In many cases with a new prospect, you need to get inside the company or department to understand the extent of your true scope of work.  For this you need to conduct a (paid) audit, assessment or needs analysis (pick whichever word fits your industry).  In pitching this idea, you need to avoid the skepticism I experienced, and countermand it in the pitch itself.

Now, some industries and prospects think a needs analysis is just the consultant finding more ways to charge for services, or to avoid actually delivering any concrete results.  Other companies understand its use perfectly.

To pitch an assessment, however, takes a certain skill to overcome these suspicions.  Here are some tactics to include when proposing an assessment:

1. Explain that the assessment will reveal the most (cost-) effective approach to solving the challenges you were invited to solve.
2. It will define the challenge more clearly, suggest what kinds of employees or contractors would be best to hire on, to create a team to work on the challenges.
3. Beyond that, it may indeed restrict your (expensive) role by early off-loading work to experts in the market niches required, so that the client may work with specialists that cost less than you do.
4. This approach may cost less money to the client.
5. Remember:  re-assure the client that you will be there every step of the way, and that you will oversee the project.
6. Remember: re-assure the client that you are functioning as a trusted adviser to the quickest and best good of the company.
7. Remember: remind the client that you will stay beside him or her as long as requested, but will also plan for your own obsolescence.  Promise you will stay on as an adviser (for a reduced but rational fee), as long as you both agree is appropriate.
8. Remember:  you must both energize your client, and make him or her comfortable and not threatened. This is the success secret many consultants forget (or do not understand).

In all these tactics, you are establishing value, gaining your prospect’s trust, promising results, and offering reassurance.  Good luck.

I often help my clients by drafting these presentations, or reviewing what they offer as a first draft.  Defining your value proposition and structuring the presentation to not seem like a sale pitch can require a subtle use of language.

Of course, you must not “pitch.”  Everyone hates to be “sold.”  You must define a larger problem that you and your referral sources can begin to solve.  You must educate your sources to understand your unique value and where it fits in the target markets and threats to success of their client companies.  And you must first engage your audience and make them “see” you as a compassionate expert, and to connect with you.

Here are the elements of a successful partnering/referral pitch deck:

• Must engage the audience to like you and your willingness to help their client companies.
• Must define your expertise.
• Must define a larger problem than they (the audience or their clients) can solve themselves (economic shifts, technology changes, etc.)
• Must define a larger problem in general — the failing of companies based on current conditions (all which can be solved by your expertise).
• Must define the impact of the problem if left un-resolved  (failed companies, loss of employment, investment and ROI).
• Must educate the audience about the problem and the larger issues mentioned above.
• Must tell stories of threatened companies and the resolution to that threat by the expert (you).
• Must remind them that you care, and why you care, and how you can help.
• Must then offer services which they can research on your site and Linkedin, and also allow them to ask you direct questions.
• Must provide contact information.
• Must leave time to engage in an open conversation.

This approach, for all its structure, must be sincere.  If you are only pitching, it will show.  If you don’t care about your clients and your referral sources, that will show.  So dig deep and find that real part of you that wants to truly engage with your colleagues, and speak from there.

This is true of all marketing efforts around products to sell:  if you make content or online products to sell (eBooks, videos online or on CD, and so on) you must have a marketing strategy ready at launch, and then you must maintain the effort to implement that strategy.  Otherwise, you have wasted your efforts in creating what you will distribute (for sale or for prospect outreach and credibility).

A plan would define what you mean to achieve by the effort committed (a return on that investment of time and effort), and allow you to measure it, however informally.

And blogging is not the only format that works:  newsletter publishing to your opted-in list (do you have such a list?  are you developing one?  How rigorous are you are maintaining it– and using it?) is a different publishing strategy, and one which may take less time and produce more results.

Consider a plan that extends your outreach to broader distribution (re-publishing on other sites, conversion of various writing concepts to webinars for distribution through targeted media empires, and bundling many writings on the same topic, and so on).

To begin, ask yourself these initial questions:

• How often do you want to post/publish?  (Thought leader bloggers post 2-3 times each week, each blog is 300-500 words.)
• What topics will you write on?  List several.
• What impact do you want the writing to have, on what audience?
• How will you build that audience?  Social media? Linkedin only?  Twitter followers? Private development of your networking list? Local or worldwide?
• What results do you want to achieve from your selected audience?  Conversion to customers for your products?  Credibility in your professional community?  Attraction of prospects for your services?
• For now, only focus on your original writing, not on aggregating content from other bloggers.

