In a classic game of 20 questions, one person thinks of an object, and then the other players can ask up to 20 questions to help identify what the object is. Players can use both broad and specific questions to tease out the object’s essential characteristics.
All kinds of formulas out there define what a “perfect” pitch is: no more than five minutes, no more than 10 slides, and so on. But what follows the successful pitch deck may be even more essential. When the audience for your pitch asks questions, you’d better be prepared with more than crickets.
In addition to putting together your pitch deck and talk, spend some time identifying core questions investors are likely to ask. Then make sure you can deliver clear answers. Here are 20 example questions to get you started:
- 1. What product or service is your company offering?
- 2. Who is your core customer?
- 3. What problem does your service or product solve for the customer?
- 4. Is there competition in your space?
- 5. If there are competitors, what new angles does your company bring to beat the competition?
- 6. How do you track events in your market?
- 7. What is your marketing strategy?
- 8. Do you have any customer testimonials or success stories to share?
- 9. What other indicators of success can you share?
- 10. What is your burn rate?
- 11. What does it cost you to acquire a new customer?
- 12. What experience do you as a founder have?
- 13. Are all the key team members committed full time to the venture?
- 14. What mistakes has the team made so far?
- 15. What team members do you need to add, and when?
- 16. How long do you see yourself remaining involved in the business?
- 17. What goals will any new investment enable you to achieve?
- 18. What share of the business are you willing to give up in exchange for an investment?
- 19. How and when will investors get their money back?
- 20. Will there be other investment rounds?
I like the idea of choosing New Year’s themes better than making resolutions. Resolutions are too all-or-nothing. Plus, breaking a resolution has the effect of lowering the resolve in your head, often leading to dropping the resolution altogether. Themes on the other hand are not all-or-nothing. With a New Year’s theme, you apply effort to the theme topic at the pace that fits your current life situation. Even with ebbs and flows in activity, continuing to work at the theme ultimately pays nice dividends.
Here are three New Year’s themes that will make you a better entrepreneur in 2015.
Get those plans out of your head.
Most entrepreneurs carry a jumble of really good plans and ideas around in their heads and only let them out in fits and spurts. Making a specific effort to write your plans down forces you to organize, and most importantly, choose which of those ideas make the cut.
You could start by documenting a handful of big milestones for your startup. Then list the to-do items that support making each milestone happen. Choosing forward looking milestones gives your efforts focus, helps you decide which activities are most important, and always gives you an answer to the question “What should I work on next?”
I’m a big fan of documenting startup plans in a timeline style on a whiteboard or large sheets of paper. Get them out of the computer and into the open—viewable by everyone involved. Stand up, talk about the plans, make notes, assign resources, and push toward making real outcomes.
Do more high-risk things.
I’m not talking about snowboarding down K2 or throwing rocks at a baldfaced hornet’s nest. But rather, periodically force yourself to take action that is outside of your comfort zone. For example, you might say, “Oh, I could never call our key client and ask if there is anything we can do better.” Or, “It would be insane to email our competitor and offer them ideas for collaborating in our product space.”
For most of us, it doesn’t take much to come up with a short list of actions that we are not comfortable doing in our startup. Make your list and follow the high-risk theme by checking items off over the course of the year.
Make some effort to align your high-risk activities with your big startup milestones, but also don’t overthink it too much—boundary pushing action is way better than doing the nothing at all.
One of my favorite quotes reminds me to push my boundaries:
“Be bold, and mighty forces will come to your aid.” – Johann Wolfgang von Goethe
No, I really mean run—get our on the road or trail and run.
When you push your body physically, all kinds of good things happen. Ideas emerge, solutions reveal themselves, anxieties fade, and endorphins surge.
Running is hard. Startups are hard. The more you learn to take on hard things, the better your chances of winning. You’ll learn to push past the voice in your head telling you to quit. Dealing with that voice when running teaches you how to deal with that voice when it speaks up in other situations.
If you are not a runner and want to give it a try, there tons of resources that will help you get started. The folks at Couch to 5K (www.c25k.com) have a well structured program to help new runners get started.
