A number of start-ups in the midst of raising capital can fail miserably when it comes to capturing the attention of investors. One of the common reasons that I see is an inability on behalf of the entrepreneur to articulate a distinct problem that they are trying to solve.
If you are unable to articulate a definable problem then no one—let alone investors—is going to be interested in your solution. And you cannot raise capital for a business that does not address a definable problem.
Got a problem?
Your problem needs to be thought of as the bad guy. Who is the bad guy that your business seeks to conquer?
Defining your problem is the very first step in your journey as an entrepreneur. If youare able to articulate a definitive problem then what is your solution? Or better, who is the good guy in your story?
How is your good guy—solution—going to beat your bad guy—problem? Of course all good stories have a happy ending. In the case of raising capital, the ending needs to be a happy financial ending for investors. Your goal in life might be world peace but the end-game for investors is making money.
Once you have clearly articulated a definable problem that you are trying to solve, then you have not only past first-base, you have also taken the first step in defining a compelling plot for your company’s story.
Oldie but a goodie
For a business story, far and away the best structure to adopt is the familiar one of bad guy, good guy, and happy ending. The good-guy-beats-bad-guy plot is older than time immemorial. Think Superman and Lex Luther; Batman and the Joker, Luke Skywalker and Darth Vader, Erin Brokovich and Pacific Gas and Electric. You get the drift.
When it comes to your company’s story, the bad guy does not need to be a human. It could be inefficiency, loneliness, hunger, inertia, ignorance or excessive waste. The same can be said of your good guy. Your good guy could be efficiency, inclusion, food, movement, education, or less waste.
This can sound simplistic, and it is. That’s the beauty of it. The essence of your company’s storyline is its simplicity. Billion dollar industries can be examined via this simple prism. Medicine? The happy ending is a longer life. Insurance? The bad guy is catastrophic loss. Banking? Well your money is safer than it is under the mattress—presumably.
So your good guy fights the bad guy and your good guy wins. Everybody’s happy. If you force yourself to look at your own business idea and make it conform to this centuries old story structure, you actually strip away all but the essential drivers of your business. Picture a Ferrari without the body-kit.
It is essential that you think long and hard about this simple story structure and how it relates to your business idea. And ideally before you invest any time and energy in any other business-building activity.
Renowned author and entrepreneur, Bill Fisher, goes as far as saying that if you don’t get this part right then almost nothing else you can do will make any difference to your success.
If you do get it right, i.e. you have a compelling bad guy (problem), good guy (solution), and happy ending, then you not only have the keys to the castle, you have an inherently exciting business story, and the most powerful tools in the business-building trade.
The yellow brick road
Let’s apply this mode of thinking to some successful modern-day companies to bring this principle to life.
Who is the bad guy in Uber’s business story? Modern, real-time, dispatch of taxi services. “It is so hard to get a taxi sometimes, it takes so long and then I have to put up with poor quality service and pay undisclosed fees at the end”.
The good guy in Uber’s story? Showing customers where Taxis are in real-time via a mobile app, getting the taxi driver as close as possible to customer demand, and providing a convenient and seamless payment solution that requires no exchange with the taxi driver.
And the happy ending? Billions of people across the globe with access to better quality taxi services, and a more efficient means for payment of such services. This has created a colossal company with nearly $10 billion in revenue inside its first four years of operation. Yes $10 billion!
In his book, The 6 Secrets of Raising Capital, Bill Fisher uses the example of Google. Who is the bad guy in the Google business story? Lack of access to information. “I know the answers to my questions are out there somewhere, but I can’t find them, and so I remain in the dark”.
Who was the good guy? Google’s search algorithms and technology that collect and make available an unprecedented amount of information to billions of people. And that is the happy ending: Billions of people, performing billions of searches and, in the process, creating one of the most profitable companies in the history of commerce.
Make sure you have a long hard think about the problem you are trying to solve. This is the bad guy that you need to conquer and defeat. It’s the very first step in your journey as an entrepreneur. Knowing this will help you build a compelling story-line that better engages investors.
And remember, there is no civilization in the history of time that hasn’t told stories. Stories came before the wheel and they help us teach, influence, and bind people together. And hopefully they can help communicate your company’s story more effectively.
Ben Hucker is the founder and principal of IEvoke Communications. He has 10 years’ experience consulting to listed and private companies in Australia. Ben thrives on being an active member of the start-up and small business community and uses his passion for writing and business to help clients create a powerful message for investors.
One of the great capital raising myths is that investors will carefully dissect the contents of your business plan before they decide to commit funds to your business.
The same belief holds true for the business plan’s partner in crime—the information memorandum (IM)—the more common disclosure document used by private companies in Australia when raising capital.
Start-ups and emerging companies have been lead to believe that these documents are a necessity. NEWS FLASH—investors are busy and they don’t have time to read these documents.
