Bottom-Up Reassessment

I feel I have come full circle.  Last year, I began this blog inspired by my former professor’s, Edward Altman’s, work at the Leonard N. Stern School of Business. A year later, in December of 2010, he gave me his latest paper to read, “Sovereign Default Risk Assessment From The Bottom-Up,” where he and Herbert Rijken elaborate on their new model, based on Altman’s classic Z-score, and how it measures sovereign default risk based primarily on the health of privately held companies within each country. (You can find a copy of his paper here: http://pages.stern.nyu.edu/~ealtman/Oped.pdf)

Yet, this last year was more than just reading papers. The year took shape for me by going to conferences, attending meetings, and joining online discussions. All these activities had one thing in common: they evolved around those who manage private companies (small, medium, and large) and the problems that they face each day.

Ironically, I have been pedaling backwards for the entire year. I attended several private equity conferences where the Who’s Who of the financial world stirred as much thrill from the public as Bono does every time he appears in concert. I backpedaled my way to meetings on Venture Capital and realized that the major players had already had a whole other life in seed investing, often as entrepreneurs themselves—on the “other” side, that is. Naturally, I began following what’s happening in the start-up world but from the entrepreneur’s side. Funding ceased being a concern (although it very much is for every single one of the entrepreneurs I met last year).  Building the business, gaining traction, creating a product the customer wants, these have been the primary questions on my mind since last summer.  In the process, I met wonderful people who are inspiring, imaginative, and generous with their advice like Peter Shankman of HARO, Graham Lawlor of Ultra Light Start Ups, Carrissa Reiniger of Silver Lining and so many others.

While I continue feeling the attraction for companies that remain detached from the public markets, what happens in each sphere (private vs. public) is very much intertwined. Vistage, a West-Coast membership organization for CEOs of small and mid-sized companies, has been reading the market’s pulse on a quarterly basis and has been predicting consumers’ behavior and its effect on the businesses with which it works. No matter which side one takes, every decision has consequences and this is what I learned as I studied a few companies that had made a difference in the way the business world is functioning and re-structuring.

My hiatus from this blog for almost three months was due to my own desire to try the market out and build something for myself, a company that caters to those who have not had the chance or the time to learn how to appreciate and incorporate luxury into their lives ( http://www.encoreluxe.com). And while the dice has not been cast yet on my venture’s longevity, I am thrilled to return to this blog and keep you posted on what the conference/meet-up and real life circuit has in store for all of us inquisitive minds this year.

The Elevator Pitch

Last Thursday, November 4, I attended an event organized by Ultra Light Start Ups (Twitter @ULS). This was actually one of the monthly meet ups that take place in various locations around New York City. On Thursday, Microsoft hosted the event and welcomed approximately 150 entrepreneurs who were in the company (via Skype) of another sizable group in Boston. The moderator, Graham Lawlor of Ultra Light Start Ups, assembled “The Email Mafia” (Jason Baptiste, OnStartups.com; Greg Cangialosi, Blue Sky Factory; Chris McCann, StartUp Digest; Peter Shankman, HARO) to discuss what makes an email-based media startup profitable.  

To get to the point where one uses a distribution platform effectively, grows the email list consistently, and is able to sell the startup within two years for $20 million without external capital, one needs to perfect the elevator pitch. This became obvious on Thursday because the evening began with pitches from about ten startups. But what’s important about the elevator pitch, which lasts exactly for one minute, is that it serves many more purposes than what most people imagine.

First, the pitch describes the company and the people behind it: Who are you? What are you working on? Why is it important? How are you doing it? What is the value you bring compared to your competitors? What is your revenue model? Or else how do you make money? Finally, and once again, why is it that you are doing something important? As simple as these questions are the answers need to be finely crafted. The goal is to outline the aforementioned questions within 60 seconds and to do it effectively one needs to write, re-write, and re-write the pitch to perfection. Is that it?

No. An elevator pitch should be a live document. It should change in time to reflect how the company is growing and in which direction. This became obvious on Thursday when a couple of the presenters had been in business for a few years but still had difficulty expressing and clearly explaining to the audience what is it they do. Not only is the pitch addressed to the non-expert (and therefore you should forget and eliminate any jargon and acronyms from it) but it is also a means for the entrepreneur to check whether he/she has deviated from the original plan and to determine why. In other words, the pitch is a road map to remind you what you set out to accomplish. It is an outline of the original strategy. If the strategy has changed so should the pitch. Leaving it aside among the many items on the to-do list and checking it off once completed for the first time does not help anyone. It certainly does not help the entrepreneur in defining what works and what does not and in charting new directions for the future.

What became evident last Thursday during the pitch segment of the Ultra Light Start Ups evening was that the elevator pitch has been incorrectly associated with start ups exclusively. Imagine running a large fund and trying to convince new investors to join you. If their decision is based solely on the fund manager’s reputation, they are most probably making a mistake. But if it is based on a clearly articulated investment strategy (elevator pitch) chances are the fund manager is constantly refining the fund’s strategy and pursuing projects that fall within its purview.