The use of phrases such as ‘business pitch’, ‘elevator pitch’ and ‘video pitch’ have grown in popularity in recent months. But what are these terms and what do they mean for entrepreneurs? This short article describes the concept of pitching in detail, as well as recommending some tips for those needing to pitch their ideas.
Defining the various pitch terms
A pitch is basically delivering a business plan verbally. A pitch typically takes the form of an entrepreneur or group of entrepreneurs presenting or describing their ideas to prospective investors.
An elevator pitch is simply a very short pitch that distils the idea into a short summary that takes only as long as a short elevator ride. A video pitch is a pitch done via a short video rather than in person. Regardless of the means chosen to pitch, the aim is typically the same; describing a business opportunity with the intention of securing funding to develop the idea further.
The business plan pitch process
Typically, entrepreneurs commence the pitch with a request for a certain amount of funding in return for a certain percentage of equity in the business. The presenter then describes the opportunity and concludes with a Q&A session. If an offer is made by an investor and it is accepted by the presenter, due diligence would then be undertaken to ensure that the investment opportunity is as it was described and that the key financials stand up to scrutiny.
Business plan pitches are often presented with the aid of presentation tools such as Microsoft PowerPoint. If this is the case for you, it is worth reading up on key presentation tips such as Guy Kawasaki’s 10/20/30 rule (see Key resources, at the end of the article). It is also worth providing the audience with a copy of the slide deck so they can take notes. Finally these handouts should contain an appendix with an additional level of detail not covered by the main pitch.
It all starts with a business plan
Unlike most business plans, the pitch is not a physical (or virtual) document. A pitch should, however, contain the same content as a business plan, with the main differences being the breadth of material covered and the delivery method. Therein lies one critical problem. For some entrepreneurs, business planning is ‘difficult’ and pitching is assumed to be a slightly easier means to secure funding. This perception results in shortcuts and a dangerously myopic perspective. Preparation tends to be more limited and the results are all too predictable — the entrepreneur is discomfited when the prospective investor asks the most rudimentary of questions. The lesson is clear- a pitch is not a substitute for a business plan; it is simply a different, more concise, delivery method.
Creating an ideal pitch
The optimum way to create an effective pitch is to start with a thorough business plan. Once this is written, the key elements of the executive summary can be distilled into a pitch. One major benefit of this method is that while the process of creating a business plan can be difficult, it is also rigorous and usually an exhaustive process. Hence it serves to equip the author with the answers to typical questions they should expect from prospective investors. Creating a pitch without the discipline of following the business plan process is fraught with danger. While the presenter can describe the product or service in detail, those that pitch without a business plan tend to fall down when asked to describe the market opportunity or their sales forecasts in more detail.
A primary aim of most pitches is to secure funding for an idea. The presenter needs to decide in advance what the likely terms are for the investment. Like a business plan, a pitch needs to describe the opportunity for the investor in clear terms so they can assess risk and return, and how it sits within their existing investment portfolio.
Considering pitches along a continuum, at one end you have an idea (which is essentially worthless) and at the other end a successful company generating significant free cash flows on a daily basis. The point along the continuum where your company sits is hugely relevant in the context of the investment opportunity. An idea that has not yet been commercialized and has no customers is hugely risky and, as a result, any prospective investor is going to demand a significant equity stake in return for their investments. For many the risk may even be too high to bear as they may doubt the ability of the company to generate sufficient cash to cover day-to-day operations, to say nothing of generating sufficient sales to support an exit for the investor in due course. The equity you are prepared to give away and the value that you put on that equity needs to be based on real metrics, such as existing sales. While the means to value businesses are varied, the figures you are offering need to be plausible and realistic when considered in the context of existing sales levels (as distinct from aspirational sales levels).
This article describes what a pitch is and how to create one. The key message to take away is that a pitch is simply a concise verbal manifestation of a business plan and is not to be considered as a substitute. Those who succeed with their pitch objectives are those who present a viable opportunity, can answer questions from a panel, and can convince these prospects that their pitch is worthy of investment. All of the same qualities that those looking to secure funding for a business plan should strive for!
The following resources are also worth considering:
o Delivering a winning pitch
o The 10/20/30 rule of PowerPoint
o The Definitive Business Pitch: How to Make the Best Pitches, Proposals and Presentations by Angela Hatton
o Writing a business plan