The 4 Brutal Questions

As requested, here are the 4 Brutal Questions I spoke about on BNN's The Pitch.  These four questions are taken from Warren Buffet: he uses these points to analyze any business in order to see if it will be profitable over the long term, making it an attractive investment. This list is very useful for the start-up right up to the mature owner-operated business looking for private equity. As adapted from Money Magnet: How to Attract Investors to Your Business. (Now available in Kindle too). The 4 Brutal Questions:
  1. Are you the right people to make this happen? While there is a place for planning, successful businesses rely on the execution. The teams most likely to attract money will be those that demonstrate they will roll up their sleeves, get on with the unglamorous grunt work of operating plans and do things just a little bit better. Anyone new to running a company who has a good idea and now wants funding, probably will not get the money, no matter how smooth they appear. No one, except your mom, is going to fund your learning curve.
  2. What is the investment opportunity? Next up, once you have jumped the people hurdle, it's the investment opportunity. Is there a real business? Are there people digging into their wallets to pay for what you produce? What is going to bring in beaucoup cash? as the French say. To illustrate the business, begin by defining your company around the customer and theirpain. Then position your company to solve that problem. Remember to do the math, because your investors will.
  3. Is it sustainable? Do you have a unique and sustainable competitive advantage? If your intellectual property or technology is similar to what's already in the market, that will pop the profit balloon.

    Demonstrate that customers will reach out to your basket of goodies, pushing aside the competitor's basket each and every time. Your competitive advantage is the cornerstone of your presentation. But be prepared to identify the risks. What could be the worst thing competitors could do over the next two years? If you are vague on the answers, do not start the conversation.
  4. What's the return on investment? If you've gotten through the first three questions, investors are ready to get serious and decide if they are going to give you the money. Do not make the mistake of going with your story and expecting them to figure out the amount of money you need and how you are going to pay them back. To get the chequebooks flipping open, you will have to prove three things:
  • What is the growth rate to make the business worth backing? 
  • What is the return on investment? This depends on company size, but can range from 8% to 25% to 40% plus.
  • How will your investor get out his money (exit) within his desired time frame? Demonstrate that you get the importance of an exit plan for the investor

2 comments:

Anonymous said...

Hi Jacoline
I saw the show and enjoyed it.
I think it is a great help for entrepreneurs and early stage business owners to understand what works when pitching their message.
I only caught a part of your segment and unfortunately did not get all of your advice on building the pitch around Buffet's 4 tough questions.
Is there any chance you could forward them to me.

Thank you
Michael Crunkhorn

Anonymous said...

Thanks! You came across as very professional and thoughtful.
The Pitch is an interesting show - a lot less egomaniacal than Dragons Den. My main complaint is that - excluding yourself - none of the panelists I have seen so far in the past 3 shows understand or play in the end of the capital formation market that the Pitchers need. As well, the Pitch featured Dennis Meharchand on their first or second show, which makes me question their quality screening!
Regards,
Cameron