If you can identity what you want to achieve, from what market/audience, and how to reach that audience, and what content you need to create to pull in that audience, then you are on your way to using your time effectively in content creation.  You may need help from partners:  strategic guidance or practical implementation of the marketing strategy.  That’s all part of the plan too.

I know it is exhilarating to launch into your most creative endeavors.  But if you are building a product or service business, or a consultancy, then time and effort are you most valuable assets.  So focusing only on the efforts that will bring you the best results is critical to your survival.   For that, you need some objective thinking and planning before you begin.

Good luck.

The rest is all details — how much will it cost, who are the real competitors, are there other approaches (partnering, acquiring, a different revenue model?) that get us there more easily?

Once, working with a partner who was stuck in the writing of a strategic roadmap, I suggested she begin at the end, move to the beginning, and fill in the rest.  I am serious and not trying to be glib.  Sometimes the straight path in writing gets in our way and we need to scramble our minds a bit to get moving. Sometimes, writing the end first shows us where our thinking is faulty, and leads us to re-examine the premise and all the steps.  Other times it anchors us in our vision of the solution.

I want to share with you the message I recently found, that I had written to her:

“I believe you should write the concluding section first –the end, the results, the conclusion. It can be rough writing, but you should spend your time thinking it all the way through.  Don’t worry about the details — whom they might partner with, or advertise with, or acquire, or compete with.  Those are details.   We know the answer, and do not need the details to lead it to it yet.

“Next, write the beginning – the definition of the client’s current condition in the marketplace (and within the larger organization, if political or internal funding issues apply), and why the client has asked you to help.  Define in particular the revenue or margin issues, the financial “teeth” of the condition that made them pay you to find the resolution and build the roadmap.  This is the only foundation issue (unless there is a political issue).

“If you will anchor yourself and the writing to the roadmap and recommendations (you know what they will be, so start there), you will have your direction and your goal, and the less interesting and less-necessary parts of the presentation will fall away, or be simply written.

“This approach will focus you, begin to structure your time management of the project, and allow you to prioritize the other sections that need writing.  Outsource to a trusted adviser any research or data gathering that is not part of the thinking, concluding and writing.  Use the gathered information to think more deeply.  That is what you are paid to do, after all.

“Try it.  Wing it.  See what happens.  Don’t resist.  It is a good experiment, and may be a good solution:

• Start with:  the conclusion, the solution…
• Then go to:  the definition of the problem, the challenges facing your client, what they need to know and understand and then decide and execute.
• Later, fill in the competitive analysis, the description of the marketplace, the ratatat-tat of research.

Good luck!”

1. Calm down. Slow down.   The investors must come to trust you and depend on you.

2. Take a power position, without ego, bragging or attitude.  You can be charming, or serious, or whatever mode is most authentic, but stay grounded.  A power position means you do not need this capital from these investors (even if you really do need it), that you are simply offering these nice folks an opportunity to share in and support your mutual future success.

3. Be confident and assertive and show them your commitment to the success of this company in which they may partner, as well as your rational approach to the challenges you will share.  This confidence does not have to be noisy.

4.  Remember, do not rush when speaking, and get your essential information (name, company, unique value proposition, potential ROI and request for funding) completed as a overview in the first 3-6 minutes. This is an overview — decision makers want to have the whole picture before they consider if you can execute on your promises.  Many of them do not really begin to listen until they understand the cost, so tell them upfront.  You will dig more deeply into each part of your pitch after the first 6 minutes, either by presenting the details or by answering their questions.

5. Use positive calm language and attitude.

6. Do not apologize for your request for funding.  Your position is that this opportunity will be a winner in their portfolio.

7. Be prepared for questions on every aspect of your venture.

8. Abandon your prepared presentation as soon as the prospects indicate they want to talk. Their engagement in getting to know and trust you is more important than your carefully crafted handout. They will look at your materials if you pass the talk-test.

9. When the questioning begins, slow down again, and calm down. Re-establish direct, confident eye contact. This is your moment to create an authentic connection with these potential investors, and to abandon any behavior that might make you look like a vendor trying to sell them something. Settle in and talk to them as if you are about to become their trusted partner for the long run (since you are).

10.  Practice and experience build confidence, and confidence is the secret sauce to success. Everybody wants to get on your magic carpet ride, if you look like you will succeed.

I am often asked how much to reveal when pitching for venture or angel capital. The rationale varies: “ I’m not quite ready for a big investment until I get more early traction” or “Will I weaken my position by showing how much I need and how soon I need it?” or “Will what I’m looking for move around the community to everyone and shouldn’t I be selective in what I say?”

The answer is to stand up and lay out your plans and your rationale.  You must treat all investors as if they will become your partners, starting immediately. If you are taking a pitch meeting, you might as well pitch.