An IM is an IM, is an IM
While writing a business plan or IM may help you think through some of the more complex assumptions of your business, no serious investor will ever read it. By writing a business plan, entrepreneurs can identify potential holes in their business idea, but a lengthy business plan will not be of any real value to investors.
Business schools the world over teach their eager students (myself included) to write business plans because it can be broken down into a list of steps that are easy to teach, test, and grade. In the academic world, writing and publishing papers is how success is usually defined.
In the real word, clarity mixed with brevity is far more important when it comes to the art of raising capital. This doesn’t mean you have to sacrifice on substance or quality. You can get the same results with a more targeted set of presentation materials.
Of course, when we are talking about disclosure, we are not referring to a prospectus—a compulsory document required by limited companies when raising capital from retail investors in Australia—we are talking about the requirements for proprietary limited companies; Pty Ltd, the primary vehicle of choice for start-ups while in their infancy.
Chapter 6D of the Corporations Act—better known as the ‘fundraising provisions’—regulates the way in which capital can be raised in Australia without issuing a formal disclosure document. A disclosure document is required in most cases but there are two very important exceptions.
If you are raising less than $2 million, from less than 20 investors, in any rolling 12 month period, then you are not required to issue a disclosure document. The same holds true if you are raising capital from sophisticated investors—people with more than $2.5 million in net assets, or whose gross income for the past two financial years is at least $250,000 per annum.
This legislation is set to change soon with the introduction for new rules for crowdfunding platforms. But these are the key provisions for now. And they clearly state that a formal disclosure document is not required in some circumstances.
Throwing the book at you
Nearly 10 years working in financial markets, and heavy involvement with a number of start-ups attempting to secure seed or expansion capital, tells me that formal documents are the last thing on the mind of investors’ before they invest in your business.
Investors will not read your business plan for the same reason that you don’t buy the first book that you are interested in buying. What you buy initially is the title and the look of the cover; then, if interested, you might proceed to the blurb on the back cover, made up of lavish praise from high-profile individuals, or perhaps go to Amazon and read some online reviews first.
If you’re still interested, you might read the summary of the book on the inside of the book jacket, or maybe even read a few paragraphs from the opening chapter. Then you might make up your mind. But reading the entire book? Forget it.
Reading a book front-to-cover is an entirely different matter, something that happens much later, or perhaps never, as many lonely books gathering dust on your bookshelf can attest to. And even when you do read the book, it typically happens long after you have purchased it.
Say more with less
So if producing a business plan or IM for investors is a futile exercise then what do you do?
At IEVOKE, we work with clients one-on-one to help them produce an essential kit of presentation materials. These include:
If you don’t get to your point quickly then investors will ignore you—just as you tend to ignore long rambling messages when you receive them. Investors have little if any sense of duty to read what you put before them. And remember one thing: investors are busy--very busy.
This article is general in nature and some of its content cannot be regarded as legal advice. It is general commentary only. You should not rely on the contents of this article without consulting professional advice from a commercial lawyer or advisor.
There is a common trait among leading CEOs and entrepreneurs that sometimes goes unnoticed in mainstream media.
Energy, passion, risk-taker, competitor, ambitious, street-smart and other adjectives are all used to describe successful entrepreneurs and corporate executives.
A less typical description is ‘plain-speaking’. The ability to speak plain English is a mark of simplicity and sophistication—and is a lot easier said than done when it comes to business.
The Oracle of Omaha
The king of plain-speak is arguably the world’s most successful long-term investor, Warren Buffett. Buffett's writings and annual shareholder letters are legendary for containing quotes from sources as wide ranging as the Bible and Mae West.
Buffett also delivers advice in a folksy Midwestern style with a sharp wit and canny sense of humour. This is not by accident though. Buffett is a man who takes his financial writing very seriously and he is well regarded as an expert storyteller by communication experts.
Buffett consistently tries to picture his sisters as his main audience—the reason? Intelligent non-finance people should be able to understand what he is saying.
Apples Ain’t Apples
The actual quote, “Simplicity is the ultimate sophistication” was used by a business leader who utterly transformed the lives of billions of people. The late Steve Jobs was a bastion for the plain-speak movement.
Jobs borrowed the phrase from another master of elegance, Leonardo Da Vinci, to promote the first line of Apple products in the late 1970s.
Jobs stayed consistent with this approach to simplicity throughout his working life. Take the launch of the iPhone in 2007 as an example—the slogan used for the launch of this new product? “Apple iPhone: Reinventing the phone”. That’s it.
Thousands of years of gradual advancements in technology and Jobs summed up the launch of one of the most successful consumer products in history in three words.
Jobs stacked up quite well against his contemporaries when it came to using simple language. A number of studies have been conducted on the language used by Jobs, Bill Gates and Michael Dell.
Studies have consistently shown that Bill Gates mirrors the vocabulary of a university student—Michael Dell—a high school student, and Steve Jobs? When Jobs spoke and promoted a new product, it was found that he mirrored the vocabulary of a 5th grade student.
