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Preparing and presenting your business case is serious business
 Feature
Building a compelling business case for creating a new company around a breakthrough product idea is an essential step in securing startup financing. It’s equally important in securing support for resource-intensive development projects that extend existing product lines for established firms. So getting the case right is critical. But it’s almost always addressed to a notoriously tough audience – senior corporate executives and potential investors with famously short attention spans. At a recent Product Strategy Network forum devoted to building better cases, four seasoned executives, representing the receiving side of the pitch, discussed what worked for them, what didn’t, and why.
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By Peter Longini
In established companies, business case presentations are typically where growth ideas are vetted by senior management. It is the primary forum for convincing company executives to fund new initiatives which promise to grow their company in its industry. But when dealing with angel investors and venture capitalists, it’s the presenter’s main opportunity to persuade potential investors that there’s a promising new way to disrupt those same industries.
During a recent Product Strategy Network forum, the factors contributing to an effective presentation, as well as known presentation killers, were laid out by a distinguished group of panelists. They included Jim Jordan, Chief Investment Officer of Pittsburgh Life Sciences Greenhouse and former senior executive with McKesson and Johnson & Johnson; Randy Eager, Executive in Residence at Innovation Works and co-founder of CMU software spinout DesignAdvance Systems; Dan Torrens, Vice President of Product Management of financial software maker Confluence; and Dick Heilman, Vice President of Marketing and Strategic Growth for Pittsburgh Glass Works and former PPG Industries executive.
Panel members were asked to comment on what goes into building an effective business case for an established corporation, and how that differs from what venture investors want to hear from startup entrepreneurs. Here is a summary of what they said:
Even before developing a business case in an ongoing corporation, you have to go through the scoping stage: does the idea really fit the company’s overall strategy? Is it something you should spend time building a case for in the first place?
If the answer is yes, the key ingredients of your presentation are, first, defining the market you’re referring to and how big it is, what the problem is you’re solving, what that problem costs them today, what is your solution going to be, what the alternatives are, and how you plan to compete with those alternatives. Then comes pricing: what would you charge for this product based on the competitors and alternatives? And finally, the financial projections: what will it cost to produce and how much will the company ultimately make on it?
Know Your Audience
In presenting business cases, as with selling shoes, knowing the personalities you’re trying to sell to is critical. For a small or startup company, you may be pitching to angels or the venture community. So before you make your value proposition, try to understand if there’s a cultural match. That determination can be complicated by the fact that product-oriented business people speak one language while venture capital people – who think in terms of balance sheets and financial returns – speak another. A lot of entrepreneurs don’t align their core story with the culture of the people they’re talking to; and that can be a serious mistake.
There are also issues of skill sets. In a startup, you begin with an idea and then build a team around that opportunity. Startup investors are looking for something that can become a platform – a technology which can grow rapidly and spawn other products. But in a larger corporate setting, you build an opportunity around the skill set that already exists. Larger organizations can tolerate smaller, less platform-oriented types of projects that broaden their established product lines. So the scales are different in weighing your presentation.
In a big company, you have a do-nothing option. That’s because doing anything usually means you’re taking resources away from something else. So, for example, if your idea is a line extension, you need to explain why it’s more beneficial to work on your vision than to work on new platform projects. In a startup, however, there’s no do-nothing option. In the VC world, the rule is clear: give me a new category or don’t bother me.
If you’re inside a big company, it’s essential to know its long range plan. A major corporation is like a ship moving in a certain direction; it’s hard to steer it one way or another. So when you bring forward a business case, you need to understand how it fits into the ship’s long-range plan – that it’s moving in the same general direction. In much the same way, if you’re going to an angel or an outside VC, you need to understand what direction those investors are heading because, if you bring them something that’s outside their general area of interest or expertise, you won’t get an audience.
