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More About Your Pitch

Route to Funding offer some thoughts on the use of a business plan.

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A common use of the business plan is to enable you to gain funding from the bank or investors.

It is very likely that you will need to support your business plan with at the very least a round the table discussion or more likely a formal presentation. 

You will have to present to investors in order for them to spend some of their money on your venture.

As well as the facts that you must know you will need to add a sprinkling of passion and personality.

You have to sell to them in a convincing way.

You will need to connect with them.

After all people buy off people.

The investors need to as certain as they can be that you and your business will be a success.

Even if your accountant did write your business plan (not advisable) it is essential you fully understand your business plan as using “my accountant wrote the figures” is as lame an excuse as the “dog ate your homework”.

It is not just the figures you can fall down on. If your business is web based and dependent on people coming to your site make sure you fully understand SEO and what you business needs.

Sure you have seen it on Dragons Den many times, but it can happen in the real world too. 

Using Creativity with SWOT Analysis

The SWOT analysis can be a rather dry (but very important) part of the strategic process for most managers. They give the exercise lip service, and that ends up lowering the validity of the exercise. How can they do a better job? Let’s look at some ideas.

1. Make it a No Spin Zone - Rather than spouting out top-of-the-mind items and nice things to say on a shopping list. Get people to agree up front to speak the truth. Only by being candid can a SWOT have real value.

2. Recognise there are two distinct parts - The SW part of SWOT is like looking through a microscope at the organisation itself. The OT part of SWOT is like looking through a telescope at the outside world. Make sure people are thinking in these terms when doing the brainstorming.

3. Do not settle for the obvious - In listing any part of the SWOT, it is tempting to just put down what we already know. That limits the creativity. Instead, brainstorm the dozen or so obvious things, then bear down and triple the length of the list (at least). By really stretching for more items, you will generate some far out and very useful input that can enrich the SWOT.

4. Break into groups - rather than having the entire team do the full SWOT brainstorm, set out four tables and have people work in small teams to generate the information. If you wish, it is possible to have the teams rotate to different tables in order to view the work of the other groups and add to it.

5. Document the SWOT clearly. Do not hide this work after it is done. Use it to create the strategy, and then use the items to track progress. A SWOT should be considered a living document with items changing all the time. Do not consider it a clay tablet for the archives.

6. Have some fun - If you really want people to get creative, couple the SWOT with some food or other fun activities so the work seems satisfying and playful rather than a boring chore that must be done.

Doing a good SWOT analysis is essential to the process of generating a solid strategy for any organisation. The process can be deadly, but it does not need to be. Follow the above 6 steps, and you will create a more helpful and living document.

Tips to Presenting Your Venture

Most entrepreneurs and business owners will eventually have to pitch their business idea to potential investors. Public speaking can be very stressful and in fact it is our societies number one fear (followed by death), but doing it in front of investors who have the means to make your start up continue and prosper can be very unnerving. 

Presenting the key facts about your venture to get an investor to write a large cheque is not easy. It’s a skill that is developed over time, with repetition and learning from your mistakes. Here are 10 tips when presenting your next big idea to investors:

1. TimingIt is NOT a corporate presentation. Its not a time to be clever. Time is limited and if you don’t get the audience’s attention within the first three slides then forget it.

2. Get to the point
  • What does your product do?
  • What do you need in terms of financing?
  • Why might this be interesting to them?

Present the opportunity as well as the product. This should be instantly clear. The best pitches are those that the investors know more about the company (and the opportunity) within five minutes, than the entrepreneurs have told them. They take the clear facts presented to them and connect the dots with the thousands of other start ups they’ve seen.

3. Story telling

Tell a story, and weave that story both in the way that feels natural to you, and the way that you know this audience wants to hear it. You need to know the people in the room, their experience, what they like and dislike, what they’ve invested in previously, and what their first three questions will be. With a bit of effort and networking, all of this information is available and not knowing shows a lack of respect for your future potential partners.4. Don’t be descriptive

Show both your passion and your understanding of how to execute.5. Be prepared

Be confident, but careful and well-prepared. It is common for entrepreneurs to be  over-confident and decidedly unaware of their (and their venture’s) shortcomings. On the other hand it’s been proven that the ability to exude confidence when communicating about their startup is essential and will lead to funding.6. Deconstruct

In thinking about your venture’s future, where you hope to be in three years, deconstruct backwards. If you want to reach the optimal place in three years, what needs to happen along the way? And then make sure this is part of the story that you sell to the investors. They need to know that you have a path to profitability and/or liquidity. Remember to explain their exit in your pitch too.7. Investors will not be deliberately rude (normally!)

