Reverse Elevator Pitch Recap #2: Gaining users vs. building profit? & Do you actually read my business plan?
Time for installment number two of the reverse elevator pitch recap. If you did not read number one, I would recommend starting there?—?or at least read the first bit of it so you know what I’m recapping.
Alright, here are the next two questions I’m going to cover and you probably don’t want to miss this.. What is more important: gaining users or building profit? and about the business plan, do you actually read it?
What is more important: gaining users and building a community or building a profit to be able to show your investors actual traction?
This question was asked in relation to early stage companies specifically and whether a startup should be focused on gaining users (in this case probably referring to free or subsidized users) or focused on building profits.
The consensus was that profit is not necessarily the best metric in early stage startups. Gaining traction early on and proving that you have not just users, but active and engaged users is crucial. Think Facebook. It may have taken them years to turn a profit, but they weren’t sitting back collecting millions in funding doing nothing?—?they were building a massive group of people who were borderline addicted to checking their feed constantly and spending nearly an hour liking cute kitten videos and posting about what they had for breakfast.
However, and don’t miss this, it is absolutely critical that you have a path to profitability and that you can convince a potential investor of that. Engagement is important, but at the end of the day if you’re looking for VC dollars, an exit is the goal and for a successful exit you better be making some money.
I spent hours on this business plan, are you going to read it?
And the answer is,
“No.”
But seriously, that is the answer. If you are spending your time putting together a 50 page business plan that outlines every last decision you’re going to make, please stop now.
For an early stage startup, you should know that anything you put in that plan is probably going to change as quickly as you can write a new one. If the process of putting together a business plan helps to center your thoughts or give you direction, it’s fine to do that, but don’t expect to send an investor a business plan novel before your pitch and think that they’ve actually read it.
The document that at least two of the three investors do say they look at (some before the pitch and some after) is the pitch deck. There are a number of different ways to put this together, but in general you should include:
- Problem you are solving
- Solution you are proposing
- Traction
- Market
- Terms (i.e. how much you are asking for, valuation, etc.)
Keep in mind throughout all of this that an early stage investment is just as much of an investment in you as a founder, as it is in the business you are presenting. These investors know that most startups are going to fail, it’s the cold, hard truth. They are deciding to make a bet on you and your ability to get back up after getting knocked down time and time again. They are betting that even if this investment fails, that you are going to have another great startup in the future and might come to them for investment again.
There you have it. Maybe I helped you all get some time back in your day since you just decided to stop laboring over that business plan. Until next time, ???.