It's hard to think that one of the most successful entrepreneurs in history could have comfortably waxed lyrical with a classroom full of fifth-graders.
Further evidence of the link between plain-speaking CEOs and their success as business leaders is highlighted in the book, Why Business People Speak Like Idiots: A Bull Fighter’s Guide, authored by Brian Fugere.
Fugere makes note of the close link between plain-speaking CEOs and resulting admiration among their peers. On the contrary, Fugere found that CEOs who are difficult to understand can be closely linked with scandalous behavior.
Fugere used the Flesch Reading Ease test to assess the language from annual shareholder letters written by a number of different CEOs. The results:
CEOs of admired companies / Flesch Reading Ease Score
That Cat Sat on the Hat
Writing and speaking in a plain manner does not mean you have to sacrifice on meaning and tone—equivalent to dumbing-it-down. Using simple language means you should be expressing ideas in the most straight forward manner that you possibly can.
Doing this is particularly relevant when attempting to communicate with private and institutional investors. Having a clear, succinct and compelling message can be the difference between raising capital, and not raising capital.
Adding more weight—verbose and lengthy prose is usually an indicator that something other than getting a point across is the end-game. It can be the case that the writer just wants to sound impressive, or is attempting to obscure a hidden motive, or make cover for the fact that they aren’t entirely sure what they talking about—as was the case with Enron.
There is a practical way to test the readability of the language that you use in your everyday business dealings. For example, you can use Microsoft Word to conduct a language assessment at the end of every spellcheck by following the instructions in this link. This assessment will tell you what your Flesch Reading Ease score is, along with a bunch of other stats.
If your audience is highly technical and they have a good understanding of what you actually do then measuring your Flesch reading ease is not relevant. It is super important if you are attempting to communicate your story with private investors for the first time though.
Keep It Simple
To sum up: if you are trying to raise capital for your business—or communicating with important stakeholders in general—then aim to write your story as naturally as possible. If you weren’t born as a corporate entity then there is a good chance that you are at least one thing: human. Don’t leave your personality at the front door each morning.
And the Flesch reading ease for this article? 50/100—with a very healthy average of 15.8 words per sentence—well below the maximum recommended average of 20. I hope you enjoyed it. Remember to keep it simple.
Being a good storyteller may not be high on your list of priorities as an astute businessman or woman. It may even be something you hold in low esteem.
I can tell you now though that you will not succeed in raising capital and building your business until you become an effective storyteller. The good news? Storytelling is a skill that can be cultivated and learned.
Great business ideas are not enough, especially when it comes to raising capital. At IEvoke Communications, we have a firm belief that great business stories get funded—not great business ideas.
There is evidence to support this. In his book, The Six Secrets of Raising Capital, entrepreneur and investor, Bill Fisher, makes the point that Intuit—the US$30 billion accounting software giant—was unable to raise a single dollar of venture capital despite several years of desperate attempts to do so.
He goes on to point out that, Hotmail, another hugely successful tech giant, was also unable to raise a single dollar of venture capital funding despite several years pitching to investors.
On the other side of the coin, recent research shows that three-out-of-four companies that secure funding from venture capital funds, fail within the first five years of receiving investment.
There is clearly something else at play—other than the intrinsic idea for a business—if hugely successful companies like Intuit and Hotmail were unable to secure any form of venture capital funding. Their eventual success tells us they had a great business idea.
And if three-out-of-four companies fail within five years of receiving venture capital funding then they couldn’t have been great business ideas in the first place?
So if great business ideas do not get funded, then what does get funded? Human psychology and the notion of “animal spirits” may provide some explanation.
The term “animal spirits” was coined by the famed British economist, John Maynard Keynes. Keynes believed that “business decisions……can only be taken as a result of animal spirits”.
What is that triggers our animal spirits, what moves human emotions? Is it facts alone?
Let me illustrate with a small narrative: Facts: a lady died, and a man died. Story: A lady died, and her husband died of a broken heart.
Which sentence made your pulse run? Which method of telling gave you a rush of emotion? Notice the second sentence does not exclude the facts, it builds the facts into a story.
There can be no doubt that humans are motivated and moved by emotion. If you intend to transform your business dream into a reality then you will need to master the art of storytelling.
Great business stories have three essential elements according to author Bill Fisher—Bill single handedly raised more than US$500 million for a succession of start-up companies over a 15 year period—these include:
If you can master these core elements, then you can raise capital for your new venture or existing business.
People have been led to believe that investing and investment decisions are all a matter of arithmetic. These elements by themselves are not enough to persuade wealthy investors though.
In order to persuade, entrepreneurs and executives have to be able to tell their story, substantiate that story, and make that story memorable.
Feel free to get in touch with us today to see how we can help create a high-impact investment case for your business.