This section contains additional business plan information. That includes tips and traps, suggestions, food for thought, and more discussion. It sits near the back of the site because people are different: some want all the detail in order, and others want to go quickly through the main points.
There is a special look at Starting Costs. It’s here in the back of the lean planning site because it applies only to startups, not to businesses that already exists. It’s about how to estimate startup costs at the beginning. You’ll find illustrations, instructions, and examples.
Another section is about sharing Your Plan. Your lean business planning is something you use often to get what you want from the business. And sometimes you need to share more to outsiders, for some business purpose such as applying for commercial credit, seeking investors, and other reasons. This appendix covers how you add to your lean plan with summaries, pitch presentation, and so forth.
A third section is about getting angel investment. It’s here because I’m involved in an angel investment group and I read business plans from startups seeking angel investment. This is my view on how a business plan works for startup founders and angel investors. It includes discussions of what angels want in a business, what they want in a business plans, and how to present and optimize.
Knowing the starting costs before you start a business is a matter of two simple lists:
Startup expenses: These are expenses that happen before the beginning of the plan, before the first month of operations. For example, many new companies incur expenses for legal work, logo design, brochures, site selection and improvements, and signage. If there is a business location, then normally the startup pays rent for a month or more before opening. And if employees start receiving compensation before the opening, then those disbursements are also startup expenses.
Startup assets: Typical startup assets are cash (the money in the bank when the company starts), business or plant equipment, office furniture, vehicles, and starting inventory for stores or manufacturers.
“I knew that if I failed I wouldn’t regret that, but I knew the one thing I might regret is not trying.” — Jeff Bezos, founder of Amazon.com
I used an example in Starting Balances in Chapter 18, on the Balance Sheet. These are estimated starting costs for the sample bicycle store:
Notice that on the same worksheet Garrett used to estimate starting costs, he also estimated starting funding, on the right side of the illustration. Books have to balance, so the initial estimates need to include not just the money you spend, but also where it comes from. In the case above, Garrett had to find $124,500, and you can see that he financed it with Accounts Payable, debt, and investment in various categories. That Starting Balances illustration in the Projected Balance Sheet chapter also shows how those initial balances go into the Projected Balance Sheet.
Another Simple Starting Costs Example
Here is another simple example: the starting costs worksheet that Magda developed for the restaurant I used in Chapter 7 for basic numbers. Magda’s list includes rent and payroll, the same as in her monthly spending, but here they are included in starting costs because these expenses happen before the launch.
I included rent and payroll because they point out the importance in timing. The difference between these as startup expenses and running expenses is timing, and nothing else. Magda could have chosen to plan startup expenses as a running worksheet on expenses, starting a few months before launch, as in the illustration below. I prefer the separate lists, because I like the way the two lists create an estimate of starting costs. But that’s an option.
How to Estimate Starting Costs
Obviously the goal with starting costs isn’t just to track them, but to estimate them ahead of time so you have a better idea, before you start a new business, of what the financial costs might be. Breaking the items down into a practical list makes the educated guess a lot easier. Ideally, you know the business you want to start, you are already familiar with the industry, so you can do a useful estimate for most of the startup costs from your own experience. If you don’t have enough firsthand knowledge, then you should be talking to people who do. For others, such as insurance, legal costs, or graphic design for logos, call some providers or brokers, and talk to partners; educate those guesses.
Starting Cash is the Hardest and Most Important
How much cash do you need in the bank, as you launch? That’s usually the toughest starting cost question. It’s also prone to misinformation, such as those alleged rules of thumb you can find everywhere, saying you need to have a year’s worth of expenses, or six months’ worth, before you start. It’s not that simple. For most businesses, the startup cash isn’t a matter of what’s ideal, or what some expert says is the rule of thumb – it’s how much money you have, can get, and are willing to risk.
