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April 02, 2006

The Art of the Executive Summary

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Several people have asked me for a blog entry about executive summaries. My colleague at Garage, Bill Reichert, wrote this explanation, and it's as good as it gets.

Writing a Compelling Executive Summary

By now, you’ve probably already read several articles, web pages—even books—about writing the perfect executive summary. Most of them offer a wealth of well-intended suggestions about all the stuff you need to include in the executive summary. They provide a helpful list of the forty-two critical items you should cover—any entrepreneur worth his or her salt should be able to address these points in less than 100 pages—and then they tell you to be concise.

Most guides to writing an executive summary miss the key point: The job of the executive summary is to sell, not to describe.

The executive summary is often your initial face to a potential investor, so it is critically important that you create the right first impression. Contrary to the advice in articles on the topic, you do not need to explain the entire business plan in 250 words. You need to convey its essence, and its energy. You have about 30 seconds to grab an investor’s interest. You want to be clear and compelling.

Forget what everyone else has been telling you. Here are the key components that should be part of your executive summary:

1. The Grab: You should lead with the most compelling statement of why you have a really big idea. This sentence (or two) sets the tone for the rest of the executive summary. Usually, this is a concise statement of the unique solution you have developed to a big problem. It should be direct and specific, not abstract and conceptual. If you can drop some impressive names in the first paragraph you should—world-class advisors, companies you are already working with, a brand name founding investor. Don’t expect an investor to discover that you have two Nobel laureates on your advisory board six paragraphs later. He or she may never get that far.

2. The Problem: You need to make it clear that there is a big, important problem (current or emerging) that you are going to solve. In this context you are establishing your Value Proposition—there is enormous pain out there, and you are going to increase revenues, reduce costs, increase speed, expand reach, eliminate inefficiency, increase effectiveness, whatever. Don’t confuse your statement of the problem with the size of the opportunity (see below).

3. The Solution: What specifically are you offering to whom? Software, hardware, service, combination? Use commonly used terms to state concretely what you have, or what you do, that solves the problem you’ve identified. Avoid acronyms and don’t try to use this opportunity to create and trademark a bunch of terms that won’t mean anything to most people. You might need to clarify where you fit in the value chain or distribution channels—who do you work with in the ecosystem of your sector, and why will they be eager to work with you. If you have customers and revenues, make it clear. If not, tell the investor when you will.

4. The Opportunity: Spend a few more sentences providing the basic market segmentation, size, growth and dynamics—how many people or companies, how many dollars, how fast the growth, and what is driving the segment. You will be better off targeting a meaningful percentage of a well-defined, growing market than claiming a microscopic percentage of a huge, mature market. Don’t claim you are addressing the $24 billion widget market, when you are really addressing the $85 million market for specialized arc-widgets used in the emerging wocket sector.

5. Your Competitive Advantage: No matter what you might think, you have competition. At a minimum, you compete with the current way of doing business. Most likely, there is a near competitor, or a direct competitor that is about to emerge (are you sufficiently paranoid yet??). So, understand what your real, sustainable competitive advantage is, and state it clearly. Do not try to convince investors that your only competitive asset is your “first mover advantage.” Here is where you can articulate your unique benefits and advantages. Believe it or not, in most cases, you should be able to make this point in one or two sentences.

6. The Model: How specifically are you going to generate revenues, and from whom? Why is your model leverageable and scaleable? Why will it be capital efficient? What are the critical metrics on which you will be evaluated—customers, licenses, units, revenues, margin? Whatever it is, what impressive levels will you reach within three to five years?

7. The Team: Why is your team uniquely qualified to win? Don’t tell us you have 48 combined years of expertise in widget development; tell us your CTO was the lead widget developer for Intel, and she was on the original IEEE standards committee for arc-widgets. Don’t just regurgitate a shortened form of each founder’s resume; explain why the background of each team member fits. If you can, state the names of brand name companies your team has worked for. Don’t drop a name if it’s an unknown name, and don’t drop a name if you aren’t happy to give the contact as a reference at a later date.

8. The Promise ($$): When you are pitching to investors, your fundamental promise is that you are going to make them a boatload of money. The only way you can do that is if you can achieve a level of success that far exceeds the capital required to do that. Your Summary Financial Projections should clearly show that. But if they are not believable, then all of your work is for naught. You should show five years of revenues, expenses, losses/profits, cash and headcount. It might also make sense to show a key driver, such as number of customers or units shipped.

