Pitching… in the absence of the pitcher!

We spend a great deal of our lives delivering pitches. From cajoling parents to give us more money, begging teachers for more marks, haggling with the auto guy, requesting the cop to let us go, pleading with the maid to come on time and finally praying to god… everything is a Pitch.

Most of us are good at different kinds of pitches.

However with the advent of the great corporate Brahamastra ‘PowerPoint’, the pitch presentation has become an art in its own right. And most people suck at it.

Ironically, the reason why most of us can’t deliver effective pitches is because somehow the pitch has become more about the slides than about communicating what is required to convince someone to come aboard.

A pitch can be made

On the phone (Hello Sir I am calling from XYZ bank…)

On Email (My name is Odumbe Ombaka from Nigeria and I want to offer you a chance to make 1 Million $…)

On TV (This is the best abs machine in the market because you never need to exercise….)

Through Flash ads (Want to find hot friends in & around Delhi?….)

In a meeting (Sir this product will kill the competition….)

Non-Verbally (Wink Wink Smile Laugh….)

etc etc etc

This post is NOT on how to make effective presentations since I have already covered that somewhat (here). This post is about what you need to know before making effective pitches to various people using a PowerPoint or equivalent program.

But just to keep it simple and in the interest of those who (mercifully) take out time to read this blog, I will only be writing about Pitches from a Startup’s perspective.

Oh! And I write the below pointers assuming that you WON’T be present when the person views your pitch. Which means that he/she will be looking at the presentation and there will be no opportunity to razzle and dazzle with your mellifluous voice.

There are 4 different types of pitches for Startups

1. For Investors – They are interested in Your Idea/Product, The General Market Contours, The Profile of your Customers, The Pain you are trying to Solve, What you have achieved till now, How they can get in touch with you, Existing backers, partners and investors and most importantly Who are you and your team mates?

2. For Partners – They are interested in Your Idea/Product, The Profile of customers, What you have achieved till now, How they can get in touch with you, Profile of your team, What are the potential ways in which they can partner, Any Press coverage, Why is this so exciting and WIIFM (What’s in it for me).

3. For Customers – They are interested in the Product/Service, What makes your Product/Service so kick-ass, What you have achieved till now, The management profile, profile of some other clients, any press coverage, How to get in touch with you and the benefits of what you are selling.

4. For Employees– They are interested in knowing about how amazing your startup is, Why your Product/Service so kick-ass, What have you achieved till now, Management Profile, Your Backers/investors/partners, Profile of a few employees, Why this market so amazing to work in, What positions and skills you are looking for and finally How to get in touch with you.

10 Rules to follow while making a Startup Pitch

1. Keep it simple – Pushing in too many ideas, with too many flowcharts and too many details is going to kill your pitch. If you know what is the central Idea to your startup (I hope you do), use that as the common thread which binds all slides. Please note that the central idea may differ based on the category of viewers as given above. A tagline which encapsulates ‘what you do’, is very useful. Use only a few elements per slides. Don’t use too many animations, pictures or arrows. He/She will turn off really quick if you insist on being difficult to follow.

2. An Idea per slide – Ever tried reading 3 different subject books at the same time or even watching 3 movies. No? Well I hope not because it will be a waste of time. One idea/topic per slide makes it really easy to follow, register and digest in the mind of the viewer.

3. Colors and Graphics – Colors, Shape and Sizes affect the brain subconsciously. It’s a scientific fact. So even though Yellow font with a black background might sound like a GREAT idea, it usually isn’t. Please pick out easy colors, shapes, graphics and fonts for your presentation because the ‘Environment’ of your presentation really makes a lot of difference on how the content aka meat of your pitch is received. If the pitch is about a Startup making toys, then a black and white presentation devoid of any color is a bad idea, similarly a financial services startup may not want to use the rainbow as the presentation background. It will really help if the colors, fonts and graphics used in the pitch are part of your startup’s ‘creatives standards’. Finally, make sure that function comes before form. That is, the environment should support the content by making the presentation easy to read, pleasant to view and simple to remember.

4. Foot in Door – The pitch should not be written or made to communicate everything there is to know about you. You never mail a free mini-dictionary to someone in the hope that they might buy the extended 3 part volume series dictionary. You talk to them about the benefits owning a dictionary and how it will enrich their lives. The main purpose of a pitch is to introduce yourself, make yourself look interesting and to get a meeting! The final sale/decision/agreement etc will happen in that meeting. Your pitch must ensure that the person sitting across the table really wants to meet you.