The best way is to do a Projected Cash Flow while leaving the supposed starting cash balance at zero, which shows how much (at least in theory, according to assumptions) the startup really needs in cash to support the business as it grows, before it reaches a monthly cash flow break-even point. Magda did that to determine the $12,000 needed as starting cash for her restaurant. Note how, in the illustration here, the lowest point in cash is slightly less than $12,000:
That low point comes, theoretically, in the third month of the business, March. The low point is $11,609. Obviously that’s just an educated guess, but it’s based on assumptions for sales forecast, expense budget, and important cash flow factors including sales on account and purchasing inventory. So it’s better than a stab in the dark, or some rule of thumb.
Just as an example, the total spending with the estimates shown here, the theoretical “year’s worth of spending,” is $182,000 (which you don’t see on the illustration, by the way, but take my word for it). The total for the first six months is $93,000. If Magda sticks to those old formulas, she can’t start the business. She is able to raise enough money, between loans and her savings, to put $12,000 into the starting cash balance. So that’s what she does. Then she launches and continues to have her monthly reviews, and watch the performance of all key indicators very carefully.
Find Your Startup Costs Sweet Spot
There is no magic startup costs estimate for a given business. Every startup has its own natural level of startup costs. It’s built into the circumstances, like strategy, location, and resources. Call it the natural startup level; or maybe the sweet spot.
1. The Plan
For example, in the illustrations above, Magda’s restaurant deli in the office park needs about $60,000, and Garrett’s bicycle store needs about $125,000. The level is determined by factors like strategy, scope, founders’ objectives, location, and so forth. In both cases, the entrepreneurs have lists of assets they need and expenses they’ll incur. Let’s call these lists the natural startup level, which is built into the nature of the business, something like DNA.
Startup cost estimates have three parts: a list of expenses, a list of assets needed, and an initial cash number calculated to cover the company through the early months when most startups are still too young to generate sufficient revenue to cover their monthly costs.
It’s not just a matter of industry type or best practices; strategy, resources, and location make huge differences. The fact that it’s a Vietnamese restaurant or a graphic arts business or a retail shoe store doesn’t determine the natural startup level, by itself. A lot depends on where, by whom, with what strategy, and what resources.
While we don’t know it for sure ever — because even after we count the actual costs, we can always second-guess our actual spending — I do believe we can understand something like natural levels, related to the nature of the specific startup.
Marketing strategy, for example, might make a huge difference. The company planning to buy Web traffic will naturally spend much more in its early months than the company planning to depend on viral word of mouth. It’s in the plan.
So too with location, product development strategy, management team and compensation, lots of different factors. They’re all in the plan. They result in our natural startup level.
2. Funding or Not Funding
There’s an obvious relationship between the amount of money needed and whether or not there’s funding, and where and how you seek that funding. It’s not random, it’s related to the plan itself. Here again is the idea of a natural level, of a fit between the nature of the business startup, and its funding strategy.
It seems that you start with your own resources, and if that’s enough, you stop there too. You look at what you can borrow. And you deal with realities of friends and family (limited for most people), angel investment (for more money, but also limited by realities of investor needs, payoffs, etc.), and venture capital (available for only a few very high-end plans, with good teams, defensible markets, scalability, etc.).
3. Launch or Revise
Somewhere in this process is a sense of scale and reality. If the natural startup cost is $2 million but you don’t have a proven team and a strong plan, then you don’t just raise less money, and you don’t just make do with less. No — and this is important — at that point, you have to revise your plan. You don’t just go blindly on spending money (and probably dumping it down the drain) if the money raised, or the money raisable, doesn’t match the amount the plan requires.
Revise the plan. Lower your sites. Narrow your market. Slow your projected growth rate.
Bring in a stronger team. New partners? More experienced people? Maybe a different ownership structure will help.
What’s really important is you have to jump out of a flawed assumption set and revise the plan. I’ve seen this too often: people do the plan, set the amounts, fail the funding, and then just keep going, but without the needed funding.
And that’s just not likely to work. More important, it is likely to cause you to fail and lose money.