You will not see an investment without the interested investor (private, angel or venture capitalist) conducting enough due diligence to know your basic position and condition in the market. So, there isn’t much to hide.

You may not get a second meeting, especially if you are not forthcoming in the first meeting. It is so difficult to get a first meeting that clarity is to your advantage.

It is acceptable to take a short meeting (20 minutes maximum) or two with potential investors, to get on their radar about your idea, even before you are ready to approach them for an investment. You can report back on your progress of reaching your benchmarks. This establishes an early relationship with them, and allows them to watch you deliver the benchmarks you promised.

Suppose you are looking for angel capital now, and you are presenting to an early stage boutique venture capitalist, who invests in revenue-generating companies, but who sometimes will step down to a seed round of a few hundred thousand dollars.

Pitch what you want now: say $250,000, and show what you will use the funds for, and what benchmark you will reach with that seed round.  Your potential investor might provide it and add a deal structure to his position for the next round, giving him right of first look, or protecting his investment in certain ways, even setting aside all or part of your next round.

Next you say you want to raise a Series A round after some specified consecutive months of growth. You say when you expect that moment to arrive (what Quarter of what year), and what benchmark you will reach in what Quarter of what year with that Series A round.

You can say that you will look for a growth round following Series A, once you can track the speed of your growth, and can assess competition and market conditions at that time.

This shows you are thinking all the way out to scalability and ROI. If you look to your investors as long-term partners, this early truth telling and planning sets your relationship on the right path. If you are beginning your company with Other People’s Money, it is good to have a strong relationship with the Other People and their Money.

]]> https://www.joeytamer.com/how-much-to-tell-investors-when-pitching-for-capital/feed/ 0 https://www.joeytamer.com/due-diligence-from-the-entrepreneurs-perspective-early-ongoing/ https://www.joeytamer.com/due-diligence-from-the-entrepreneurs-perspective-early-ongoing/#respond Fri, 19 Nov 2010 15:30:49 +0000 http://www.joeytamer.com/blog/?p=1921 For the entrepreneur, due diligence should be early and thorough: at the beginning of capital investment, while building the company, and at the end-game moment of sale. Yes, early and thorough, and not only at the moment of sale.

I want to continue our thinking here on due diligence – from the entrepreneur’s perspective.

I often conduct due diligence for my investor-clients (e.g., Sony, JP Morgan Capital) at the front end of an investment — when they are making early stage investment decisions. The diligence must be rigorous and it must be conducted by an expert(s) who knows the realities of the marketplace and the strategic needs of the investor. Then the investor can get an accurate risk assessment of the investment in that company at that moment in its market space, and understand what must be managed for the investment to succeed. CEOs should be ready with the expected information for such diligence during funding talks.

And I have done due diligence on the investors, for the entrepreneurs — completing 30 conversations in 24 hours with CEOs (from the list offered by the investors) on their experience with this investment group. In one case, this due diligence was so clarifying, that the early stage investors are still with the company 11 years later, and the strategic sale of that company in the hundreds of millions of dollars has just been announced. It is important to know your partners. My conversations with these CEOs who had worked with these investors revealed that we could count on these investors to stay with us for the long run. It was true.

And I have created the due diligence books for early stage clients in preparing them to sell their companies. The result is a series of large 3-inch ring binders of information on everything a buyer wants to know. The system I use answers more than 125 questions on your company. Often we have 15 such binders when we are ready for the buyers.

I once had to create these due diligence books from scratch in four weeks for a new client with three buyers at the door. Nothing had been gathered in the company’s three years, with technology and patents in the U.S. and abroad. It took me six weeks, plus a full time Administrator to do the leg work, plus 25% of a VP’s time. I directed strategy and traffic.

Strategy included my adding the critical information about what information could be seen at what stage of the due diligence process. These stages are “just looking,” after signing a binding letter of intent, and (finally) commitment from the buyers and our revealing of the trade secrets, This “staging” of information protects the company from releasing information to the buyers before they are committed in writing to the purchase, as some of them can be strategic competitors.

After that pressured experience, I began building the due diligence books when my early stage clients are beginning their first rounds of investment. I then continue to update the books, through rounds of financing and up to the time of sale and the buyer’s due diligence. This extra effort in the beginning keeps us much more prepared for receiving strategic alliance and capital, for next-round financing, and ultimate liquidity.

So, yes, entrepreneurs, commit to preparing your due diligence early, and make it thorough, whether the diligence is at the beginning or at the end.