Do Your Research
Creating a business case involves more than sitting in your office, coming up with an idea, and putting it down on paper, according to the panelists. Instead, you have to visit customers, talk with them, watch them perform the work you believe you have a solution for, and then document it. Describe who that person is, what their problem is, what their day-to-day life looks like, and what their goal is. Then include direct quotes in your presentation. If a client says something like: ‘if you help me decrease this by ten percent, I’d pay you a million dollars,’ that gets people’s attention.
When you’re out studying the customer, learn how to do contextual interviews. Go out and watch people do it; don’t just ask them. Five years ago, understanding the customer was primarily about interviewing them. But that’s not necessarily the best way to understand what’s really going on. If Henry Ford had listened to what people were asking for, he would have built a better horse. So asking people what they do, and actually seeing what they do, are two different things.
In making your presentation, you may be asked: how many potential customers have you talked to? If your answer is: none, because you’re worried that they’re going to steal your idea, investors will regard you as someone who doesn’t really understand markets, competition, pricing, or distribution. So build a team of knowledgeable consultants or a Board of Advisers comprised of top-notch people in the industry segment you’re going after. If you can convince them that yours is a great idea, it bodes well for selling it to investors.
Look Out for Killers
Avoid known presentation killers. One of the first is saying: “all I need is 1% of this market to be successful.” According to the panel, that’s a sign to investors that your business case doesn’t have a foundation in either understanding the market or what it’s going to take to be successful. And getting to even 1% is harder than most people think.
Another killer is if the presenter assumes that he or she is going to be the one who runs the business that the investor is being asked to fund or implement. Based on the experience of the forum’s panel members, in large corporations, when people bring ideas forward with the expectation that they’re going to be its general manager, they tend to shade the truth to make their case look better.
If you think your idea is going to yield different results than everyone else’s in your industry segment, be prepared to explain exactly why that would be the case. Soaring hockey-stick projections almost never come to fruition. Compare your idea to those in other industry segments; how long did it take them to go from zero to the first million, or from zero to going public, or zero to profitability? If you think you’re going to achieve something faster than that, you’d better have a good reason. On the other hand, if you start with the idea that it’s going to take 20 years to find to an exit, you may not be in the right kind of industry for innovating.
In an established company, panel members suggested, find out how its last three or four products introductions did and then compare them to your own product’s projections. At the same time, though, while knowing how the company’s other products have done in the marketplace can be important, in today’s tough economic times, how they did last year may not matter; 2002 may be a better benchmark now.
All product innovations involve risks of different sorts. Some can be characterized as ‘Whats?’; others as ‘Whens?’ So, for example, What if the technology doesn’t turn out to be as good as you thought it would be? What then? When will the product become available? When do you start selling it? And When does the cash start coming in?
Who Cares?
When you’re delivering a pitch, according to the Panel, tell your listeners why they should care about your idea; why it’s going to change the world; what the customer experience will be like; how you’re removing risk; and why you have the talent to do what you propose. Tell them what market share you’re going to get and why that’s reasonable. Tell them you have advisers who have done this before, what you plan to do with the money, and show them the incremental stops where investors can decide whether to go on to the next level or not.
Describe a problem no one has ever solved and show them that you have intellectual property which solves it and that it’s a solution impervious to competitive advancement. Tell them who’s coming along with you and what their connections are to your business plan. Then give them your timeframe for a financial return. And avoid MBA-speak.
Finally, learn all you can about the competition. In established enterprises, your suppliers are often your competitors’ suppliers as well; they usually have a lot of information and they’re frequently willing to share it. The same is true with your competitors’ customers. There’s also competitive information you can legitimately gather from employees who have transferred from a competing company. Many companies like to talk about where they’re headed on their websites; check them out. And you can always hire consultants to do things like having people sit in bars to talk with the competitor’s workers when they come off shift.
But in the last analysis, Panel members observed, if you can’t clearly identify and describe the problem you’re solving, you probably don’t have a product or business plan that’s going to get anywhere.
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About the Author
Peter Longini is the Managing Editor
for Inside Product Strategy™.
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