Repetition for emphasis: you revise the plan to give it a different natural need level. You don’t just make do with less. You also do less. Otherwise, it’s not realistic.
What do you do about sharing your business plan to outsiders? The idea is that you manage your lean plan always. When you need to share a business plan with outsiders, you dress it up. You take your core updated lean plan and add the summaries, descriptions, and supporting information you need to serve your business purpose.
This section of the website explains how to take your lean plan and dress it up to with a pitch presentation, summary memo, or elevator speech.
The Business Plan Event: That’s what we call it when you have to take your lean business plan and dress it up for presentation to outsiders, such as bankers, or potential investors. With lean planning, the planning stays lean until you hit the business plan event.
Lead with Stories: It’s amazing how much of business planning is within the frame of the stories around which you build the business. The story of the problem, the solution, for example. There’s a story in the ideal customer transaction, how they find you and how you help them. And another story in your own unique business identity, how you got here.
Developing Summaries: Dealing with banks and investors almost always go better when you start with summaries. That includes summary memos and the executive summary at the front of your plan document.
Your Business Pitch: You have to summarize your business plan in slides and talk, and questions and answers. We call that the business pitch, or pitch presentation.
Your Elevator Speech: You should be able to say your business plan in about 60 seconds, with the classic elevator speech.
The “business plan event” is any business development that requires you to show a business plan to somebody. The most common business plan events relate to getting investments or business loans. Both of these business events require presenting a business plan to somebody outside your company. A Divorce or death in the family might require a business plan. Or opening a merchant account, bringing in partners, selling the business, and so forth.
Lean business planning is the lean plan you maintain all the time. The formal plan comes on special occasions only.
Investors do Read Business Plans
In investment, don’t get fooled by people who say investors don’t read business plans. I can’t speak for all, but I can speak from my experience in working with venture capital and as an angel investor. Investors will reject some businesses without reading the plan. They can often tell, from the pitch or the summary memo, that they don’t want to go further and won’t even want to see the plan. But — and this is important — every investor I actually know and have worked with (about 60) will either read the plan or have somebody they trust read the plan, and thoroughly, before agreeing to invest. In investment, we call the process of investigating a startup “due diligence.” And it includes poring over a business plan.
Investors do read business plan before they invest. But they often reject a startup from just summaries and pitch, without reading the plan. The plan comes in when they are really interested.
And what happens with banks and commercial loans, in my experience, is that having a business plan doesn’t guarantee you’ll get the loan. But not having one, especially before you know the bank well, can guarantee that you won’t.
Don’t do the Big Plan Until You Hit the Business Plan Event
Don’t do the extra work of the full formal business plan unless you have a business plan event scheduled. Keep your lean plan up to date. When you run into the event, then you go from your lean plan to a formal business plan. The lean plan lives on your computer and isn’t polished or edited for outsiders. The formal plan is tailored for the specific business need.
For example, that formal version of your plan that you send to investors ought to have good descriptions of management backgrounds and exit strategy. And the one you send to the bank has more on the personal assets of the owners, payment history, and ability to cover the interest expense. Don’t confuse these formal versions with your lean plan. Your lean plan stays alive and flexible on your computer and gets reviewed and revised each month. Both the formal versions are outputs from your plan, intended to serve some specific business need.
All business plans are definitely not created equal. Don’t believe the experts who treat a business plan as a standard thing, with components that must be included. That’s just not true. Most of the lean business plan applies to all businesses. However, the more elaborate formal business plan should exist only to deal with a specific business plan event. Assess your specific business plan needs as you go.
A Lean Business Plan May Be Enough
If you don’t have a business plan event, stop here. Don’t do all of this extra work. There is no business purpose. Do your lean plan and stick to the lean planning process.
Business plan events aren’t equal either. Make sure you understand the real need for your specific business plan event. Your lean plan alone may be all that you need. You may not have to do the elaborate business plan document at all. Maybe you decide to combine your lean plan with a pitch presentation or summaries. Always know who will read your plan and what they’ll be looking for when they do.