This is not an adversarial meeting. You’ll be stressed, and they may be rude, but this is about getting to the facts, and if you’re not capable of communicating those facts well then the investors will ask his or her question again and again, and eventually the stress and tempers will rise. Most investors do not try to make you look bad (normally); they just need to know if this is a story that warrants their financial investment.8. Tell a big idea

If what you’re trying to do is radical, stand up and shout that. Keep your feet on the ground, but at the same time let the investor dream about the big possibilities.9. Keep it simple

Keep it simple, especially your execution plans. Focus is key, and complexity will cause red warning lights to go off all over the place. Multiple product areas, simultaneous channel launches, complicated ownership structures, tiered pricing twelve stage development plans and unclear team responsibilities all need to be removed from your presentation and business plan. If your 9 year old son does not understand what your new product does, then rewrite your pitch.10. Answer the questions

When you get a question from the audience, listen! Listen and make sure you’ve understood the question, and then respond clearly, factually and honestly to the question being asked, not to the question that you want to be asked. “I don’t know and I’ll get back to you on that,” is fine some questions, but clearly not the key ones.Remember
  • Remember of you get into a verbal fight with an investor, the investor always wins
  • Make sure your demonstration of the products work
  • Never ever arrive late. Get there 2 hours before and prepare

You get one shot at it; some do reasonably well – a few will do a great job, make sure you are one of the few.

Is Your Business Model Fit For Purpose?

Before attempting to gain funding your business model must be robust. It is better that you and your close assoicates find holes in it than a potential investor.

Where does it hurt?

What business critical problems do you solve for your customers? Unless your prospect acknowledges a clear and compelling business problem, you have little opportunity to sell them a solution.

Who would want your product?

Who are your ideal customers, and how do they make buying decisions? Develop a deep understanding of the common characteristics of your finest prospects, and of how and why they choose to buy.

Why would they find you?

What trends and trigger events cause your prospects to search for solutions? Unless you understand their desire and reason for change you are unlikely to engage them early enough in their buying process.

How are they going to find you?

What is your market entry strategy? It is essential to understand the most effective ways of reaching your prospects, converting them into customers, and satisfying their needs - including key partnerships and joint ventures.

What else can they use?

What are your prospect’s alternative options? Understanding your direct competitors is not sufficent. You also need to understand all the other options available to your prospect, including doing nothing” and or doing it themselves.

Features and benefits

What are the most important features and capabilities of your solution? This is important because if you can’t relate your solution to their problems you are likely to offer your prospects a vast amount of irrelevant information.

Is it urgent?

What category of problem and solution do you fall into? Why this is important: there’s no point in inventing a category your prospect doesn’t understand or can’t relate to. You need to understand what they are thinking of when they go searching for solutions.

Why use you?

What is your unique value proposition and unfair advantage? You need to find ways of standing out from the crowd and differentiating your approach from all the other options that are available to your prospect.

How much is it going to cost you?

What are your key costs of sale and sources of revenue? Clearly understand the cost and effectiveness of every aspect of your sales and marketing mix. Have a clear strategy for maximising lifetime customer revenue.

Management

What are the key metrics you use to manage the business? Clearly identify the leading indicators you are going to use to determine the effectiveness of your sales and marketing activities, and the frequency with which you review them.

The cost of control - The trouble with non-voting shares

Interesting article from the Economiist regarding non-voting shares. Something to think about when looking at shareholder agreements.

SHAREHOLDERS in News Corporation have only themselves to blame.

When they entrusted Rupert Murdoch with their money, they knew he would not let them tell him what to do with it.

The Murdoch family owns about 12% of the company but controls almost 40% of the votes, through a special class of shares which have superior voting rights.

Such “dual-class” share structures are quite common, especially at media firms. (The Economist Group has a version.)

They can shield managers from stockmarket short-termism and hostile takeovers. But they cause problems, too.

Two studies of American firms by Paul Gompers, Joy Ishii and Andrew Metrick, covering the years from 1994 to 2002, found that dual-class firms perform worse than comparable firms where all shares confer equal voting rights.

