever are challenged and the prospect for creative, new solutions to problems seldom ever is the result.

Hire rebels.  When considering a new hire, too many managers shy away from prospects that have a propensity to either push-back on or question the traditional way things are done, particularly the way they are done in the hiring organization.  As a species, hiring managers tend to prefer prospects that agree with, and don’t question, them.  We typically call these yes people.  While it may be comfortable for the manager to have all subordinates agree with him and his ideas and approaches, it’s very unhealthy for the overall organization.  In fact, it’s rather incestuous.  It is much more productive to populate your organization with people who tend to challenge the status quo, challenge you as the manager, and who suggest and work hard to make the case for alternative solutions.  It is simply not possible that the boss is the only one who has all the good ideas, the right ideas, and the most effective way of solving problems.  The best managers want people in their organizations who challenge them, challenge each other and precipitate dialog within the group oriented to producing the best solution.  When I left grad school and started my first job, my manager had a sign on his door that read: Always Look for the Other Right Answer.  I’ve remembered that quote and emulated its meaning throughout my life.  He didn’t want people who agreed with him; he wanted people who disagreed with him.

Aim high, but reasonably.  Turnover in any organization is expensive.  The hiring and training expense is lost.  People within the organization can become complacent, and the culture can be jeopardized.  A weak team hire that has to be changed is by far worse than an open position.  So, aim high while being reasonable when considering the hire of a new team member, and don’t compromise.

Confusing culture with environment?

High Impact Initiatives for Creating an Organizational Culture by William J Rossi

William Rossi is Professor Emeritus of Entrepreneurship at the University of Florida, having taught at both in the undergraduate and graduate Entrepreneurship Program there for 15 years.  Prior to teaching, Professor Rossi initially held several senior level positions with Ford, Goodrich and Picker International.  After relocating to Florida in 1986, Rossi worked in executive management positions in smaller entrepreneurial companies and was a principal in several.  Rossi holds a Master of Science degree in Operations Research from the University of Massachusetts and an undergraduate degree in mechanical and industrial engineering from Ohio University

I have noticed that a lot of entrepreneurs confuse culture with environment.  While environment can complement a culture, it has absolutely nothing to do with defining one.  You can have bean bag chairs, stand-up desks and brightly colored walls replete with white boards, and have a culture that is closed and stifling.  Culture defines the fundamental fabric of an organization, and the culture that exists creates the basis for how people within the organization will act.

Every enterprise will have a culture.  If it is not created by design, it will evolve on its own.  And, if allowed to evolve on its own, it may not be the one you intended.  Creating an empowering culture involves much more than simply posting the mission statement on the walls.  Consider, for example, that you want to promote a culture of openness and belonging, and one that exhibits a sense of urgency and features a penchant for innovation.  The following are high-impact initiatives that will achieve this.

Wide open communications.  Apart from personnel issues, everything that the top leader knows should be shared with the entire organization.  To do otherwise creates stratification within the organization.  It simply should not be that the top leader knows everything, the next rung under her knows most but not all and the people at the bottom of the organization know very little.  Consider having a regular all-hands meeting where everything new is shared with everyone.  Make these communications authentic and specific; not meaningless hyperbole.

Promote empathy.  Consider having everyone in the organization spend time on the customer support line – everyone!  If someone calls on the customer support line, that person is experiencing pain – he has a problem with whatever it is you do.  It’s a good thing for everyone in the organization – individually – to feel that pain.  Having to resolve the problem requires your team member to be intimate with what you do.  And, it promotes a sense of individual ownership of both the problem and the solution, another good thing.

Value every idea.  The top leader should have an open door policy, and should welcome and listen attentively to every idea, regardless of the source.  Done sincerely, this speaks volumes to every team member in the organization.  It says that each team member matters, her ideas matter and that she is valued as a key contributor.  The payoff here is in fact two-fold: the idea itself may be a very good one, and one that no one else might have offered up.  It simply isn’t possible that the top leader is the only person in the organization with the best ideas.  A former student of mine is the founding CEO of a pretty significant company now.  Remembering me discussing this notion in class, he had the door to his office removed.  It was a sign, and an effective one.

Celebrate failure.  Trying to innovate requires taking risk.  If you take risk, you are going to fail some times.  Innovation and failure are two sides of the same coin.  If you want innovation, you have to accept failure.  More importantly though the organization has to know that failure is OK.  In fact, the organization has to know that it’s more than tolerated; it’s even valued.  So, celebrate both innovation and failure.  Consider creating an intranet as the advertising medium.  Showcase the innovative initiative of the month.  Tell everyone whose initiative it was and in what way it is consequential to the organization.  Also, showcase failures.  Perhaps call them good ideas at the time.  Without saying anything you will have communicated to the organization that failure is OK because we want innovation; hiding failure isn’t OK.

Drive a sense of urgency.  Create a mantra for the organization: Do Something!  Post signs around the organization featuring the mantra.  While a seemingly little thing, this initiative again speaks volumes, as much in what it doesn’t say as in what it does say.  It doesn’t say study something, analyze something or consider something.  It’s promotes an action orientation to the organization.  The outcome will be an overall greater sense of urgency in all that you do.  (I’d love to see signs like this around the halls of Congress and the Senate.)