How to Create the Ultimate ‘Use of Funds’ Slide for your Pitch Deck
Scenario:
You’re a startup founder looking to raise your Seed or Series A. Your MVP has been in market for several quarters, early customers are loving it, and weekly revenue continues to grow.
You’re putting together the pitch deck when you come to the infamous Use of Funds slide where you’ll outline the hiring plan for the next 12-to-18 months, and what strategic positions the company needs to fill in order to achieve your growth milestones on route to the next round of funding.
Maybe it seems obvious: we need two new developers, a VP of Marketing and a COO. But when investors ask how you came to this realization, it’s difficult to support your hiring strategy with measured and unbiased data.
As founders, we often rely on anecdotal evidence, like gut feelings and personal experiences. Yet when investors ask, specifically, how their money will be spent, they’ll want to see a hiring plan backed by objective analysis, including sound logic and data.
Therefore, to create a top-tier Use of Funds slide and answer investor questions with resounding confidence, the following article will help you to identify the positions — no matter what part of the organization you manage — that are crucial to the success of your growth strategy and subsequent fundraising success.
Positions BEFORE People
We all want the cream of the crop when hiring for those first few positions at a startup––those so-called A-Players––ultra-high achievers who share our same passion and enthusiasm for 80-hour workweeks, smashing through milestones and GSD (getting stuff done). But in reality, A-Players only belong in the highest-impact positions.
Moreover, it’s simply too expensive (and not feasible) to attract, select, develop, and retain these top performers for every last position on the org chart.
Lastly, high performers aren’t going to add much value if they’re engaged in work that isn’t essential to the company’s business strategy.
Therefore, before we go looking to hire the A-Players we think we need, we must first identify the strategic work that is most crucial to the company’s success metrics. As Huselid, Beatty & Becker highlight in their 2005 HRB article,
“…it’s surprising how few companies systematically identify their strategically important A positions — and then focus on the A players who should fill them.”
Common Misconceptions: What IS Strategic?
To better understand this people management strategy, we can divide the specific work of our organization into three groups, as described by Huselid, Beatty & Becker:
- Strategic work: has a profound impact on the creation of customer and economic value.
- Support work: enables the strategic work.
- Surplus work: at one time may have created value for the company, but no longer contributes much to its strategic success––work that remains in a company for reasons of tradition, politics, or inertia.
In the startup world, we can largely ignore surplus work since it typically only applies to larger, mature organizations. However, when cash is finite and the end of the runway is visible, strategic and support work are vital.
Furthermore, it’s easy to convince ourselves that certain positions are inherently strategic. However, (perhaps with the exception of the Co-founder(s)/CEO) determining whether a position is in fact strategic depends entirely on the unique needs and goals of the organization.
For example, software developers are most strategic to an enterprise SaaS company, whereas the Marketing Director is most strategic to a consumer hardware company.
Only once we identify our most strategic positions can we then begin hiring.
So how do we determine what positions are most strategic? By identifying the strategic capabilities unique to our organization.
STEP 1: Identify your Strategic Capabilities
To determine which positions are most strategic we must first identify our organization’s strategic capabilities (i.e. our unique value proposition that is difficult for competitors to replicate and that makes customers want to use our product/service over others).
Perhaps our strategic capability is our superior product quality (like Tesla automobiles), a proprietary technology (like Google’s search algorithm) or world-class customer service (like Zappos).
Whatever gives our company a unique and strategic competitive advantage (i.e. high perceived customer value & satisfaction, while simultaneously enabling the reduction of costs and increased prices), it is critical that we first understand our strategic capabilities in order to successfully identify our strategic positions.
A Real-World Example:
I recently ran through this exercise with the founder of a consumer membership program whereby members would gain access to special discounts and offers from local retailers.
During the exercise, the founder identified the strategic capabilities of his organization:
- Customer Satisfaction
- Affiliation & Community
For instance, whereas other membership programs delivered products to consumer's homes for private use, his program was designed to get consumers off of the couch and into individual establishments where they could participate in unique and memorable experiences.
As a result, this created greater customer satisfaction and a subsequent emotional bond between 1) his product, 2) the customer, and 3) the retail location, creating a win-win-win for everyone involved.
As for affiliation & community, since his product was a membership program, his members became part of a community of like-minded individuals and enthusiasts. And as we all know from basic human psychology, our desire for affiliation is deep-rooted, often surrounding ourselves with those most similar to us.
STEP 2: Identify your Strategic Positions
Continuing with the example of our consumer membership founder, with his strategic capabilities outlined, he could then define the strategic positions in his organization.
Regarding customer satisfaction, he determined that a Customer Success Manager or Chief Customer Officer (CCO) would be a highly strategic position in the future success and growth of the company.
For example, to maintain an emotional bond with customers, the founder had to know what made them tick (i.e. what made customers see value in his product, thus continuing to pay their monthly membership fee).
A dedicated CCO could ensure the company was meeting its customer’s logical and emotional needs, thus maximizing customer satisfaction, driving additional revenue, while minimizing churn.
Furthermore, to maximize each customer's sense of affiliation & community, a CCO would be responsible for planning regular member events, prizes, initiatives, etc., to reward and engage members for their continued participation and loyalty.
A Note of Caution
As the founder(s) of a startup, working through this exercise can be contentious. After all, everyone wants to think their role is critical and strategic to the success of the organization.
However, as Huselid, Beatty & Becker highlight, usually less than 15% of positions at an organization are considered strategic, so do your best to maintain objectivity and perspective.
Additional Applications
Just as this strategy can be used to identify strategic positions by first identifying strategic capabilities, it can also be used to help solve problems/threats to the organization by starting with the problem and working backwards.
For example, a company like Netflix (which recently raised prices, yet again), may struggle with increased churn. Moreover, since the company now operates in a mature industry with many large rivals, lost customers (and subsequent revenue) is a critical problem Netflix cannot afford to ignore.
Therefore, customer retention is a critical factor that directly impacts the company’s long-term growth and sustainability.
As a result, management would likely identify the role of Chief Customer Officer or Chief Retention Officer as a strategic position that absolutely must be filled with an A-Player.
Moreover, hiring someone who is merely proficient in the role will not suffice. Rather, additional effort should be given to recruit and retain top-performing individuals for those strategic positions which directly impact the bottom line.
As founder/CEO, it is your job to pay them well, disproportionately invest in their development, and provide the necessary support staff they require to be successful.
In Summary
So, what does this all mean for developing an all-star Use of Funds slide?
First, highlight your 1–3 strategic capabilities (i.e. show investors what gives your company/product/service a unique, defendable and differentiated advantage)––specifically, what makes raving customers choose you over competitors.
Next, once investors understand your unique value proposition, establish a clear link between these capabilities and the subsequent strategic positions you must fill following the fundraise.
By first helping investors to understand the strategic capabilities of your organization, and then forming a clear and obvious connection between these capabilities and subsequent positions, investors will gain superior confidence in your ability to identify the roles & responsibilities most vital to achieving your growth milestones and targets.
About the Author
Matthew is the founder of Allied Venture Partners, a new AngelList syndicate dedicated to the growth and diversity of Western Canada’s technology ecosystem. To learn more, please visit Allied.vc
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