Dual-class firms are fonder of debt than equity, to prevent the dilution of controlling stakes.

Yet surprisingly, their shares do not trade at a big discount on stockmarkets. A study by Chad Zutter and Scott Smart found that dual-class initial public offerings (IPOs) achieved only slightly lower price-earnings and price-sales ratios than comparable single-class IPOs.

Nor does this strange ownership model show any sign of going out of fashion.

There were 12 dual-class IPOs in America last year, not far from the norm for the nine-year period in the 1990s studied by Mr Zutter and Mr Smart.

Dual-class structures are not just a way for press barons to keep their hands on the hatchet with which they threaten governments.

Internet firms love them, too, since they allow founders brimming with self-belief to raise cash without surrendering control.

Google’s IPO in 2004 involved two classes of share. LinkedIn followed suit this year.

The IPO filings of Zynga and Groupon would also grant managers control over voting rights.

Investors who seek long-term gains may be happy to cede control if they think the boss is a genius.

It worked for the holders of B shares in Warren Buffett’s Berkshire Hathaway.

It once worked for investors in Mr Murdoch, too. But tech punters have not been so lucky.

The number of dual-class firms listed in America fell from 482 in 2000 to 362 in 2002 as the dotcom bubble burst.

If the current internet boom follows a similar path, News Corporation shareholders will not be the only ones feeling second-class.

http://www.economist.com/node/18988938?story_id=18988938&fsrc=rss

How does media coverage affect share prices?
An excellent and timely article published by INSEAD. Original link below

INSEAD research suggests the best returns come from companies who never make the news.
“News Corp ‘train wreck’ - how bad is it? Shares of Murdoch’s News Corp slumped 4.3% to $15.40” 
“Apple eyes bigger slice of China”
“Bank of America reports loss of $8.8 billion”

These are some of the morning business headlines from USA Today, The Wall Street Journal and The New York Times from July 18. 
Only Apple’s headline is positive and by the end of the day’s trading Apple’s share price had shot up, helped by another quarter of strong profits.

Of course, Apple is riding the current wave of buzzy, much-loved stocks to hold and remains the darling, it seems, of both the media and the stock market. 
But INSEAD Associate Professor of Finance Joel Peress suggests that if you want to make some real money, bite into a much quieter company that has never featured in the business pages at all.

Peress, along with a colleague, Lily Fang, studied the press coverage of stocks and shares in four US newspapers on a monthly basis. 
“We found a portfolio of stocks with no media coverage outperformed stocks with high media coverage by 3 percent per year after adjustments,” he told INSEAD Knowledge. 

“The return difference is particularly large among small stocks, stocks with low analyst coverage and stocks primarily owned by individuals. In these, the “no-media premium” ranges from 8 percent to 12 percent per year”.
High risk, high return

Peress explains that the smaller unknown companies tend to have fewer investors so the risk is higher, but so are the returns. If you invest in a Fortune 500 or FTSE 100 company you are sharing that risk with thousands of others, but also the profits.
So why are we all not rushing out to buy these unloved gems, which are quietly trading very nicely on the markets without as much as a peep?

Andrew Williamson is a hedge fund manager in the City of London. He specialises in this sector of unloved, unnoticed value stocks and deliberately fishes for the ones that operate under the media radar. 
“These shares are for a tiny subset of investors,” he says. “They often have no broker coverage and are certainly not in fashion, like Google or Facebook. 

The shares can be cheap and returns good, but the details around the company may be complicated. Ultimately they are seen as too boring, too small and not deemed newsworthy, so they get overlooked by the media.”
Lily Fang

With all the turmoil that News International is currently going through and the repercussions on its share price, Rupert Murdoch may well be wishing his company was a little more overlooked by the press at the moment. 
Shares in his media empire, which are listed in New York and Australia, have fallen sharply since the phone-hacking scandal in the UK first erupted.

But how much of the change in News International’s share price, or indeed any stock price, is really down to media coverage and how much is it down to the actual events within the company? 
“The dissemination of information matters to stock returns and the media play a central role in that process,” Peress says. 

“I found that announcements with media coverage generated a stronger price and trading volume reaction at the time of the announcement. 
Our work implies that firms can reduce their cost of capital through media-relations activities.”

Demand for expertise
It’s for this reason that multinationals employ media strategy experts, like Richard Griffiths at Ketchum Pleon. His clients include FedEx, IBM, Philips, Procter and Gamble and Kodak, and his job is to build a company’s reputation among investors, which ultimately feeds through to the share price. 