Who Will Read Your Plan and What They’ll Look For
Investors Read Summaries First. They Take Steps
Investors review a summary memo or executive summary, not the whole plan. If they like the summary, then they’ll look for a short pitch. If they like the pitch, then they’ll want a full plan to use for due diligence. And sometimes the lean plan is enough for due diligence purposes, without the elaborate plan.
Always keep the summary, pitch, and latest plan (lean or elaborate) aligned so they all say the same thing, but for different media.
Investors normally want to see potential growth, scalability, barriers to competition, exit strategies, and a management team with relevant experience. If the lean plan isn’t quite enough (ask your investors), then even the elaborate plan has to be relatively short in text; 20-30 pages maximum, and 10-15 pages of text is okay. Tables, projections, illustrations are always welcome, and they don’t add to the page count. And also, a 30-page plan with 15 pages of tables and illustrations is shorter than a 20-page plan with no tables or illustrations.
Bankers Look Mainly at Financial Stability
Bankers want to see the company legal details and serious past financial results, along with a fairly standard description of the business, product, market, and team. They’ll also want to see the business owners’ personal financial statements. And they like a good executive summary so they don’t have to read the whole plan, just leaf through it to find the financials. Bankers are much more likely than investors to expect the full plan document, not just a summary, and not just a pitch.
Academics Usually Want a Full Formal Business Plan
Academics want a complete plan with detailed market and industry analysis and sophisticated financial analysis such as NPV (net present value) and IRR (internal rate of return). I won’t define either of these here because if you’re in the academic mode you have plenty of information on that already; and if you aren’t, you don’t need them. Real investors and bankers pay no attention to either of these analyses.
Applying at a commercial bank for a government-guaranteed SBA (Small Business Administration) loan requires a standard business plan covering the standard topics, from summary to financial projections.
These are just a few examples. And there are also plans related to new expansions inside larger companies, divorce settlements, retirement and estate planning, selling a business, valuation for tax purposes, and other business plan events.
Several variations on a business plan might be relevant to you and your specific business needs. There are several varieties of business plan outputs. The lean plan, the traditional plan, summaries, pitches, and so forth. Obviously, if you don’t need it, don’t do it; but here are some variations that come up often:
Common Business Plan Outputs
The lean business plan. Don’t assume you necessarily need the elaborate business plan even if the goal is presenting for outsiders. Times are changing. For investors, the lean plan might be all you need. Investors normally they deal with your summary and pitch before they see the plan.
The traditional business plan document. It starts with executive summary. It has chapters describing the company, its market, its business offering, strategy, management team, and financial projections. It’s often a printed document. It can also be an electronic (usually PDF) document or even a website (presumably protected by password to protect confidentiality). For more on that, turn to
The pitch presentation. Think of startups pitching for investment. It’s a slide deck to be narrated and used as background for a talk. It includes taking as few as 10 and usually 20 to 30 minutes, even more when things go well. The main pitch presentation is mostly pictures and business charts to serve as background and emphasis for a speaker. Sometimes people will create a leave-behind version, with more words. These can stand alone being read as a series of slides, without narration. For more on that, turn to Your Business Pitch later in this section.
The summary memo. This is a short text summarizing the main points of a business. Use it as an introduction to investors, bankers, or other outsiders. It fits into an email. The best of these are only a page or two long, and they rarely if ever exceed five pages. The summary memo is often almost identical to the executive summary, the first section of the business plan document. For more on that, turn to Developing Summaries later in this section.
The elevator speech. A very short monologue. The well-known business plan competitions that feature elevator speeches limit them to 60 seconds. For more on that, turn to Your Elevator Speech later in this section.
And these are not the only business plan outputs
There are also some common variations on these main themes. For example, some people recommend a “one-page business plan,” which is really a variation on the executive summary. And there is a variation on the pitch presentation that is effectively a wordy slide deck. This one can stand alone, to be read. I prefer to call a “leave-behind,” or “leave-behind slide deck,” or “summary deck.”