So, you get one sentence to state your unique value proposition and your first-level differentiation. In simple language. And I mean simple – See Spot Run. See Jane watch Spot. That kind of language. No jargon. No tech-speak. Say it like you would explain it to your sister’s cousin’s grandmother. So you say:

“I’m John, CEO of Startup.com. We make (widgets) that let our customers (replace with your specific target customers) improve their (insert the value of using your widget or service) because our widget (state your differentiation from your competitors – technology, pricing, etc.).

Watch the structure. “I’m John, CEO of PhoneCoupons.com. We provide internet supermarket coupons that let shoppers find our 10% better-discount coupons on their smart phone in real time while shopping and use them at the checkout – no research, no clipping, no forgetting.”

Notice no tech speak. Grandma could get it if she understands how smart phones work.

Ron says, “Interesting. Tell me more.”

This is your chance to extend your value proposition and dig more deeply into your differentiation and success. You say:

“PhoneCoupons.com is in partnership with 70% of the major product brands and 80% of the regional supermarket chains, our technology is in use today, and sales are growing at 40% per month. We take a 2% fee from the product brands for each transaction, and will be profitable within the year. We are looking for strategic partners and capital investors for our growth phase.”

Ron says, “Can you send me some information on this to share with my Board?”

You send your pitch deck (for the product or the investment, as appropriate – these are separate decks). Each deck, no more than 10 slides in each, positions the unique value proposition, the differentiation and the return on investment to the customer or the investor. And it can be a 2-page pitch piece, not a PPT deck, if you prefer.

The response you want from the pitch piece is: “Can you come in and show us a demo and tell us more?”

At this point, you have a qualified prospect (you have determined if you are talking to a customer or investor or both), and can go in with your demo and full pitch for closing.

Notice that all you want in a response is 1) Tell me more, then 2) Can you send some information and 3) can you come in for a meeting. If you push for a faster response than these measured requests, you blow the deal. This is why each sentence from you must be crafted to speak to value and not technical detail, and to speak to differentiation and ROI, not product specifics.

The secret is to not tell too much too soon in too-technical language.

My key work in this area received an immediately $2.1M equity commitment on a 2-page pitch piece in See Spot Run language on a complex software product, and allowed another company looking for its 1st professional equity investment to sell itself to a strategic partner within months.

Knowing how much not to say when, how to position value and differentiation in a sentence or two, and how to use simple language to explain technology is the secret to successful pitching. Good luck.

A Unique Idea in an Empty Space
The time for building the generic tools, infrastructure and horizontal portals of the Internet is past. The players in these areas are in place and dominant. It is important to understand the current moment on the technology emergence curve to determine the viability of your new idea.

Investors want a unique idea in an empty or near-empty space. It’s OK to be second, if your competitor in first place has proven the market but not dominated it. Remember, in the Internet, there is only first and second place, nothing else. With all the new territory to explore, no investor needs to put his money on an also-ran in the making.

Scalability
Once your unique idea has proven its empty space, it must be scalable. Except for tiny niche businesses grown in bedrooms and sold for modest amounts, the rule of thumb holds that the business must scale to at least $100 million in valuation in three to five years’ time. We have already forgotten the names of those that couldn’t. It will be interesting to see how many well-funded businesses actually achieve this $100 million goal.

Defensibility
Sometimes overlooked by CEOs, but not investors, your business idea must be clearly defensible. “First to market” is often the defense put up against non-defensibility. It is an excuse. Yes, first to market gives a distinct advantage in an arena where there is only first and second place for players. But first to market does not make your idea defensible. You can be bumped off by copycats who do it better with more capital and brand. You become the pio¬neer with the arrows in your back.

Recently, one Los Angeles venture group passed on a start-up company with an in-depth site, good traffic, deeply experienced entrepre¬neurial management, and an impressive projected R.O.I, all built on a small initial investment — because the competitor in the number one position could create the depth of the content already created by the start¬up, even though the competitor’s focus was elsewhere. Given the global exposure of the Internet and the low barriers to entry for new competitors, defensibility must be based on some proprietary technology, unique assets or licenses, or access to exclusive information, services or branding.

Management Team
Here’s the catch-22: Investors tend not to fund companies that do not have a proven management team that can execute growth at the speed required to “flip” a company to a sale or IPO in the next few years. But without the capital, a company cannot attract the management team. It is critical to have the commitment of at least one executive with a proven track record in building an Internet business. Experience coupled with an entrepreneurial background is a big success with investors. Given the race to exit, there is no time for an executive’s learning curve.

Investors will support a management team that has had Internet experience within a corporate structure, but no entrepreneurial background. If this is you, it is helpful to align your start-up with an Internet-experienced consultant specializing in start-ups to strengthen the team.