“The share price of companies is an indication of investor sentiment but it’s only one measure, albeit important,” he says. “A share price does not necessarily reflect how all stakeholders feel. 
Measurement of media relations and a broader PR programme needs to assess changes in awareness, comprehension, attitude and behaviour towards a particular brand and business results.”

The proliferation of specialist business magazines and investment journals suggests our appetite for making money is increasing. Peress’ latest research may well entice investors to look beyond the press for interesting stock. 
However with tantalising stocks like Apple and Facebook always in the media and boardroom dramas like News International on the front pages, investors are likely to stay mainstream for the foreseeable future. 

Professor Joel Peress was the winner of the 2011 Prize for the “Best Young Researcher in Finance”, awarded by the l’Institut Louis-Bachelier and l’Institut Europlace de Finance, two French foundations that promote financial research.
First published: July 25, 2011

Orginal post
Elevator Pitch

An “Elevator Pitch” (or lift if you’re from Up North like me!) is a concise, planned, and rehearsed description about your company which your 10 year old should be able to understand in the time it would take to travel in a lift. 

It is not your  ”sales pitch.”  

Don’t use it is as opportunity to sell your products or services. 

Any investor is buying you and your business, not just that super widget you have developed. 

Six basic questions to answer when creating your “Elevator Pitch”

1. Briefly describe what it is you sell.  Do not go into great detail. 

This is a common mistake because if you live and breathe it 24 hours a day you are going to too close to the subject.  

2. Detail who you are selling the product/service to. Who would be attracted to it and how large the market is? 

Don’t say the market is worth £2 billion world wide and we aim to take 2% of it. 

Sounds good but the investor may (or should not) believe you.

3. How do you expect to earn money, make a profit and provide an eventual return on Investment?  

"4. Back the individuals, not the idea” is a common saying among Investors. 

We hear it a lot on BBC Dragons Den. 

They love the person and they sometimes invest as they can see the potential of them as entrepreneurs. 

5. Tell them a little about you and your team’s track record and achievements. 

If you have a strong non exec team, tell them who they are, what they have accomplished and why they believe in you.

6. What does your Competitive Environment look like? 

If you don’t appear to have a competitor; Think again.  

Every product/service has a competitor, direct, indirect or alternative. 

Discuss who they are and what they have accomplished.  

A successful competitive Environment is not a disadvantage; it’s proof that your business model works.

You need to tell them your company is different and why you have an advantage over your rivals. 

Take your ego glasses off or get independent research to support you. (www.castintelligence.co.uk)

and finally….

Remember if there is an elephant in the elevator with you probably best mention it ask they may notice you are ignoring the subject. 

For instance if you seeking investment into your legal recruitment firm and the biggest recession in decades is about to hit, isolate why you it will not be effect you.

You could be “lucky” of course and the investor does not ask the question. 

Unlikely, but it will cause issues a few months in especially if the investor is hands on and spends all the money.

Do Investors Invest in Ideas, People or Markets?

Some Investors say that they invest in the management team first and then they consider the market and finally, the idea.

 

Images

Route to Funding’s experience is that this is basically correct, but it’s also very difficult to call and the market, idea and management team are closely linked.

The first thing an investor asks is rarely based on why they think they have what it takes to be start-up entrepreneur (what ever those skills are anyway!).

It is always “What’s your idea” or a theme around that and this is where a lot of entrepreneurs fall down. The first two minutes is make or break.

It is rather like making a judgement call on weather to recruit someone based on the font they used on their CV. That doesn’t happen? Yes!

Investors see a lot of pitches and can make quick judgement calls based on their individual and probably basic filtering processes.

All successful entrepreneurs have had bad ideas just as many as unsuccessful entrepreneurs.

The ones who have made it big on their first idea are either lying, extremely lucky or where at the right place at the right time and it was someone else’s idea (and historical bad ones) and they joined in.

The difference appears to be that successful entrepreneurs manage to take bad idea and develop them and successful, not given up created a new idea from the bad one. I am not going to reel out the story about the light bulb…..

It is hard to judge someone on ideas alone, but unless they come with a track record as an entrepreneur/inventor (successful or not), investors don’t have a lot to go on.

It is clear that investors put quite a bit of weight on ideas, even if they claim that they are interested in the team.