Don’t think a pitch presentation or summary deck can replace a business plan. This idea stems from the Lean Startup rejection of the “elaborate” business plan. Furthermore, it has become cool for successful entrepreneurs to claim they didn’t start with a business plan. And also some investors like to claim they don’t read them. It’s like it’s cool for successful people to claim later that they never studied in school – whether that’s true or not. But even the lean startup authors agree that all businesses need strategy, tactics, milestones, priorities, and sales and expense and cash flow projections. And pitches and summaries should be business plan outputs, not replacements.
Important: A lean plan alone might well be enough, without the full elaborate plan, to serve a business plan event, especially when it is communicated along with a good summary and good pitch deck.
The most serious problem with using only a pitch instead of a plan happens, ironically, if the pitch is successful. Interested investors will almost always respond to a pitch with additional questions, and they are disappointed and discouraged when the entrepreneurs can’t answer those questions in depth, with projections, from the context of a real business plan. However, for this use, the simple lean business plan may be enough.
However, it is also true that sometimes, for entrepreneurs they know and trust, investors will fund a startup that doesn’t have a formal business plan. I’ve had real experience with this, from close up. Also, professional investors will invest in ongoing high-growth companies based on formal financial statements and demonstrable traction, plus team credibility, without requiring a formal business plan. Furthermore, investors quite frequently reject a deal without ever reading a business plan, just from a summary or pitch presentation. The business plan becomes important for deals the investors like, especially during the due diligence process. Here too, however, the simple leans business plan may be enough to meet the need.
Before you write, before you do summaries or slides, get your main business stories straight. The stories apply to all the variations of communications with outsiders: plan, pitch, or whatever.Understand your main business stories. Build your pitch on them.
“All human beings have an innate need to hear and tell stories and to have a story to live by.” — Harvey Cox
Lead your business pitch with your main business stories
Every year I see several dozen business pitches, I read hundreds of summary memos, and I read 50 or more formal business plans. The best of them lead with stories. For example, they start by presenting a problem and follow with their business’ solution to that problem. Some start with a market story, highlighting the need. There is no magic formula defining which story to use, exactly; but the plan for outsiders is to describe and explain, so stories are essential. Numbers are nice too, but stories give the numbers context and relevance.
Start with an image that illustrates the main business story. A plan for a new high-tech smog-free technology starts with a picture of a smog-choked city. A pitch for distributing restaurant leftovers to homeless people starts with a picture of the garbage area behind a restaurant, full of discarded food. A pitch for a worldwide crafts market starts with a picture of an African woman who would be able to sell her crafts worldwide using just her mobile phone.
Use illustrations to highlight the stories
When you can’t illustrate an abstract problem, highlight a person or people who have a need and will benefit from the solution. A plan for a video game that helps autistic children starts with a close-up of a specific child and his parents. A pitch for a new medical technology starts with two aging baby boomers. I still remember one that started with a graveyard and a claim for a percent of deaths that could be reduced by a new device.
Make it dramatic. You want to inspire as well as communicate. You want your audience to see it for themselves, in their own imaginations.
And maintain the business story drama with the solution. In the first example above, the entrepreneurs showed a picture of their new-technology clean-air brick ovens installed and working. And In the second, they showed a branded delivery vehicle outside a homeless shelter. In the third, it was a picture of a rudimentary mobile phone with programming on it superimposed over one of the major crafts online sites.
Your main business stories are unique to your business
Be strategic, and sensitive to your unique story. Depending on what works, you might use a picture of the product, or the website, maybe the technology team, or whatever works to highlight what you want to show to your specific business audience.
The stories with pictures are especially important for the business pitches, which are normally slide decks done in PowerPoint or Keynote; but they also work with formal business plans and summary memos. Even a 60-second elevator speech works better going from problem to solution to how this company is uniquely positioned to develop and sell that solution.
