Part 10: Final mistake: services or agency language
In our previous posts, we discussed common mistakes that start-ups make in their pitch decks. This is the last common mistake we’ll cover: using “services” or “agency” language in your deck.
The goal of start-ups is to go from small to big in a short amount of time. This is only possible if your start-up is highly scalable. WhatsApp, for example, had hundreds of millions of users while the team was only 10-15 people.
This type of scale (and speed of growth) is impossible if you are a services-based business. That’s because adding more users, customers, or whatever it is will require you to hire more talent and your talent will have to work with clients directly to deliver the service you are selling. This means that services-based businesses are not attractive for venture capital investors.
This is not a judgment on the value of services-based businesses. Services usually have superb margins and are cash flow positive 10-100x faster than start-ups. Services-based businesses can also get big given enough time and persistence. It's just how to the venture capital game works.
So what are you doing if you’re talking about services in your pitch deck? You are making sure that your pitch deck goes right to the recycling bin. Venture capital investors don’t invest in services businesses. Period. If you are a product business and mention services in your deck, you’re hurting yourself unnecessarily.
And if you want to raise venture capital as a services-based business, you’ll have to change your business. It is fair to start with services and then build a new business that’s scalable once you learned enough about your target market. Many start-ups and entrepreneurial journeys follow this path. Heck, I'm pursuing this strategy with Zendog Labs. However, make sure you incorporate a new legal entity once you are ready to switch to the "start-up" side (and shut down or hand over your services business, because investors don’t invest in distracted founders that try to maintain multiple businesses).
The only thing that's fair game is to have an onboarding process and customer success/support. This is usually particularly important for enterprise SaaS businesses. Especially in the early stage of the business, you’re going to have a very hard time selling your solution to large accounts at high prices unless you offer some level of customization and consulting. This is your onboarding process. Calling it onboarding is okay. Services are not.
(Ideally, you also have a strategy you can walk your investor through about how you plan to streamline and automate onboarding processes, so that you can scale faster, such as product-led growth with self-serve product tutorials.)
Talk soon,
Rafael
PS: How do we help you? My team and I build pitch decks, review existing decks, and offer pitch simulations. Get in touch if you or someone you know may be interested.
PPS: This mini course is based on our popular “Fundraising & Pitch Deck” newsletter.