Your startup pitch deck needs an operating plan

Over the course of the past 10 weeks, I’ve taken apart 10 pitch decks as part of our Pitch Deck Teardown series. All the decks had their own strengths and weaknesses, but there was one glaring omission from most of the decks I reviewed: an operating plan. Leaving it out of your deck might be forgivable if you have an appendix or a more detailed financial plan, but those tend to be too detailed. Here’s an overview of why you need one — and how to make one.

In short, an operating plan is a high-level numerical view of the near future of your company. It describes, in measurable terms, what you need to do to get from where you are now to where you need to be to raise your next round of funding. And it presents this information in a way that is easy to digest and discuss, without getting too bogged down in the nitty-gritty of the numbers.

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Why you need to tell your story in numbers

When you’re raising funds for your company, chances are that you’re trying to convince a venture capital firm to give you money. On Twitter, VCs love to paint themselves as the cool kids on the block, but don’t listen to ’em. Venture capitalists work in the financial services industry like the rest of the bankers and capitalists, which means they are beholden to their own investors. Fiduciary responsibility is a crucial aspect of venture capital; they’ll never raise another fund unless they understand the financial machinations that go on under the hood in their own firm, their fund and the startups they invest in. All of this is to say: Money is the alpha and the omega of venture capital, and to be successful in raising money, you need to be able to speak that language.

When you weave a compelling narrative in numbers, you’re talking the language of venture capital. Numbers are king.

When you are raising money, you’re in essence painting a picture for your investors: If you give me X dollars, I will move my company from where it is today to a position where it is worth a lot more money. To do that, I will change certain aspects of my company. Those aspects might be staffing (you’ll hire more folks to build a better product), it may be product (if we build features A, B and C, we can sell this product), or it may be building traction (we are going to go from 2,000 paying users to 25,000).

None of this should be new to you; as a founder, this is the bread and butter of your job. Your operating plan, then, is how you tell your story, not in words, but in numbers. That’s crucial. When you weave a compelling narrative in numbers, you’re talking the language of venture capital. Numbers are king.

So let’s discuss what needs to go into your operating plan, how to present it and how to check for inconsistencies in the plan.

What needs to go on your operating plan

Your operating plan is the story of your company’s journey, expressed in numbers. To think about how you do that, consider what you are doing when you raise money: You are keeping the company afloat until you hit a set of milestones that will enable you to raise another round of funds. That’s the story you need to understand — and show that you understand.

So, start there: If you are raising your seed round, what milestones do you believe you need to unlock in order to raise your Series A? What do you need to do to unlock those milestones?

For most fundraising rounds, you’re talking about an 18-month time horizon, so that’s the period of time your operating plan should cover, and you should ensure that the most important aspects of your operation are captured and summarized in those numbers.

For most companies, you should include major milestones: product launches, partnerships signed and major product revisions shipped, along with other key performance indicators that show traction. Then think about the levers that affect those milestones. If you are planning to deliver a new product, do you have enough developers? If you are increasing your customer base tenfold, will that change your cost of goods sold as well? Include all of these things.

As you’ll have figured out by now, a lot of the operating plan will be driven by your financial models. These tend to be month by month, going into great detail about how the revenue and expenditures of your company are going to flow. I usually suggest that founders create their financial models first and then extract the numbers from the financial plans to create a simpler, easier-to-read version for the slide deck.

How to present your operating plan

There’s no objective “right” way of doing an operating plan, but in my opinion, making it as easy to read as possible goes a long way. That means that you don’t need to have a huge amount of detail, but you do need to show that you understand the financial levers in your business. In other words, as a founder, do you understand what needs to happen for your business to be successful?

Personally, I like to start with the milestones that unlock the next fundraise and work backward from there: What milestones do you need to hit to raise money for your next round? What do you need to invest in to reach those milestones?

For readability, I prefer to round all numbers to two significant digits. Your model may very well tell you that it’s going to cost $49,851 per month to run your developer team, but that’s a bizarre number to put in a slide deck; for one, it’s almost certainly not exactly correct, and for another, it increases the cognitive load on the viewer and gets in the way of the story you’re trying to tell. Round it to $50,000, or just write “$50K” and call it a day.

For my book, “Pitch Perfect,” I created a pitch deck template¬†and included the operating plan template you can see at the top of this article. It’s been successfully used by dozens of companies to raise money, but as you can see from the template, it isn’t rocket science: Distill the numbers down to explain how you’re planning to run your company.

When presenting the operating plan, a lot of VCs will often ask about the underpinning model that creates those numbers, and you may be tempted to defend the numbers. Resist that temptation; in most pitch meetings, you have 20 minutes at most to make your case before the Q&A begins, and in most fundraising processes, there will be a separate meeting (or string of meetings) to go through the financial plans in detail. The purpose of the operating plan is just to show that you deeply grok what the KPIs are that drive your company, and how the current round of funding will be deployed to move those KPIs.

Finally, stick a disclaimer on your operating and financial plans, stating that these are projections. Most investors won’t nail you to the wall for missing your operating plan goals, but it’s a good butt-covering exercise to ensure that everyone knows that this is your best guess for how the next 18 or so months are going to pan out, and that you’re not claiming some sort of unnatural ability to read the future.

Check for internal inconsistencies

Finally, once you’ve put together all your models and operating plans, make sure that you check whether the operating plan is internally consistent — in other words, do all parts of the operating plan make sense vis a vis all other parts of your operating plan?

If you’re projecting a 30x customer growth, but your marketing expenditure only increases 2x, you’d better be prepared to explain why the efficiency of your marketing is about to make a 15x spike. Similarly, if you aren’t hiring any development staff, but you are suddenly delivering whole new versions of your SaaS platform every six months, there will be a question about who’s going to be writing code.

The simple way of doing a sense check is to see if numbers increase in a more or less linear fashion. If your customers increase one hundredfold, do your server costs also go up 100x? What about your customer support burden? How about your sales and marketing teams?

The final gotcha to be aware of is the speed of hiring. A lot of companies I see raise $20 million in Month One and then have 40 new staff starting in Month Two and then have a 40x increase in customer acquisition in Month Three. It’s literally impossible to write job specs, recruit, interview, onboard and get your staff to full efficiency immediately. Things take time, and your models and operating plans should reflect that to some degree.

Check for external inconsistencies

The final step once you have your operating plan slide added to your deck is to ensure that the whole deck is still telling the same story. It seems like a strange thing to remind people of, but I’ve worked with hundreds of companies over the years, and in the process of forcing people to create detailed financial plans and a good operating plan, they typically discover things about their own business that they didn’t know before. Or, more precisely, they gain additional nuance for the plan they thought they had. That’s great — a better understanding of your own business means that you have a chance to create a better plan.

A lot of the time, I observe that when the three- or five-year financial plans and milestones evolve, the operating plan evolves as well. These evolutions need to be reflected on the overall deck; it’s no good to have one slide say that you are raising $7 million but an operating plan that shows that you need $10 million to deliver on those milestones.