Keep your business plan summaries short, cover the highlights, and assume key people will read this summary and nothing else. It’s a front door. Whether it’s an executive summary that comes first in a document, or a summary memo, make that reader want more information.
A collection of tips of the iceberg
A good summary is a collection of tips of the iceberg. Each one has enough information to imply its entire iceberg, but it can’t go too deep, and it has to leave the iceberg somewhere. Don’t promise in the summary anything you can’t back up in the document or following discussions.
As your plan changes, rewrite and revise your summary to keep it fresh and keep it aligned with the plan.
What to Include in Business Plan Summaries
As you summarize, keep in mind the nature of your business plan event. Choose what to include based on specific needs.
Different experts have different opinions on the ideal length of business plan summaries. I’ve always recommended a summary of 2-5 pages, which can be used as a stand-alone summary memo where that’s appropriate. For example, in my angel investment group, we don’t read full business plans of all the startups that apply for investment. We eliminate some proposals just from reading the summaries. We read the full business plan only after deciding, from the summary, that we want to know more.
A generalized summary will include the obvious information such as essential business details, what you sell, what locations, projected sales growth, profitability, and news you don’t want anybody to miss. It’s a good place to put a highlights chart, a bar chart that shows sales, gross margin, and profits before interest and taxes for the next three years. You should also cite and explain those numbers in the text.
However, generalized summaries are as rare as generalized business plan events. Write a new summary for each new event. Tailor it to match the requirements of your specific business plan event.
For example, a plan to be used while seeking investment performs a sales function. You are selling your concept, your startup, or your growing company to an outsider who is interested in becoming an investor. So put yourself in the investor’s place and emphasize the elements that will make her money. Put management team, market potential, scalability, defensibility, and possible exits where she can see them.
Highlight whatever is strongest about your plan, compared to others. If you have a venture already backed by major brand-name backers, say so early in the summary. And if you’ve got a founders team that includes several known entrepreneurs with good track records, then put it up front. If you have a good business track record, like impressive early sales or landmark deals with major channels, corporations or governments, put that first. If you have an amazing new invention or break-through technology, lead with that. Use good judgment. You’re an editor, at this point, looking at things through the audience’s eyes.
Business Plan Summary Formats
An executive summary can be the first chapter of a business plan document or a stand-alone document separate from the business plan. It assumes the more elaborate document exists. It can be printed, sent as an electronic (PDF) document, or left on the web with password protection.
A summary memo stands alone. It can be a document on its own or attached to an email, or it can be text in an email.
What people refer to as a one-page business plan is also a summary. Occasionally a one-page summary is called a pitch, or a business pitch.
I’ve seen short videos serve as summaries. They have to be just a few minutes, ideally just one minute, never more than three. The good ones cover the same ground as the summary. They are usually password protected.
An elevator speech is also a summary, but delivered quickly – in as little as a single minute – and verbally.
A business pitch is a presentation. It includes a deck of slides that serve as a presentation aid and background, and the verbal discussion that begins as a planned talk and ends with questions and answers. Startup founders use the classic pitch to deliver to potential investors. They use the same kind of pitch and pitch deck in business classrooms and business plan and venture competitions. In those cases, students and startup founders pitch to judges, who are usually investors.
“The purpose of a pitch is to stimulate interest, not to close a deal.” — Guy Kawasaki
Two Kinds of Slide Decks: Pitch Deck and Leave-Behind
There are two kinds of slide deck associated with the business pitch. The first and most important is the deck intended for the presentation itself. That’s the one you read about most often. It should be almost entirely images, each slide with its title and an image, but very little text. The images are photographs, business charts, and diagrams.Keep the focus of attention on the speaker, not the slides. It doesn’t encourage the audience to read text from the slides. It doesn’t have bullet points people will read.