9. The Ask: This is the amount of funding you are asking for now. This should generally be the minimum amount of equity you need to reach the next major milestone. You can always take more if investors are willing to make more available, but it is hard to take less. If you expect to be raising another round of financing later, make that clear, and state the expected amount.

You should be able to do all this in six to eight paragraphs, possibly a few more if there is a particular point that needs emphasis. You should be able to make each point in just two or three simple, clear, specific sentences.

This means your executive summary should be about two pages, maybe three. Some people say it should be one page. They’re wrong. (The only reason investors ask for one page summaries is that they are usually so bad the investors just want the suffering to be over sooner.) Most investors find that there is not enough information in one page to understand and evaluate a company.

Please remember that the outline above should not be applied rigidly or religiously. There is no template that fits all companies, but make sure you touch in each key issue. You need to think through what points are most important in your particular case, what points are irrelevant, what points need emphasis, and what points require no elaboration.

Some other general points:

  • Do not lead with broad, sweeping statements about the market opportunity. What matters is not market size, but rather compelling pain. Investors would rather invest in a company solving a desperate problem for a small growing market, than a company providing an incremental improvement for a large established market.
  • Don’t acronym your own name. Sun Microsystems did not build its brand by calling itself “SMI.” (Of course, if you know where the name Sun came from, you understand this is an inside joke.)
  • Drop names, if they are real; don’t drop names if they are smoke. If you have a real partnership with a brand name company, don’t hide your lantern under a bushel basket. If you consulted for Cisco’s HR department one week, don’t say you worked for Cisco.
  • Avoid “purple farts”—adjectives that sound impressive but carry no substance. “Next generation” and “dynamic” probably don’t mean anything to your readers (unless you are talking about DRAM). Everybody thinks their software is “intelligent” and “easyto- use,” and everyone thinks their financial projections are “conservative.” Explain your company the way you would to a friend at a cocktail party (after one drink, not five).
  • State your value proposition and competitive advantage in positive terms, not negative terms. It is what you can do that is important, not what others cannot do. With the one or two most obvious competitors, however, you may need to be very explicit: “Unlike Cisco’s firewall solution, our software can operate ….”
  • Use simple sentences, not multi-tiered compound sentences.
  • Use analogs, as long as you are clarifying rather than hyping. You can say you are using the Google model for generating revenues, as long as you don’t say you expect to be the next Google.
  • Go back and reread each sentence when you're done: Are they clear, concise and compelling?

Finally, one of the most important sentences you write will not even be in the executive summary—it is the sentence that introduces your company in the email that you or a friend uses to send the executive summary. Your summary might not even get read if this sentence is not well-crafted. Again, it should be specific and compelling. It should sell your company, not just describe it.

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Comments

can you plz send me a sample of executive summary document

It seems that revenue models for technology startups in emerging markets are crapshoots anyway. Also, shouldn't there be rules on how the content of the executive summary vary based on the market that the startup is entering. Finally, does anyone have good sources for financial research when attempting to do revenue projections for Web 2.0 technology companies?

Thanks for a great post... would you have any samples available?

Thank you Guy. This is very helpful and a good focus.

I have one note that may be added to or amend the second bullet – the Problem.

Many of us create consumer-related products that provide such services that enrich the lives of our customers and provide good tools to be used (hopefully) either for specific purposes or in day-to-day life. As I was working on my “problem” section, I realized an important thing: I’m not developing a cure for cancer. I do not have a new invention on my hands that would make time travel possible and my application isn’t going to allow computers to make coffee to people. I could not see a real, concrete problem that my product was destined to solve.

Having participated in many presentations, for investors and customers, I have often found that suggesting a problem is, in most cases, somewhat argumentative. Studying history in university taught me that for every point you can make on a subject, the opposite point can be made with equal validity. Rome was destined to be reduced to a dictatorship; on the other hand - dictatorship could have been prevented. Many times I tried pointing out a problem, only to have VCs say “not really – you can do it today with this and that”. And then you’re in a defensive position, and the meeting goes to hell.

However, the point raised with “the problem” above, where this is basically your value proposition, is perhaps the better way to go. Instead of providing a need in negative terms – by suggesting problems - try providing the need in positive terms - by suggesting value.