Enough Money to Get the Job Done
Investors like to see business plans that ask for enough money to create critical mass, take first position and accelerate the company’s growth unhindered by a second, lengthy search for capital. So, make certain that you ask for enough money in the first round so as not to struggle during launch and initial market share. It is best to declare your search for both first and second rounds, to demonstrate that you understand the magnitude of money, particularly marketing money, required to take a significant position in this space.

The Adventure
There is no road map to capitalization in these uncharted territories. But sometimes the hand-drawn map will do.

A colleague of mine has agreed to create a training presentation for small business contractors.  I asked, “What kind of contractors?”   “You know, contractors – service providers rather that product companies – like plumbers and consultants.”  I nodded, knowing that service businesses have different demands from product businesses. 

But then I said, “Yes, but… a plumber doesn’t have the same challenges as a business or marketing or social media consultant.  You hire a plumber and you know what he will do – he’ll fix the plumbing.  The successful outcome is the sound of flushing.  When you hire a business consultant, you don’t know what the successful outcome sounds like.  Strategists and marketing and business development consultants must sell intangibles – they have a different challenge in presenting what they do and how to value it.  Everyone knows the value of the flush.”

This got me thinking about pitching, closing and delivering on the value of an intangible service that does not have an easily definable deliverable – like strategy or marketing or social media consulting.  Of course, there are projects and initiatives to work on, but tracking the actual results of an engagement can be difficult.  And if your engagement is ongoing, not project based, the challenge is more daunting.

Sales’ consulting has results in prospects and closed sales; business development has deals signed.  Market intelligence consulting is usually project-based, and the final report is the deliverable.  But marketing and social media consulting delivers results that are more vague, or more distant, because they support “awareness” which can be tracked but not necessarily to closed sales or deals. 

And strategy is the worst – what does “strategy” translate into?  Sometimes more clarity, and efficiency, and better margins, and more deals, and less wasted time by management, and more bandwidth for the CEO – but these are intangibles too, to a certain degree.  Ultimately, there is likely to be success or business growth or a rise in valuation from your services.  But those take time. 

Many service consultants learn to “productize” the deliverables of their intangibles – they write reports, or white papers, or findings.  Sometimes these are valuable, but too often these deliverables end up on the credenza after a first reading and are not integrated into the strategy of the business, especially if you are not involved in a long-term, ongoing engagement.  And sometimes this gives “consulting” a bad name., because the client can remember the price but not the value.

Here are a few ideas for ensuring that your client continues to value your involvement:

Clarity:  agreeing on expectations, expertise, process and deliverables.

The best way to approach proving the value of your intangibles is to work with the client in the beginning, both before starting the work and during the first 30 days of the engagement, to refine his or her (and your) expectations.  Before the work begins, you will define the scope of work for the contract.  But as soon as the work begins, you must have the client outline with you the best way for you to get inside the company to get a handle on your work.  Then you can dig in.  But, you must continuously refer back to your client on what you are seeing and learning, and what next steps you should take, even if you are used to initiating your actions yourself.  Your client must buy into the process as well as your expertise and deliverables.

Communication:  taking on a defined role in the company as part of your engagement.

Also, you may take on roles that the company is lacking, say, handling the communications with the Board, or functioning as an outside marketing division.  This role and its actions must be approved by the client, and remove most of the burden of this role from his or her responsibilities.

Reporting:  Tracking your work done (and value delivered) every month.

Let’s say you are on a monthly retainer and you are going along responsibly doing an excellent job of it.  And let’s say that’s become so comfortable for all concerned that it becomes routine in the company.  This is good news.  But only if you repeatedly make clear to your client the details of your ongoing involvement, deliverables, and work effort.  You are still a consultant, and will be one of the first to be fired if bad times hit. 

So, you must report in every month, along with your invoice for the upcoming month, with a brief report of work committed during the previous month.  Do not track your time (except internally for your own use), but list everything that was accomplished, every situation that was resolved, every meeting you attended, every task done that was not in your contracted assignment, and every deliverable produced, whether the client saw it or not.  This can be a bulleted list from an XLS spreadsheet (wherein you can track your time but not copy that section to the client).  A client savvy enough to watch  his or her bottom line will review it every month and be reminded of your value as your retainer check is cut.  A client too scattered to focus on this “administrivia” will be able to be reminded of what you have been providing, in case some trouble or misunderstanding arises (legal or otherwise).  In all cases, it is the track and the proof of your deliverables and your value.

These strategies of clarity, communication and reporting will keep your engagement strong and your client satisfied.  All it takes is a sustained discipline (which is its own secret to success).