Make the leave-behind or stand-alone slide deck different than the presentation slide deck. Make it stand alone, to be read, not presented. Reflect the main presentation and cover the same content. It might even have the same number of slides in the same order as the main presentation; but it has a lot more words because its business purpose requires that.
Don’t Confuse Pitch Deck with Leave-Behind or Send-Ahead
Don’t confuse the two: Make a pitch to be read ery different from a pitch that supports a live presentation with you talking. These require different styles for different business situations.
Most of what you read about business pitches focuses on the pitch deck and pitch presentation startup that founders deliver to potential investors.
In either case, what you want to show is something like this (but be flexible and sensitive to your specific audience and specific business situation; this is just a sample):
Recommended Pitch Deck Content
Problem: Show a problem to solve, ideally one that investors will understand immediately, and relate to. You can refer to examples in Chapter 11, Lead With Stories.
Solution: How is your startup going to solve that problem? What do you do? Ideally, the solution is something investors will also understand and relate to. And there is a good image to show. You can refer to examples of this one also in Lead With Stories.
Market potential: How many people/buyers have the problem and how much is the solution worth? If the story works, the numbers are supplemental, but worth presenting. If the story doesn’t work, nobody cares about the numbers. You can see more on this in Know Your Market.
Secret sauce: You decide what to highlight here, depending on the audience. Investors and business plan contest judges want to see technology, trade secrets, existing market position, or some other fact that helps you establish barriers to entry and protect your competitive advantage.
The team: Investors need to see a credible startup team, with previous startup experience and background specifically related to the problem and the opportunity.
Traction: Show milestones achieved, momentum, traffic, anything you can to make your story – and the opportunity – presentable. Web traffic or downloads are excellent. Success on Kickstarter is also excellent. Early sales, and firm commitments from important clients or distributors are also effective.
All the rest: Flesh it out as needed, depending on your specific case, with highlights investors will look for. Exit strategies, competition, market strategy. Be sure to have projected P&L as a bar chart and have solid projected P&L, Balance, and Cash Flow to back it up.
If you can’t say it in 60 seconds, you have a problem. Your strategy isn’t clear enough. Nowadays we call it “the business plan elevator speech,” meaning a quick description of the business, which you could do in the time you share with a stranger in an elevator. It’s becoming popular in the everyday language of the entrepreneur, venture capitalist, and the teaching of entrepreneurship.
“The only people who don’t need an elevator speech are elevator salesmen.” — Jarod Kinz
As I said in Lead with Stories, start with a problem, and use a good example to make it stand out. Start your speech with a person (or business, or organization) in a situation. Personalize. Identify clearly. For example:
Terry is a successful business owner worried about social media. She knows her business should be on Twitter, Facebook, and the other major platforms, but she’s already busy running a business, and she doesn’t have time to do meaningful social media as well (Have Presence).
Jane Smith wants to do her own business plan. She knows her business and what she wants to do, but needs help organizing the plan and getting the right pieces together. The plan needs to look professional because she’s promised to show it to her bank as part of the merchant account process (LivePlan).
Notice that in both of these examples I could be much more general. Have Presence targets small business owners. Business Plan Software is for the do-it-yourselfer who wants good business planning. But instead of generally describing a market, I’ve made it personal. Details and granularity work.
Sometimes you can get away with generalizing. “Farmers in the Willamette Valley,” for example, or “parents of gifted children.” It’s an easy way to slide into describing a market. However, I suspect you’re almost always better off starting with a more readily imaginable single person, and let that person stand for your target market.
Part 2: Why You
In the next part of your elevator speech, address “Why you”? Why your business? What’s special about you that makes your offering or solution interesting to the target person or organization you just identified? Call this your business identity.
This is where you bring in your background, your core competence, your track record, your management team, or whatever. For example:
Have Presence is a small business like Terry’s, run by three co-owners who love social media, understand small business, and do only thoughtful, strategic social media updates for clients they know and represent well.
