Most startups have to follow more or less the same path when they are built up. Along the way the following milestones need to be achieved:
- refined and tested product idea
- market need & analysis
- revenue model
- founding team
- legal form
- patents, trademarks and rights protection
- business model
- marketing & sales plan
- business plan
- space & infrastructure
- development, production & investments
- market entry
- refinement, improvements or pivots
- growth & internationalisation
There are a lot of tools and techniques around to help reaching each milestone. Probably one of the most essential tools is to build a proper business plan. A business plan gently forces the founders not only to develop the product idea but also to develop a revenue model that works and to make realistic assumptions about producing, marketing and selling it. It also pushes the founders to test the assumptions by gaining traction or researching efforts or real costs.
It is more likely than not to fail with a startup. There are estimates in the market that assume that less than 10% of all startups survive and turn into a proper and self-sustaining business. The reason for the high failure rate is well researched and most studies come to similar conclusions (see for instance CB Insights.)
The top five reasons for startup failures are:
- no market need
- insufficient cash
- marketing issues / got outcompeted
- flawed business model
- team issues
Since the reasons for a failure are so well-known, startups need to pay particular attention to these points. The solution for point 1. is to define and test the product sufficiently and to achieve initial traction as quickly as possible and with the least amount of investment. The answer to points 2.-4. is to built a realistic and living (as opposed to a one time static) business plan on top of a defined and constantly refined business model. Point 5. is addressed by the activities in 1.-4. They demonstrate the team’s skill levels, diligence, commitment and willingness to succeed.
Once a business plan is put together it becomes pretty obvious that building a startup requires not only diligence but also funding. Startups need cash for building the product, for people, for marketing, for software and infrastructure.
There are typically five sources of cash:
- the founder’s own savings
- funding from the 3F’s: family, friends & fools
- grants or subsidies from public or private institutions
- equity investments from business angels or venture capitalists (VCs)
- loans from banks
At least the last three funding sources require information about the startup, its product, its founders, its plan, its numbers, its context, and its path forward. This information is usually summarized in a pitch deck. A pitch deck is a set of slides that summarizes everything about the startup to attract investors in order to eventually obtain funding.
A lot has been said about pitch decks. Understanding the concept and the logic of a pitch deck and being able to produce one is actually important even if you are not setting up a startup. Pitching for ideas and solutions, being able to market them, showing how to gain traction and achieve realisation, all of this within financial and budget constraints, is a highly desired skill set especially within today’s companies.
There are good and bad pitch decks. For a good pitch deck to achieve funding is already hard enough. Bad ones are typically sorted out immediately.
A good pitch deck should make an investor feel that their money is well invested and will not be lost or wasted.
For this reason, a good pitch deck should provide enough detail to ensure that failure does not occur (or occurs with a much lower than average probability).
To facilitate the analysis of a pitch deck, the above graphic was created.