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Recently I had several conversations with different people about the concept of a business model and several common questions were raised: what is a business model? why do I need a business model? and how can I demonstrate it or prove it?

These are all good questions and I have noticed that there is a lot of confusion surrounding this topic. So here is my take on this simple but very crucial part of any business.

Essentially, a business model is the way you intend to turn your proposed solution into a cash machine. Specifically, when you have a business idea, usually you come up with a solution to a market pain or a common problem. After you figured out your brilliant solution, your next challenge is to figure out how to ask people to pay for your solution. And even more specifically, you need to find a way to make people pay more than it costs you to supply or provide them with your solution. Once you figured that out, you have a business!

Next, obviously you need a business model because without it you don’t stand a chance of surviving. In the business world it goes no cash = no life.

Finally, the simplest (and probably best) way to demonstrate your business model to potential investors (but also to yourself) is to show very simply that there is a significant difference between whatever it costs you to acquire a customer (or CAC) and what an average customer is willing to pay you (or LTV for Lifetime Value of your customer). In a simple formula it would look like something like that: IF Customer Acquisition Costs are LESS THAN Revenues Per Customer, THEN you have a business. The greater that difference is, the better. Note that often you will have to factor overhead costs to that formula. Click on the image below for a great blog post on this issue.

make sure that your business doesn't look like that

Click on image for a great post with more detail about this issue


This week I attended a prescreening meeting for entrepreneurs, who are looking to raise funds for their companies in front of a forum of angel investors called VANTEC (This is a pleasure that I have been privy to for about 6 months now and had seen over 30 presentations thus far. At this point I can say that I have a good sense for what Angel Investors are looking for). In that meeting the panel of judges was really dismayed at the unprofessional level of the presentations. More so, they complained that (at least) some of the companies seemed to be attractive investment opportunities. But their presentations made them look really bad and would turn investors off, they thought. One of the companies, which seemed like a great investment opportunity (on paper), but completely missed the ball in their presentation caused a great deal of distress for the panelist, who did not want to miss the opportunity. So I volunteered to coach them and thought it might be a good idea to share some of the important points to keep in mind when pitching to Angels.

1. Be prepared! nothing turns investors off more than a flaky looking presentation. It sends a message of incompetence: “How do you expect to run a company and make 10 times the money for us if you can’t even prepare a decent presentation”. This means rehearse and make sure you stay within the allotted time.

2. Keep it short and simple (KISS): Investors watch presentations often for hours. During that time they have to remain concentrated and sharp. After all we are talking about a lot of money. They would really appreciate it if you make it easy on them. Avoid getting too creative and always use the simplicity test: if you can make it simpler, do!

3. Have a story line in your presentation. Meaning your pitch should have a logical sequence to it – a beginning, a body and an end. Each slide should naturally lead to the next.

4. You should cover these questions in your presentation: What is the Problem / market pain? Your solution / product / service? Business model (or how you make money with your solution)? Market Potential (how much is the market worth)? What do you need (what is the deal that you are offering the angels)? Who (your team)? Often, it will be a good idea to mention the competition and your competitive advantage (usually a patented technology or ‘secret sauce’). It’s a good idea to have a 5 year sales and income projection table. As well as to mention some major milestones that you overcame and some that you still need to tackle.

5. The most important part of your presentation is your team. Contrary to what most entrepreneurs think, investors invest in people, not in ideas! Your team needs to demonstrate that they are the best people to get the job done.

6. Avoid these pitfalls: Don’t discuss anything that you can’t explain in a couple of sentences. Instead describe the result and tell the investors that you can achieve it (they don’t care about the technical issues). Don’t exaggerate your numbers. You are not likely to make billions of dollars, and they won’t buy it. Don’t be cocky, but don’t be a sissy either – Be yourself and be confident – represent your company! Avoid jumping around from one issue to the next – stay on topic. Avoid doing product demonstrations. If there is more the 2 panelist (actually, unless you are in a coffee shop) , you should stand up – it looks better and commends more confidence. Don’t fire back at criticism, instead write it down and thank them for their feedback.

Finally, remember that your objective in the pitch is not to get money. Rather it is to get a ‘second date’. More specifically, your goal is to give the investors enough information to get them to ask you questions. If they don’t ask any questions in the end of your presentation, chances are that they are not interested.

I hope that helps. feel free to drop a comment below and make more suggestions.

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