5. Master Presentation for Material – Make a master presentation for your startup which may be treated as source material for all further variants. I have seen too many people messing up on details and content by putting up different things on different presentation and pitch variants. To a detail oriented person it can be irritating and confusing especially when they call you for a follow up presentation after they have seen your pitch. A master presentation also makes it easy to keep updating other variant presentations whenever required.

6. Easy to search – Most investors, customers and people get hundreds of emails a day. Since your pitch will probably be going through email, make sure you put easy to remember and recognizable subject lines, email ids and file names. If your Pitch presentation is named ‘Pitch’ or ‘Presentation’ or just XYZ12rd4 or some such ambiguous term, then the probability is that your file will be lost in some hard-drive or email inbox for eternity. Make the email subject easy to search. Put your Startup’s name and the term ‘pitch presentation’ in it. Also name your file using “Startup Name Pitch Date” format. For example “CoffeeCup Pitch – 22 Mar 2012”. Personally I would like to also know how many slides I have to go through and how many minutes it will take. This helps most of us get mentally prepared for the time and attention commitment.

7. Easy to share – If you can also mail a link of the pitch on slideshare, youtube etc then not only will you make it easy for someone to access it across platforms, you will also make it easy for them to share the pitch with other interested parties and stakeholders.

8. Don’t insult his/her intelligence – Don’t dwell too hard on the basic info. Everyone knows that the internet market in India is growing, that eCommerce is growing, that food consumption is growing and that global warming is also growing. A few revealing and relevant statistics will be nice. If you know the profile of your potential investors, customers, partners etc then you must include info which is relevant to them and doesn’t dwell on the known. This helps save time, effort and eases communication.

9. Tease – The art of the pitch is to open the mind of the person in front to receive the sales information you want to provide to finally make the sale. Since the aim of the pitch presentation is to get you a meeting where the other party really wants to know what you have to offer hence it makes sense to not reveal everything there is to say. Keep the bang for the final meeting. But most importantly tease the person to make him/her really want to meet you.

10. Make it for Mobiles – Probably the biggest shift one has to understand while making a pitch presentation. If you go over the last 9 points you will realize that almost every point has been written with the Smart Phone medium in mind. Unless you have been living under a rock, you know that most of us will soon be consuming media in a major way through our smartphones. Certain demographics (like VCs, Investors, high flying executives, ahead of the curve customers etc) already do so. Anyone who owns a blackberry or a better smartphone would know that most emails, messages and social media updates are viewed through the smartphone. So the probability that your email and presentation will be viewed on a phone is really high. And if you have ever gone through a presentation on a blackberry you would know how frustrating the experience can be with slides made for a projector i.e. lots of data, small fonts, lots of words, messy graphics etc). My advice – Make a presentation and see if others can understand it on a basic blackberry phone.

Profit, Profit and Profit (Yup there are 3 kinds)

Rainbow Cake - Because I couldn't find a great picture for this post

Ever had the feeling when you think you know something, because it’s so simple in theory, until one day you don’t because you have to put it in practice? 

Like knowing how to make an omelette.

In theory, its fairly simple. Pour well whisked eggs on hot pan, add salt + pepper and voila!

In reality, you could be stuck forever when it comes to breaking the eggs. By the time you get the basics right and get to adding tomatoes, onion, herbs, etc you are already a veteran.

I find this analogy fairly apt because I have found, over the last many years of waking up with a bad hangover in the homes of strangers, that even the most intelligent set of people can’t make good omelettes. And that’s because, while they possess a deep and unshakable confidence in their ability to make omelettes, in reality they just don’t know how to.

The reason why they are so wrong is because their template of a ‘Good omelette’ is flawed. 

The same stands true for our understanding of profit. Unsurprisingly most ‘accounts/finance unaware’ entrepreneurs get it wrong all the time. The theoretical understanding of Revenue – Cost = Profit is good enough only when you are trying to impress your 10 year old niece/sister, who is trying to run a lemonade stand. And even she will probably get over it in a day.

I had the concept of Profit wrong, well after I had finished my MBA. I had slept through all my accounting classes and struggled with debit and credit to the point of antipathy.

 So to benefit others who partied hard, slept in classes and are now embarking on entrepreneurism, I have decided to take up the issue of 3 profits and how we need to keep an eye out for all of them, while running a startup.