This article was written by Steve Poland. Steve is an advisor to startups and the co-founder of 1×1 Media, a publisher of how-to content for startup founders and aspiring entrepreneurs. Steve and his co-founder, Lisa Bucki, are the developers of the Startup Crash Course series and the new Founder’s Pocket Guide series.
The program spans a total of 5 years and is backed by an SBA grant. The goal of ScaleUP WNC is to provide growth strategy development and implementation assistance to small businesses in the 23 western counties of North Carolina.
Training sessions cover topics such as:
- Assessing early-stage growth opportunities
- Raising money by getting investor-ready or lender-ready
- Understanding the angel funding process
- Leveraging friends and family loans
- Gearing up for bank loans and other lending opportunities
- P&L, cash flow, and balance sheet management
- Developing a great funding pitch
The program concludes with a Demo-day pitch event, giving participating entrepreneurs the chance to engage with angel investors, small business lenders, mentors, potential customers, and other startup supporters.
Be sure to check out the detailed story on citizen-times.com
But the reality is, Angel investors write 16 times more checks than VCs. And the preferred initial funding structure for many angel groups is convertible debt. With convertible debt, the investor makes a loan to the startup and that loan later converts to equity at some point in the future.
Convertible debt is a win/win for startup founders and angel investors, offering several advantages over more complex equity funding structures:
Speed. Convertible debt provides a faster way for founders and investors to close deals. In an equity funding deal, many details are negotiated—including valuation, equity percentages, preferred share rights, and more. These all take time to work out. Convertible debt deals are faster.
Delayed Valuation. Convertible debt funding provides a method to raise money without putting a valuation on the company at the time when you issue the debt. Because the convertible debt deal starts out as a loan, there is no need to establish the pre-money valuation of the startup—that task is deferred to the next equity round.
Lower Legal Fees. As compared to closing a full-blown equity deal, a convertible debt agreement typically requires fewer/shorter legal documents to execute, therefore limiting the billable legal hours.
For more on this common startup funding structure, check out the Founder’s Pocket Guide: Convertible Debt
I had my implementation plan pasted to the wall so it was easy to review. I had a detailed budget prepared detailing the costs for each phase of our plan. I had a list of our paying customers. I was ready.
The conversation was going really well, until the angel asked me the question:
“So what’s your pre-money valuation?”
My response was a loose combination of ums and wells, and let’s just say the meeting ended politely enough.
The Founder’s Pocket Guide: Startup Valuation is what I wish I had back then—simple, quick answers, all in one place.
Check it out here at Amazon: Founder’s Pocket Guide: Startup Valuation
As a recently licensed private pilot, I feel truly alive when flying a small plane. In a single flight I can feel pride, humility, fear, joy, and triumph. This list of feelings also crops up on a regular basis for my co-founder and me as we work to build our publishing startup, causing me to reflect on the similarities between learning to fly and building a startup. Here are my top five flying lessons that also apply to my startup efforts:
1. Practice, Fail, Learn.
There is nothing stickier than a lesson learned by f’n it up the first few times.
We had just landed, and the 1946 Champ rolled down the runway at good clip when my instructor told me to take over and taxi us back to the hanger. Feeling confident that we were safe on the ground, I took the stick. For the first few hundred feet I had things under control. In an instant, I felt the back end of the plane start to swing to the right. My instructor called for more right rudder, but I reacted too slowly. The plane made an abrupt left turn, the left wing dipped and almost struck the ground. Finally, the plane came to a quick stop sitting in the middle of the grass runway. My instructor said, “That’s what we call a ground loop. Now let’s learn how to not break my plane.” The rest of the lesson consisted of me taxiing up and down the runway, learning to control exactly where the plane was going.
I learned to taxi, fly, and land the Champ by making lots of little mistakes, recognizing them, and correcting them next time.