A good practice would be laying out the problems, one by one, starting with the word “No”. “No real tool for searching socks on the web,” or “No common place for people to gather around and discuss Latin proverbs.” After you have purged all the “negativeness” out of you, and released all the frustration you have of this world that has to endure another day without your product, simply replace the “No” with “A”: “A real tool for searching socks on the web,” and “A common place for people to gather around and discuss Latin proverbs.” There’s a value proposition.

A positive approach is better, in my mind, to create a constructive environment with VCs, customers, management or team. Value puts you in a position where you do not solve problems, but create new meaning, a new approach. And isn’t “new” the reason why you are an entrepreneur in the fist place?

I hope it helps. I know it helped me.

pretty cool... eventho i havebeen writing business plans... need to check the latest and ur blog helped...
satya

Why aren't revenues and earnings tossed out of Executive Summaries? They are minimal or non-existent at a startup anyway and how can they possibly reflect, with any reasonable accuracy, the future financial performance of a company that likely hasn't even gained sales traction anyway.

YouTube had scant revenues and look what they just sold for! Would anyone VC reading their Executive Summary had believed that they could sell for $1.65 billion after only 19 short months of operation?

The venture community is out of touch with reality when it comes to the demand of revenue forecasting of startup revenues, I agree.

Its absolutely absurd and unreasonable for a startup to forecast five years of "revenues, expenses, losses/profits". It is bewildering to me why investors would place merit in the financials of any startup. Did the Executive Summary for Starbucks authentically predict their trajectory? Is there a single investor that would have believed them? I doubt so.

Sir, we have to conduct a workshop regarding executive summary. Can you give me some additional reference. we are having a hard time looking for a book that says something about executive summary. thank you!

I bought your book "Art of the Start" - very succinct and it's been enormously helpful in getting focused and stream lined in approaching people about investing.

So, I've got a hook in the water with an investment company. They want to see the exec summary now. But what does it mean in their email when, as they are saying 'Please send the exec summary,' they're also saying 'We're not really looking to invest right now'?

CFS

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Hello everybody, I want to make friend with you. Nice to meet you.

I would like to add a small comment. You list the steps as:

1. The grab
2. The problem
3. The solution

When making a sales pitch whethjer to clients, investors or anyone, I have always been sucesfull using the following method:

1. The problem.
2. The end result of using our solution
3. The solution
4. and so on....

Many people describe the problem and then go on directly to describe how their solution works. Yes, this is great. However, most people are interested in the results first....how it works comes later.

E.g.: Lets say I am selling pain medicine.

1. The problem: Does your head hurt a lot?

2. Our results: Take our product and you will be paind free and feel refreshed in 10 minutes.

3. The solution: Our new pill uses ......

What sells both individuals and investors is 1 and 2.

My bizdev girl wrote our exec summary and I think she bases her life on your book (and the Cluetrain Manifesto). Our exec summary better kick ass now! So, is Garage interested in funding us? :o)

err... Don't judge the content by it's title. :oops:

Batman,

But what is a title but a mere cover for the content? With that said, don't judge the content by it's cover.

;)

Batman,

Don't read the titles.

Guy

I really really enjoy your blog, but the only thing is that your titles always starting with "The Art of ... " are f****** annoying

Robert, you would think so, but lately, I seem to be running into current and wanna-be business owners who are going through the motions versus having a real excitement for what they do.

I saw this on the Garage.com site a few months ago. :) Good information and it helped me with mine.

Guy,

you picked exactly the right time to write about executive summaries. I just started ours. Thanks for your valuable advise.

Cheers,

Alexander
G10 Software AG, Switzerland

Guy modestly neglected to mention that you can download the PDF of the above hints, as well as some other stuff, from the resources section of his Garage.com.

My exec summary is two pages. The first page is text similar to what Guy describes. However, the 2nd page is made up only of tables with financial projections and a detailed use of funds. Writing thin is a skill and I believe that all entrepreneurs should strive to distill their businesses down to 1 page of text. IMO 3 pages is too long and despite what we'd all like to believe, there is no business that is so complex as to require it. Frankly, writing a crisp exec summary is good discipline for writing a compelling sales pitch. Which brings up a question…

Guy: As an investor how much emphasis do you put on a management teams ability to communicate as demonstrated by their exec summary, elevator pitch and slide presentation? Would you invest in a team that you felt had a great idea but would struggle to communicate it to customers?

I believe passion is something that will come through in a real-life presentation, not in a concise, factual document.

Scott,

I would think that if the business owner has gone through the effort of writing an executive summary, they must have passion.

Then again, maybe not. :)

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