Palo Alto Software has dedicated itself to business planning for more than 20 years. Its founder is one of the best-known experts in the field. Its current management team grew up with business planning, in the trenches. The 8-person development team has more than 50 person years in the same focused area.
What we focus on here is core competence and differentiation. And, in the classic elevator speech, you have to say it fast. You make your point quickly and go on.
Make sure your point is the right point: benefits to the target customer. It’s not what’s great about you, but rather, what about you lends credibility to your ability to meet the need and solve the problem.
I’ve included two different paragraphs for the same company on purpose. See how the unique qualifications differ for different contexts. The descriptions have to change for each.
You might also think of this as the classic “What do you bring to the party?” question. It’s not just your brilliance or good looks or great track record, it’s fostering credibility for solving the problem.
Part 3: What You Offer
Now explain what your potential customer or organization gets. You’ve personalized the need or want, identified your unique qualities to solve the problem, and now you have to put the need or want in concrete terms that anybody can see. For example:
Have Presence gives Terry thoughtful, strategic social media updates for clients it knows and represents well. Its personnel doesn’t tell Terry what and how to do it. Instead, they do the work, manage the social media, and give her business social media presence, for a monthly fee that’s considerably less than a half-time employee, without the long-term commitment.
LivePlan lets Jane jump into and out of her business plan at a moment’s notice whenever she wants. She can start with the core strategy and build it in blocks, planning while she goes, refining projections as needed. It’s built around a solid error-checked, financially and mathematically correct financial model, and a generalized set of suggestions for outlines, but is also completely flexible for adding and deleting topics and creating a unique business plan. Each task, whether topic or table, comes with easy-to-understand instructions and useful examples.
In each example here we see clearly how the pitch meets the need or solves the problem. Forget features as much as possible, and illustrate benefits. You’ve already described the problem with the situation, and built up your ability to solve it, so now it’s just about the solution. Stay focused and concentrated. People will get one or at the most two unique attributes of your business offering. Don’t confuse them with more.
Part 4: Close Well. Ask for What You Need
The close depends on who you are and what you want. If you’ve personalized in the first part, sold yourself and/or your organization in the second, and established the attractiveness or suitability of the business offering in the third, it’s time to finish strong with a closing.
Your closing depends completely on context. What do you want from the person or people you’re talking to? The classic elevator speech context is a venture competition or a search for investors. But there’s also the true elevator speech for the established company, simply describing it to somebody who asked, with no real close. Be honest; you’re not always asking for an order, as when you’re just chatting with the person in the next seat on an airplane. If you are trying to sell, then do ask for the order. Seriously: “if you give me a card, I’ll send you a copy with an invoice.” Seriously: ask for the order. “If you don’t like it, send it back. Here’s my card.”
Elevator Speech Competitions
For the venture competition or investment variety elevator speech, don’t try to convey too much information. Do establish in general terms where you are and what you want. “We’re looking for seed money of half a million dollars.” Or “We’re now raising round-two financing of three million dollars to be used for the mainstream marketing launch.” Or “We’re looking for serious marketing partners able to put money up front in return for privileged first-year pricing.” Or “We’re trying to establish a royalty relationship with an appropriate manufacturer.” And then, ask for a business card, and give one. “If you know anybody who might fit that bill, feel free to recommend us.” Or “Please give me a call.” Don’t offer to send a business plan, and don’t ask directly when it’s about investment; reduce the awkwardness by suggesting that your audience might know somebody, not that your audience might invest.
Don’t talk terms in the elevator speech. Just establish what you want or need.
If you’re in a real elevator with a real potential investor, you probably soft pedal: “If you know anybody who might be interested, please pass this along.” Or maybe you want a business card and permission to send a follow-up email.
And if you’re doing an business plan elevator speech in a business venture competition — close with an appropriate call for investment. Venture competitions are always keying on the hypothetical pitch to the investor, so make it clear. The better ones end up with something relatively definitive like a reference to seed capital or first-round equity investment. Stay general. Make them want more.