Startup founders also learn by doing, in some combination of try, fail, re-try, fail less, and succeed. The willingness to embrace this cycle propels founders to new levels of success and creates positive outcomes such as inspiring investors to double down, even if the founders have had a ground loop or two.
2. Balance Risk.
Flying a small plane involves risk. The thin margin for error, with small errors often compounding to create larger errors, sometimes leads to deadly outcomes. Disaster unfolds gradually—you’re in a hurry to get back home so you don’t top off the fuel tanks, head winds are a little stronger than forecasted so fuel burn rate increases, you could divert to a closer airport but that’s not home, and after all, you should be able to make it…. Should…
Private pilot instruction aims to reduce the risks of flying and to train flyers to be better decision makers. We use checklists to inspect the plane for defects, we practice emergency procedures to mentally and physically prepare ourselves for the shock of a true emergency, we monitor and respect the weather and its impact on our fight plans, we monitor our personal well being and fitness to fly, and we make a Plan B and a Plan C in case things don’t go as expected.
Launching a startup involves risk too, but fortunately as compared to flying, the margins for error are much larger. As startup founders, we put our personal savings at risk, we postpone or cancel education or career plans, we place stress on personal relationships, and face the risk of failing in public. Experienced founders balance these risks by planning, testing, and measuring. We talk to potential customers before building the MVP, we gauge customer demand before investing time and money, we perform due diligence before taking investor money, and we spend small before we spend big.
3. Embrace the Bumps.
I learned to fly in Western North Carolina in the Blue Ridge Mountains.
The mountains can stir up a good amount of turbulence for a 1,500-pound Cessna. Sudden gusts can lift a wing dramatically, mountain wave currents blow so hard it seems like the plane is standing still, and a smooth flight turns into a jolting ride just by flying over seemingly benign ridges. The more you experience the turbulence, the more you become good at mitigating it—head to a different altitude for smoother air, keep a light touch on the controls and don’t overreact to each bump or dip, and ultimately make small corrections or none at all. Or if it’s too rough, call it a day and head for the airstrip and reconnect with the Earth.
Any founder that’s been at it for a while knows that building a new company also offers a bumpy ride. Customers complain, investors back out, employees quit, servers crash, your significant other is pissed, and it’s just Tuesday. Thankfully, the triumphs along the way make continuing the journey worthwhile, and you get better at managing the bumps and setbacks.
Ride out the bumps and setbacks, make adjustments as needed, and keep your focus on the most important checkpoints in your flight plan.
4. Don’t Run Out of Fuel.
Obvious, right? You would think so, but a surprising number of small plane crashes are the result of running out of gas, otherwise known as “fuel exhaustion.” Several pre-flight checks center on making sure there is good gas in the plane—check the fuel gages, pull the cap off the tanks and measure with a calibrated stick, pull a sample of fuel from the sumps to make sure no water condensed in the tanks, and even confirm the color of the fuel matches expectations. In a single engine small plane, the prop quits turning when you run out of fuel, forcing your next move—an “off airport” landing. With luck, you spot an open field or a clear stretch of road and put it down with out damage or injury.
While building any startup venture, you’ll have frequent reminders that cash fuels the business and that when you run out of cash, you are out of business. Again, it sounds obvious to manage startup cash reserves carefully, but many founders give in to the temptation to spend all the way up to the point of “cash exhaustion,” hoping that just one more AdWords spend will get enough users signed up, or an expensive trade show will get the orders needed to make payroll. Startups succeed by winning many small victories, achieved over a long period of time. And the only way you get the privilege of being around a “long” period of time is by planning your cash burn carefully, placing numerous small bets on activities you know will pay off, and staying willing to divert to plan B if cash runs low.
5. Land the Plane, Dumbass.
Near the beginning of my flight training I was having trouble getting my landings down. I repeatedly added too much power, causing the plane to come in too high on final approach. Other times, I brought the plane in too low, getting a much too close view of the power lines. After a few of these botched attempts, I asked my instructor to “coach me through a landing.” Without missing a beat, he said, “Land the plane, dumbass!” His comment caught me just right, and we laughed all the way through the base (next-to-last) leg of the landing pattern. I settled down, turned final, and brought it in for one of my best landings, ever. During our debrief back at the hanger, we laughed again and my instructor explained that I knew the steps for a great landing, so I needed to relax, enjoy flying, and keep practicing. Two lessons later, I soloed for the first time.
