I have spent quite a bit of time over the last few weeks writing a business plan. Its a bit of a retro experience for me. These days I spend much more time reviewing and advising rather than doing.
Apart from a long overdue return to real work, this has been a reminder of some key challenges. The business plan I am working on is for a funding pitch. Why else would you bother?
This is reality for most entrepreneurs. At some point you have to do one.
Framing your sales pitch
In preparing for battle, I have always found that plans are useless but planning is indispensable.
Regulars will know this is one of my favourite quotes. The meaning is clear when you are fund raising. The purpose of both planning and plan is to support a sales pitch. Selling shares in your company to investors. (Please never “giving equity away”.)
Because its a pitch, your business plan is much more than a technical description of how you aim to grow your company. This is about presentation and storytelling. And its about a clear message. Not a range of scenarios for debate and discussion.
Most often the value from planning is helping evaluate options before making a decision. In an investment pitch, that value is thinking through the best story to tell your audience.
How happy is the ending?
Your first dilemma is aggression v realism in the numbers.
People and narrative sell the business but investors buy the numbers. As a struggling entrepreneur, fighting for your first few sales, can you really see $100 million revenue in 3 or even 5 years?
Yet that is what investors want to hear. The easy option is to offer exponential growth. Creating the forecast is remarkably easy. With no track record, your projections can be anything you like.
Then the dilemma hits you. Will anyone believe it? How do you convince investors that the dream is doable?
How credible are the characters?
That brings you to the next dilemma. For the numbers to be believable, there are at least three other articles of faith. Team, market and product.
In each case, you need to sell investors a combination of proven reality and potential.
What are the limits of the genre?
At the risk of extending the literary metaphor, your business plan sits in a well understood genre of fiction. Investors have a set of expectations and plenty of experience looking at this stuff. And this is the true dilemma at the heart of everything.
Raising startup investment is a game with well established rules. They vary a bit between individual Angels, syndicates like those which operate here in Scotland, VCs and other market players. But the rules exist and they can be hard for entrepreneurs to learn.
Once you uncover the rule book, the temptation is to play it to the letter. And you will not be short of well meaning advisors who recommend just this approach.
Yet it won’t work.
The hardest rule to abide by is simple - surprise me. Every investor wants to see something unique. A passion or a solution or a hook of some kind that makes your business stand out.
Stray too far from the playing field (sorry drifted into a different metaphor) and people will think you are crazy. Stick within the white lines without deviation and the same audience sees you as boring.
The Chairman's View
There is the ultimate unanswerable question. How do you stand out from the crowd? Emphasise the unique genius of your business proposition while playing to the prejudices and preferences of your target investors.
No answers to this one.
But one big piece of advice. Make sure this is where you focus when developing your business plan.
Do the basics and use your thinking time to wrestle with the last dilemma.
Business tools provide handy shortcuts and improve efficiency. Used for their intended purpose good business tools can lead to massive productivity improvements. Apply them the way they were designed and you will get results.
Enterprise SaaS companies are both builders and users of such tools. And one of the clear benefits of the SaaS model is making better, more innovative tools available to every business.
But SaaS does not overcome the biggest danger with any tool. Start using business tools for the wrong purpose and they can become an instrument of torture not a source of value.
CRM and its reporting arm sales pipelines are one of the most misused tools around today.
Your SaaS pipeline is for asking questions not making decisions
They provide an excellent snapshot of the future health of your business. Your SaaS can get a clear indicator of future revenue and with a bit of effort some good data on which sales processes or sales teams are driving growth.
However, many people take this one step too far. CRM and pipeline data becomes a tool to manage. A mechanism to make decisions. And therein lies the danger.
Good pipeline data is a great way to ask the right questions. Don’t let the data get polluted by a bias towards preset goals and targets. Good decisions flow from answering good questions not just from abstract, summarised data.
Enterprise SaaS sales - Dynamics not statics
This is most obvious for enterprise SaaS sales.
Each sale is the culmination of a long cycle with many twists and turns. Its not out of whack to spend six months building an enterprise relationship and another nine months to achieve the first sale.
And in enterprise SaaS you are also looking for upsell. Each sales opportunity is only part of a wider relationship picture.Ongoing revenue, new ideas, expansion sales, service challenges and the rest.
Your pipeline is just a snapshot at a point in time. Every stage is like an individual window that captures only those opportunities that are in a specific position at a given moment.
It doesn’t matter whether you use the categories I outlined a few weeks ago in Simple SaaS
Or adopt a more conventional structure. Your pipeline is a valuable yet static view.
An enterprise relationship is like a dynamic living organism.
Think of it like comparing your turnover to your growth rate. Turnover tells you how well you have done but its a static figure. In the past. Growth is dynamic. A much better indicator of where you are going.
Manage enterprise SaaS customer one by one
Relationships are dynamic and unique. Each relationship needs to be treated as a special case and managed as such. More accurately, for enterprise SaaS we are talking about the group of relationships that forms you customer contacts for each enterprise organisation.
Customer A and Customer Y may be in the same “pot” from a pipeline reporting point of view. But they will have arrived there by very different routes. The account team will be planning their own specific next steps. And value of the relationship will depend on how those plans are executed.
“Strategic” sales choices like: “lets push all of these to the next stage this quarter” or let’s make sure every customer is offered this special new feature” are counter productive. They distract from a focus on customer need and they risk upsetting the delicate balance of the relationship.
The Chairman's View
Sitting on Boards, pipeline is one of the first things I look at each month. It gives me a great pulse check on the business. And it help find the right questions to ask the management team.
But I also like to listen to the CEO or the Sales Director talk about the market. This gives me a much better feel for the dynamics than the report.
When I ask my questions, I am not looking for simple answers. I want to hear specifics. Plans to convert important relationships. Actions to address customer problems or concerns. Change to strategy in response to the customer’s business dynamic.
All about a unique approach for each enterprise SaaS customer. Designed to maximise the company’s chance of developing a strong relationship that generates value for both sides.
Kenny Fraser is the Director of Sunstone Communication and a personal investor in startups.