Type and hit ENTER

  • Home
  • Articles
  • About
  • The Book
  • Media
  • Speaking
  • Subscribe Free
  • Advisory
  • Contact
GET CONNECTED

 

"Witty, clever and extremely relevant in these godforsaken Zoom times." Zoë Foster Blake

Book on sale now from Penguin Random House.

  • Home
  • Articles
  • About
  • The Book
  • Media
  • Speaking
  • Subscribe Free
  • Advisory
  • Contact
Wobbegong Tank: why your business pitch gets rejected
Share
Articles

Wobbegong Tank: why your business pitch gets rejected

January 23, 2023
-
Posted by Ian Whitworth

Here let me read it to you. Best to listen straight off Spotify though, the browser version is buggy.


Two reasons we run for the exits

Are you looking to raise finance or get a project approved, but keep getting rejected? This week, a tip on why that might be.

We’re not pro investors, but we do the occasional angel investment in businesses outside our main operation. We’re pretty chilled about it: it ain’t Shark Tank, we’re more Wobbegong Tank. It’s fun, it has strategic benefits and keeps us tuned into the wider business world. We mainly invest because we’ve rated the founder’s previous work elsewhere.

We’ve said no to plenty of others, and it’s usually because they presented the Magic Compounding Spreadsheet. It’s the second of two Code Red Alerts.

Code Red Alert #1: “Just x percent”

All pitches start with a solution to a perceived need. Let’s say the product is a bedside water glass with a hinged lid, so you don’t have to worry about slugging down unseen moths and bugs in the middle of the night*.

So they get some Total Addressable Market stats.

100% of people in the market sleep! If we can get “just 1%” of that market in the first five years, that’s net sales of 3.3 million in the US!

1% sounds low and doable. But not as low as the actual sales they will achieve because selling 300,000 of anything is a superhuman task. And it has no correlation to how good the product is.
Also don’t use the word “just”, it suggests you’re a serial underestimator of how long things take, how much they’ll cost and how hard it is to get customers. It’s like tradies who say “too easy”. There will be no easiness.

Code Red Alert #2: The Magic Of Compounding

Then comes the Magic Compounding Spreadsheet. It starts with a modest column 1. Lowball revenue. Costs kept to a minimum but it still makes a loss. Seems fair, that’s how Year Ones are.

Year 2 has a growth percentage attached. Let’s say it’s 40% sales growth per year. The cost percentage rise is much lower, because there will be economies of scale out of those fixed costs. It still looks achievable at this point.

Then it’s click and drag time, and with one simple mouse move the numbers go straight through to Narnia. Drag those growth figures over Year 5 and now revenue has gone from one person at a café table to eleventy million. Costs remain modest. The profit projections go full Pablo Escobar.

Software startups are the strongest candidates for Compound Magic, because there’s no significant cost of goods increase with each new customer. I’m looking at one now that predicts a two-person startup will be making $29M clear profit at end of year 5.

I’m not trying to crush your hopes and dreams but that is not going to happen. Pretty sure it’s never happened. The fact that you’re presenting it makes it look like you’ve never managed a real-world business in your life.

It does not make us think: let’s kick in a six-figure amount for you to learn about danger.

Telling us the bad things will impress us

Shiny-eyed optimism is terrifying for investors and your boss.

You do not look like a high-potential business person when you present these world-beating projections. You look like a grinning Labrador when it’s time for a walk.

It shows that the bad things that are an inescapable part of business will take you totally by surprise, and you will have no idea what to do.

You’ve put a SWOT analysis in your pitch deck, but none of those Ts seem to play any part in your future P&L. It’s like predicting you can play right to the top levels of a computer game the first time you play it.

Don’t get me wrong, compounding is great. We’ve all seen the Warren Buffett and Charlie Munger quotes, and it’s all true. It’s just not going to happen at the rate you reckon. Even if your product takes off, it’s real hard to maintain that year 1 growth percentage in year 5, because these are big numbers now.

There may not be economies of scale


The idea of bigger always being more profitable just isn’t true. Company mergers and acquisitions are always justified by “back-office synergies” – ie firing people ­– and there’s plenty of evidence that the benefits are routinely overestimated. Turns out it was all about ego and the winning CEO getting paid more, who could have seen that coming.

We’re at an interesting point of our own growth. We’re at a size that’s really profitable. Flat management structure. Single person in control of major projects. It’s great.

About 25% beyond our current revenue lies danger. You start needing lots more desk-job roles like HR that sap your bottom line. Projects start getting a one-size-fits-all process applied to them, which means extra work and more costs. Your staff feel frustrated by all the process, so they don’t work as hard or look out for ways to avoid waste. You can’t fight the system, they think.

We’ve been there before as employees elsewhere and it’s not what we want. It’s easy to underestimate those growth costs.

What do you do?

Talk to people who won’t be direct competitors but own similar businesses. Don’t go to them and ask “can you show me your real-life books?” because that’s lazy and rude. Put a draft P&L together for your future business and ask them to mark your homework.
Ask them about all that went wrong when they were growing.

People love to tell war stories. I’d tell you the story of how we thought we were a year away from the payroll tax threshold, but in fact had passed it two years ago and now owed over $100K in back-tax.

Talk to real business owners and you’ll get a long list of bogeys you can include in your pitch as risk factors. Investors will think you’re a pro who covers all bases.