As startup founders, it’s easy to get impatient with our progress. We are focused on big goals that are as critical as landing a plane, such as publishing a new title, launching our MVP, or closing a major customer deal.
When I find myself mired in challenges of the day and frustrated, I pause to relax, follow the steps I planned, laugh at myself as required, and focus on bringing the plane in for a landing.
“What is your burn rate?”
When angel investors ask this question, founders of investor-ready startups have the answer ready to go. Cash is the lifeblood of any business, and investors ask about the burn rate metric because they can use it to make a simple calculation that tells them how long your startup has to live, and how far any new investment will take you.
As a founder, you need to develop a clear understanding of your startup’s burn rate not only to be ready to answer potential investors, but also for planning purposes. Managing cash flow is one of the key success factors for any startup.
Burn rate for a startup is defined as how much money you spend each month to keep the startup alive. A burn rate calculation should account for all costs, including:
Direct Product/Service Costs.
Direct costs associated with monthly sales, such as cost of goods sold, partner or affiliate fees, and so on. Sales and Marketing Expenses. Estimated sales and marketing costs, including travel to customer sites, trade show fees, marketing costs, pay-per-click advertising fees, and so on.
Founder and Employee Pay.
Salaries and wages to keep everybody showing up early and staying late.
Keeping the Lights On.
Other ongoing expenses such as rent, utilities, insurance, and Web hosting fees.
Once you add the above expenses to find the monthly burn rate, you can evaluate how that compares to your startup’s cash position to figure out how long your startup can continue operating to try to achieve breakeven status (where the startup’s monthly gross earnings equal its total spending) and what the impact of any new investments might be. This is:
Months to Live.
How long the company can continue based on the current cash on hand plus monthly cash from operation divided by the current burn rate.
This graphic illustrates the months to live calculation:
One further factor influences the months to live outcome. If your startup is fortunate enough to have some monthly cash flow from customer sales (operational cash flow) then that cash contributes to paying the bills each month and ultimately adds to the number of months your startup has to reach the breakeven milestone.
It is also important to clarify with potential investors whether founders are deferring all or part of their salaries, and the current and future impact of any salary deferrals on the burn rate.
Keep an eye on your monthly spending and cash levels, and be prepared to discuss the details when courting angel investors. For more on startup burn rates and other angel investor hot buttons, check out our Startup Crash Course: Angel Funding
Geek turned entrepreneur, Rahul Chaudhary (@rahulgchaudhary), culls through a sea of startup content and offers a finely distilled feed of startup news and links–well worth a spot in your inbox.
The Value of Dry Run
As we continue to add titles focused on helping startup founders gain knowledge of startup mechanics, we are also learning a lot of startup lessons ourselves. I recently had the opportunity to write a guest post about our publishing startup experience for Joe Wikert’s Digital Content Strategies blog.
Check out the post here: The Value of a Dry Run
For an industry insider’s view on digital content publishing and great insights on the changing publishing world, be sure to check out Joe’s blog at www.joewikert.com
We are super excited to announce that our next title, Startup Crash Course: Friends and Family Funding, is now available on the Amazon Kindle store (here), and will soon be out for iBooks, Google Play, NookPress, and as a PDF.
As you may know, many startup founders rely on friends and family funding to get their ventures off the ground. This Startup Crash Course details all of the common friends and family funding structures, including simple loans, profit sharing agreements, equity deals, and convertible notes.
Getting the money in the bank is a big step, but doing it the right way matters even more. This book provides easy to follow guidance for choosing and documenting the best funding structures for both your startup and your funding partners. As an added bonus, a promissory loan walkthrough provides blow by blow details of each clause.
Check it out, and as always, let us know your comments, feedback, and ideas.