This is not a bad thing, just realities of investment away from the text book.

The actual business ideas are a reflection of the entrepreneur anyway and digging into these ideas and seeing the entrepreneur’s response to challenging them, suggestions to silly ideas (or not-so-silly ideas) and see what they say.

Investors should probe how an entrepreneur is working to validate and defend an idea and emphasise the importance of not believing they’re own hype.

Do they defend their idea without taking in suggestions?

Do they loose it at the merest suggestion that their idea is not the next “Facebook” or “Ipod” or Virgin will not want to buy them out in 4 years time?

This should the case of the entrepreneur on the investor too as it should be a two way street.

Entrepreneurs that are rigid, steadfast and blind to the possibility that their idea might not be the best or that they think it is so good that investors should be jumping over themselves to get a piece of it and they do not need to put the work.

Entrepreneurs/inventors who can take this kind of feedback and run with it, coming back a week later with new improved ideas, proof points (or failure points) and a willingness to learn, think out of the box demonstrate an ability to be true start up entrepreneurs.

That’s not easy for most entrepreneurs to understand as they often fixed to their ideas, it’s just the way we are.

It’s not natural (even though it may make logical sense) to focus on experimentation and validation (or more likely invalidation) of ideas, with the stop working on bad ideas quickly.

They have put their heart and soul into it 18 hours a day plus for many months and perhaps longer.

Some flash up start telling them their idea is not going to change the world is not going to go down well.

You don’t normally get investment to continue to develop your idea.

The idea normally has to be ready to go. The investor does not usually give you their hard earned cash to validate the market.

Markets are critically important. Go after a market that’s too small and you don’t have an investable business.

Go after a market that you don’t know well enough and you could get eaten alive.

It may be a good idea and it is something we do for our clients to target investors that have some knowledge and experience in your market. If they have portfolio companies in your space then even better.

We know what we know, and although investors have to have broad knowledge on many things and work very hard to understand their markets they don’t know well, generally they’re going to stick with what they know.

If it works once, do it again and again.

The People, the Market and the Idea is the way most (if not all) investors should (and do) assess the opportunity.

But the idea itself, market understanding, the competitors, monetisation strategies, and validation of the idea are all very beneficial when it comes to getting through the door of an investor.

You can not get an investor’s attention without an idea that stands out in some way, or an angle on an idea that’s going to get them interested.

How The Greek Bail Out Works

Route to Funding present an interesting article orginated from our friends at St James’s Place.

It is a slow day in a little Greek Village.

The rain is beating down and the streets are deserted.

Times are tough, everybody is in debt, and everybody lives on credit.

On this particular day a rich German tourist is driving through the village, stops at the local hotel and lays a €100 note on the desk, telling the hotel owner he wants to inspect the rooms upstairs in order to pick one to spend the night.

The owner gives him some keys and, as soon as the visitor has walked upstairs, the hotelier grabs the €100 note and runs next door to pay his debt to the butcher.

The butcher takes the €100 note and runs down the street to repay his debt to the pig farmer.

The pig farmer takes the €100 note and heads off to pay his bill at the supplier of feed and fuel.

The guy at the Farmers’ Co-op takes the €100 note and runs to pay his drinks bill at the taverna.

The publican slips the money along to the local prostitute drinking at the bar, who has also been facing hard times and has had to offer him “services” on credit.

The hooker then rushes to the hotel and pays off her room bill to the hotel owner with the €100 note.

The hotel proprietor then places the €100 note back on the counter so the rich traveller will not suspect anything.

At that moment the traveller comes down the stairs, picks up the €100 note, states that the rooms are not satisfactory, pockets the money, and leaves town.

No one produced anything.

No one earned anything.

However, the whole village is now out of debt and looking to the future with a lot more optimism.

And that, Ladies and Gentlemen, is how the bailout package works

Business Plan Basics

Route to Funding suggest a business plan should:• Be concise

• Contain an executive summary• Have a contents list so that relevant sections can easily be located

• Have numbered paragraphs• Have a readable font size (11 or 12 pitch ideally). Avoid New Times Roman,

• Avoid the use of jargon or overly technical terms (or at least explain clearly what these mean)• Be regularly updated (with a fresh issue date) to avoid it looking stale in the hands of new recipients

• Be free of errors. Spelling mistakes often leave a bad impression.