That’s a much more reassuring place to put your money.

* Whenever I suggest stupid joke products and businesses they usually come true a few years later, so watch out for this one in the Innovations Catalogue.



Got a comment?

I’ve stopped moderating the blog comments because I get like 50 Russian bot comments a day. But why not drop your comment over on this story on LinkedIn? Keen to hear from you, a real human, on your AI thoughts.

Also, if this story was useful or entertaining for you, why not help me out by sharing it? It’s a ton of work getting these stories out, and more readers really helps me justify the insane effort each week. Bless you.

Why not buy this nice book?

Want a book on how to break free of a job that sucks and set up your own business that you don’t even have to work in? We did that, and here’s the story: Undisruptable: Timeless Business Truths For Thriving In A World Of Nonstop Change.

Zoë Foster Blake said: “Ian is a cheeky, funny, disruptive (and proven: important) business rascal and thank goodness for that.”

Every week since it came out 15 months ago, it’s the #1 Review-Rated biz book on all of Booktopia. On paper, electronic or audio book with me reading it. Get it here:

Undisruptable Booktopia Review Ratings

Also I write a story each Tuesday, drop your email here to get it in your inbox.

For those of you in geo-blocked countries, here’s your non-Spotify audio:

January 23, 2023
No comments yet

Related News

Other posts that you should not miss.
Dennis Denuto
Articles

2021: How To Get To 2022

February 1, 2021
-
Posted by Ian Whitworth

If your only COVID strategy right now is hoping for government rescue, you’re doomed. And frankly you deserve it. Here's how to survive.

Read More
February 1, 2021
Posted by Ian Whitworth
Are You An Entitled Karen? Take This Test
Articles

Are You A Karen? Take The Entitlement Test

July 6, 2020
-
Posted by Ian Whitworth

COVID has brought out new entitled habits that are really bad if they infect your business. Learn if you're a Karen, and what to call a male Karen.

Read More
July 6, 2020
Posted by Ian Whitworth
Articles

Are People Just Like You Holding You Back?

August 23, 2021
-
Posted by Ian Whitworth

A story for quiet people who always get left out of things.

Read More
August 23, 2021
Posted by Ian Whitworth
← PREVIOUS POST
Being a wage tight-arse is counterproductive in 2023
NEXT POST →
The Great Same-ening

Leave a Comment

Your feedback is valuable for us. Your email will not be published.

You must be logged in to post a comment.

FREE E-BOOK

SUBSCRIBE
MOST POPULAR
  • Last-minute grocery businesses are a massive bag of dicks
    June 27, 2022

    It’s a business model that seems to have cherry-picked all the worst, hardest, most expensive elements of running a business.

  • Scotty Marketing
    3 post-Scotty lessons: good marketing is not like that
    May 30, 2022

    Don't be a product that people only buy once. How to make marketing a force for honesty and profitability in your business instead.

  • Undisruptable South Korea deal
    Undisruptable’s first international publishing deal
    January 31, 2022

    Undisruptable will see its first international release later this year and it's not in a country you'd expect.

  • “An Australian business classic.” Reviews of Undisruptable
    July 12, 2021

    The reviews are in and they are very good.

ABOUT IAN WHITWORTH

Ian Whitworth is a reformed advertising creative director turned entrepreneur with a successful national group of businesses that he doesn’t work in day to day. Read more

POPULAR TAGS
management
branding
Sales
Marketing
jargon
Persuasion
Covid 19
Nickelback
Pitching
Coronavirus
strategy
MBA
startup
Copywriting
Motivation
Business
CEO
Design
Graphic Design
Business Travel
Elon Musk
Frequent Flyer
David Attenborough
Advice
Lacey Filipich
Saxton Speakers
Scene Change
Penguin Random House
Gary Vaynerchuk
Sales Pitch
Tendering
Planning
Conversation Skills
Customers
Customer Service
AI
Shingy
LinkedIn
Simon Sinek
Success
Presentations
Mr Pigden
Motivators
Entrepreneur
Ian Wright
Archives
  • January 2023
  • December 2022
  • November 2022
  • October 2022
  • September 2022
  • August 2022
  • July 2022
  • June 2022
  • May 2022
  • April 2022
  • March 2022
  • February 2022
  • January 2022
  • December 2021
  • November 2021
  • October 2021
  • September 2021
  • August 2021
  • July 2021
  • June 2021
  • May 2021
  • April 2021
  • March 2021
  • February 2021
  • January 2021
  • December 2020
  • November 2020
  • October 2020
  • September 2020
  • August 2020
  • July 2020
  • June 2020
  • May 2020
  • April 2020
  • March 2020
  • February 2020
  • January 2020
  • December 2019
  • November 2019
  • October 2019
  • September 2019
  • August 2019
  • July 2019
  • June 2019
  • May 2019
  • April 2019
  • March 2019
  • February 2019
  • January 2019
  • December 2018
  • November 2018
  • October 2018
  • September 2018
  • August 2018
  • July 2018
  • June 2018
  • May 2018
  • April 2018
  • March 2018
  • February 2018
  • Contact
  • Subscribe
  • Privacy
  • Terms & Conditions
© Whitworth Communications 2020
Wobbegong Tank: why your business pitch gets rejected - Undisruptable