Business Presentations - Answer the Questions
Bill Warner Thursday, April 24, 2008
Having just attended a business show where investors meet great emerging companies, it occurs to me that not only do these entrepreneurs have to pull together a great business plan and make a compelling presentation, but they also have to answer hundreds of questions about their businesses. Entrepreneurs need an encyclopedia full of answers, all of which come from their business planning research and experience running their companies. Answers have to be responsive and right as well as positioned in the right context.
I have always stressed the importance of having a well thought out business plan and a clear business presentation that is well practiced. It seems to me that having clear answers to the usual business questions that are thrown at any new company is just as important.
This is certainly not an exhaustive list of questions, but let’s look at the major categories of questions that will arise.
Market, Buyer and Competition
Usually, the first questions entrepreneurs will have to deal with are those having to do with understanding the market. They have to be able to show that they are intimately familiar with the market and its driving trends, and that they know who to sell to. Here are a few of the typical questions.
- Is this an existing market, or are you making a market?
- Who is the buyer of your product/service?
- What need are you filling?
- How is the buyer dealing with the need now?
- Does your product/service fit into the buyer’s business priorities?
- How are customers buying decisions made and who decides?
- Will customers enter long-term purchase commitments?
- Who are the important competitors and how will you beat them?
- Are there any regulatory or certification issues?
- What is your source of market data?
This is an important test to pass. It is critical that entrepreneurs show that the market is very well understood, that the buyer is clearly known, and that they know who they have to beat in the marketplace.
Product/Service
Certainly, the easiest questions to answer are those about your product or service. Most entrepreneurs are also the creators of their product or service, so they know all about it and can answer these questions and many more.
- How does your product or service address the market need?
- What benefit is brought to the buyer?
- What is unique about your product/service?
- Is your product ready for sales?
- If not, what will it take to get the product ready for sales?
- What is the status of product development and proof of concept?
- What is the barrier to entry?
- Do you own your IP?
- What is the status of IP protection?
The pitfall for some entrepreneurs is that they dwell too long on the product or service and not enough on the business that it brings to the company. Entrepreneurs need to keep a balance by being able to talk about all aspects of the company equally.
Marketing and Sales
So, how are you going to get to market? Here the entrepreneur really has to shine in showing how customers will be acquired and that there is a realistic sales model that will produce great financial results. These are hard questions with complex answers.
- What is your value proposition?
- What is the buyer’s return on investment?
- What is your plan to reach the buyer?
- What is your sales model?
- How long is the sales cycle?
- Who is selling your product/service?
- Who is your first buyer, and why did or will they buy?
- Do you have any customers and who are they?
- Have customers paid your asking price?
- What sales have you lost, and why?
- Have you identified potential customers, and what are the top five?
- What business will close next?
- What alliances are going to be needed?
If the entrepreneur doesn’t ace these questions, great doubt will be placed on the likelihood of success.
Management
Whether the entrepreneur is addressing a potential investor, partner or customer, they have to really have confidence that the company is being run by people who can really perform. Management may be the most important factor in determining whether or not others will do business with the company.
- What is the founders’ level of involvement/time commitment?
- Who will be the CEO?
- What role will the founders have in the company?
- What relevant industry and management experience do you have?
- What successes have the management team had?
- What other positions need to be filled now, and who will fill them?
- Does management have any prior entrepreneurial experience?
- Has the management team worked together previously?
In the case of a start-up, investors have to have total confidence in the management team or the investment will not be made.
Financial
Entrepreneurs do not have to be “green eye shade” accountants, but they need to understand the basic financial dynamics of their business. They have to show that they have a clear understanding of the flow of money into and out of the company and how the business dynamics affects it.
- What is the revenue model for the company?
- What is the pricing scheme for your product/service?
- What revenue have you already generated?
- When will you be cash flow positive?
- What is your breakeven point?
- When do you first become profitable?
- What is your approximate burn rate?
- What is your expected collection period on A/R?
- What capital expenditures are required?
Answers to all of these questions require only a basic understanding of financial principles.
Investment
Depending on the form of financing of the company, these questions are most typical. Again, the entrepreneur doesn’t have to be a banker or venture capitalist, but does have to have a basic understanding of the need for funds, where they should come from, and what they will be used for.
- How much are you raising?
- What is the use of funds?
- What is the form of investment?
- What percentage of the company are you selling?
- What is the pre-money value of the company?
- How did you arrive at the pre-money value of the company?
- How much founder cash is invested in the business?
- What is the current ownership structure of the company?
- What is your outlook for an exit strategy?
Perhaps most importantly, you will need to show that you will make money for your investors.
Know the answers to questions like these and others. People will be impressed that you have the depth of knowledge about your business and have been thoughtful enough to be well prepared.
Filed Under:
Bill Warner is the Managing Partner of Paladin and Associates, a business consulting firm in the Research Triangle Park area of central North Carolina, and is the Chairman of the Triangle Accredited Capital Forum, an angel investor network with over one hundred members throughout the southeast.
Great advice for entrepreneurs - conversely, also a great start to a Due Diligence list for potential investors! Thank you!
Under Finance, I would also ask how much cash they have currently, and ask to see (be prepared to show) latest financial statements.
Under Marketing & Sales, re pricing, I’d also ask how a customer’s net out-of-pocket cost for your product/sergvice compare with what he’s currently paying and what other suppliers for alternatives products are charging?
I’d also ask who in the cusotmer organization typically ahs the spending authority to buy at the pricing you’re proposing? (if it’s a Board decisoin, that’s harder and takes longer than a General Manager or Purchasign Manager decision.)
Under Market, Buyer, and Competition, I’d also ask how you expect competitors tore act after you’ve entered the market?
- Competitive Response: How do you think competitors will react when you enter the market? How will they try to stop you?
Regards,
Mike
Yes, you are right. What I had in mind was the questions that normally come when an investor first encounters the entrepreneur.
Your additions add further to that list. Of course, due diligence will go much deeper, but the topics are about the same.
Thanks for your comments…...................Bill Warner