The 3 types of profit are

A. Gross Profit

B. Operating Profit

C. Net Profit

A. Gross Profit – The true representation of that cute ‘Profit’ formula for your niece/sister. To an extent. 

Net Sales* – COGS ** = Gross Profit

*Only revenue from sales of goods/services and not other sources like selling off assets and investments. Also after deduction of sales allowances and discounts.

** Cost of Goods and Services i.e. the direct cost of making the product or delivering the service

Now this may look simple but how do you determine what is COGS, when the definition of ‘direct costs’ may differ based on how you apply them? Issues of when you recognize revenue are also important.

Anyway, the point here is that if you are in the red (-ve gross profits or gross loss) here, then one or more of the following may be the case 

1. You are still trying to negotiate better rates with vendors for input/raw material costs. You have an idea of what it will cost when you have negotiated good deals with vendors/suppliers and are supplying customers products based on that cost.

2. To acquire customers and entice channel partners you are offering a lot of discounts to them to make your product/service available or to get potential customers to try them. You plan to increase prices once you have a good base of customers.

3. You hit a bad year and were getting rid of your inventory at heavy discounts.

4. You hit a bad year and delivered goods/services, promised in the past for a particular negotiated price, but now have to deal with higher input costs.

5. You are being a loss leader. Basically putting people out of business by offering cheaper products on the strength of your cash.

6. You messed up and don’t really know what it costs you to make a product/deliver a service

There are other reasons but if you suddenly realised that the last point applies to you, just stop here. Please go back and figure out the COGS of your company and read the rest. Chances are that if you have a gross loss instead of a profit then you are going to be in deep shit if you don’t take corrective measures soon. You will be -ve for the rest of the 2 profits by default.

To be sure, a number of well funded start-ups may be bleeding red here, but they are doing so just to get scale, reach or to develop the market (Points 1,2,4,5).

B. Operating Profits – This profit is the real deal when it comes to determining the health of your startup. 

Now some people feel that Operating Profits are shown by EBIT = Earnings (Another name for profit) Before Interest and Taxes and others feel it is shown best by EBITDA = Earnings before Interest Taxes Depreciation and Amortization.

However you do it, this profit shows the amount of money you make from all operations related to selling of goods.

This includes, salaries, sales, marketing and other overhead costs. 

If you are thinking of taking a loan on your business, then bankers will have a look at this metric since it shows them your ability to pay back the loan amount. 

A healthy or slim Operating Profit Margin basically shows how healthy and efficient your company is. Slim margins are more susceptible to small changes in costs or other factors and can be maintained only when volumes are very high like in the case of Wal-Mart.

If you have a healthy Gross Margin but a bad Operating Profit Margin it could mean that your overheads are killing you.

However a slim or -ve Operating Margin may also mean the following

1. You are busy building assets and infrastructure for the future and have been loaded with the costs even after amortization and depreciation this year. This is when we used EBDITA to derive Operating Margins. Many startups, being pushed to develop assets to increase their valuation by investors may show -ve Operating Margins due to this.

2. You have scaled up well but the revenues haven’t followed just yet. This leads to higher overhead costs which are necessary since resources have to be maintained in anticipation of scaling up. So you could be spending lots on rent and salaries for now.

3. Your overhead costs are killing you. You have too many people, too much rent, too many things on lease, spending too much on supplies, maintenance, insurance etc. 

Most startups feel comfortable being red in this regard as long as they have a good gross margin since most are concentrating on scaling up rather than hitting profitability just yet. They know that once the economies of scale catch up, they will start turning black in this part of the P&L as well. 

C. Net profit – When we finally decide to subtract all costs of interest, taxation, depreciation, amortization and other charges from the Net Sales we get Net Profit.

Net income = Gross profit – Total operating expenses – taxes – interest – amortization – depreciation

This is where you get to know how much money you made during an accounting period. 

So when someone asks you “What’s your bottom line?” This is the number you should ideally quote.

When talking to vendors, dealers other stakeholders this is the number you should be most interested in.

Having said that, most startups may take a long time before they show a profit here. That is because investors (VCs in particular) aren’t inherently interested in the dividends they make, but the valuation you show at the time of their exit. 

So the next time someone, goes around mouthing fantastic profitability numbers at a cocktail party, be sure to ask him about all three of these. But before that, make sure you know these numbers for your own Startup and how your CA (hire one for heaven’s sake) got to them. Once you know them, understand why they are the way they are and where you would like them to be in the future. 

You can be sure that once you know these three numbers, you will be on the ball about the health of your company/startup.

Hey! by the way, Profit is NOT the same as cash in hand. But that is for another post.