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The Den Report: Polish Your Pitch With Proof

If you have faithfully been watching Dragon's Den for any length of time, you may have noticed by now that some would-be entrepreneurs are woefully unprepared to face the Dragons.

An example is the brother and sister act in last night's episode who wanted $600,000 to take a volunteer musical called Mute to Broadway. The Dragons shot that down quickly, pointing out that the musical people hadn't done basic steps, such as talk to a producer about what it would require. They were, in a word, "unproven" (and the name was anachronistic - A musical named Mute?).

This is not uncommon among some entrepreneurs. Often, they merely have an idea, but little else to generate interest from investors - such fundamentals as customers and sales, execution plans, or an understanding of financial fundamentals.

They are often just as apt to greatly overvalue their businesses - asking for hundreds of thousands of dollars in return for a small percentage of ownership. Certainly, there is often an element of negotiation in some cases of over-overvaluing, but just as often it's due to a misunderstanding of their business.

So a primer in how to pitch venture capitalists, angels, or other investors may be helpful. Essentially, pitch principles follow the precepts of elementary business planning:

  • Have a roadmap. Form a plan on how you're going to get your product or service into the marketplace, and why people will pay for it. This means you have to have a good understanding of buyer's pains (or needs) and how you're going to address them. This also means getting out of the lab and actually talking to prospective customers and distributors.
  • Have a real business. Usually, this means your product or service has been tested in the marketplace, i.e., has sold. The better it has done, the more likely you'll get a hearing. An idea or a concept is not a business; neither is a product you have developed, but haven't been able to deliver to any customers.
  • Have a strong understanding of your financials. What is it going to cost to get this product into the marketplace/grow your market share/deliver more services? You have to know. You also have to know how much profit will be made on your sales - investors expect to share in profits, not subsidize a non-profit (unless that's your pitch). You should create realistic cost and sales projections as well as projections on profit growth.
  • Have an understanding of what you're going to do with the money. Many entrepreneurs are fixated on getting money in order to finance a salary for managing their own businesses. But entrepreneurship is more than just management: It is understanding how to operate a business. When pitching any investor, be very clear on your purpose and be able to state succinctly what you're going to do with the money. For example, tell investors you need a certain amount get your product on a target number of store shelves, grow your revenues by a certain percentage, or produce X numbers of your product.
  • Have a strategy. Where do you want to be with this business in three or five years? Do you merely want a steady job in your own business, or do you want to grow it until it's a different business that can either be sold or go public? Recognition of future possibilities is among the first things investors look for in a business.
Tony Wanless is Certified Management Consultant (CMC) who concentrates on the SME segment. He is a frequent business plan writer, pitch guide, and business plan judge for competitions. His businesses include Knowpreneur Consultants, a provider of Content Marketing strategy and services to SME's, Reinventionist, an innovation consultancy to professionals who form their own independent businesses. He is currently launching tonywanless.com, which provides communication guidance and real-time digital editing services for leaders in the technology, finance and academic sectors. Tony is also a columnist and blogger for BC Business Magazine and the Financial Post. A former financial journalist and editor, Mr. Wanless has a long history as a communicator, writer and advisor with Venture Capital and angel investors in Canada. He is a frequent business plan writer and pitch guide for technology start-ups and often acts as a mentor and judge in business plan competitions. Follow Tony on Twitter at @reinventionist