Whether you're a first time founder, a hopeful entrepreneur or a serial startup guru, you've likely pondered "What is the difference between a pitch deck and a business plan?" Which one came first? Why would you use a pitch deck over a business plan? Or, why would you use a business plan over a pitch deck? Are business plans archaic? Is a pitch deck just a pretty business plan? What works best for your startup?And at what time? Do you even need either one? These are important questions. Especially when your time is limited as you are building your company.
Before we can answer these questions, let's talk about what a pitch deck and a business plan are.
THE PITCH DECK
A pitch deck is a presentation that contains 10-20 slides. The presentation is either sent to investors as a pdf to get them interested in taking a meeting with the entrepreneur, or used as a visual aid during a live presentation to either investors or other audiences like pitch competitions. Sometimes pitch decks are used for both. A pitch deck is meant to share information about your business, who it serves and why, the size of the market, your special sauce and how you will win in that space. It often lays out clear go to market strategies, and delves into some detail on future opportunities. It relies on your research of your industry and understanding of your business' plan for launch and growth. It helps an investor see where you are, where you are going and enables them to decide if they want to help you get there. The goal of a pitch deck is to score an in-person meeting or to kick off the conversation with an investor about joining your funding round.
Used to Get Investors Attention
THE BUSINESS PLAN
A business plan is a fully researched 10-100 page document. The document is used to store and convey in detail your business' plans for the next 1,3, 5 years. The business plan lays out the research you've done in your industry and competitors. It discusses your sales, marketing, and operational plans. It takes into account your fincnial analysis, assumptions on growth and success, and lays out a map of where your company will be and how it will get there. It goes into detail on the management team and what unique skills they bring to the table. The document usually includes a significant number of charts, depictions and pictures, but relies heavily on text to convey the information. The business plan is used as a document that is shared with potential investors for them to use as a reference point when deciding whether or not to invest in your company. It is often used in a due diligence step in the funding process. The goal of a business plan is to lead you and your team members down the path of success over the next few years, and to show an investor how you plan to be successful with their investment.
Used to Get Investor Buy-In
Which Came First, the Pitch or the Plan?
The business plan is a longstanding document that has been been used in the building and planning and funding of businesses for quite some time. Possibly as long as businesses have been a thing. If you can believe that. It is a basic document really, it is the plan for the enterprise which you are setting out on. To ensure that you are successful, you should carefully plan how you will be successful, and make those decisions based on thorough research. You need to understand your customers and their problems as well as your competitors and their weaknesses. Before the existence of Venture Capital firms and other now widely available forms of equity funding, banks gave out loans to businesses to help them get started. But in order to choose who to give the loans to, they needed to make sure that they would be able to pay those loans back. A business plan was required to convey to the banker the viability of the venture. It has been a staple ever since. Banks still require business plans for loan applications today.
It is not clear who put together the first pitch deck, or since when investors have been requiring the pitch deck, but we can deduce a few things from history. Venture Capital firms really started to gain traction as a viable source of funding during or right before the tech boom of the 90's. They played a big role in bank-rolling the launch and growth of many 90's startup companies. Back then, it took quite a bit of capital to set up the infrastructure needed to start a large tech company. Websites needed to be built and coded, infrastructure (like servers, mainframes & networking components) needed to be purchased and set up and run and maintained. But, online companies looked nothing like traditional businesses--like a restaurant or a manufacturer--it was all a little too uncertain and risky for banks to give out loans. So, venture capitalist and angel investor came on the scene.
I imagine in the beginning these groups read the full business plans of potential deals. But as the venture capitalists got more busy, received more applications, and more and more founders looked to equity instead of debt financing, they likely couldn't read the whole business plan for every applicant. One pagers and executive summaries helped, but even these were tiresome text-heavy documents to read through all day long.
In comes graphic design tools for the masses. Microsoft PowerPoint was invented in 1987, and grew in it's popularity through the 90's. The appeal of PowerPoint was that you could use it to project a visual aid onto a wall or screen as you spoke to your audience. This meant they could see additional information, charts and pictures that provided more context to your speech. So founders started using these technologyies when pitching to investor during those initial meetings.
Somewhere along the line the ease and visual nature of the Slide Deck merged with the long thorough business plan. And founders started sending visual documents created in PowerPoint and other slide design tools to investors before they met them.
So which came first the pitch or the plan? The pitch deck is a child of the business plan. The business plan came first, then the pitch deck.
Why You May Not Need Both a Pitch Deck and a Business Plan
All of that said, today you may not need both a pitch deck and a business plan. It depends on your business stage and what your goals are. A business plan is a thorough document that contains "the plan" itself. If you have "the plan" itself written down in a variety of documents or sources of information than you may not need an official business plan document in the traditional sense. And at least not a 100 page one.
If you are looking to work with a pitch deck designer, it may be advantageous to have a full or partial business plan. Your pitch deck designer will most likely not assist you with business decisions and strategies. Rather, they will work with you--the expert--to tell your plan, ensure it is compelling to the investor audience, and well designed and visually appealing. You need to have a concept, and likely need to have done some level of research into your industry and competitors to work with a designer on your deck. But, you needed that anyway just to be an effective founder.
When You Need a Business Plan
- When Seeking Debt Financing: Banks still review business plans, so you will need a business plan if you're looking to get any kind of loan from a bank.
- When Raising Over $500K: If you're raising a lot of money, you better have a plan for what you're going to do with it. Investors will be doing due diligence, be prepared.
- When You Have Co-founders / Co-owners: When you have several cooks in the kitchen, it is helpful to have a written and agreed upon plan to make sure everyone stays on track and executes the way you intended. This should be a living document that is updated over time and as things change.
When You Need a Pitch Deck
- When Your are Seeking Equity Funding: If you're looking for funding from venture capitalists, angel investors or saavy friends and family, you need a clear pitch deck.
- When Your Networking with Investors: Not ready to get investment now, but have the opportunity to network with investors? You should have a pitch deck ready. First impressions are important, especially when building influential relationships.
- When Your Pitch in a Competition: In the startup community there are a lot of pitch events and competitions designed to give founders a chance to get exposure and practice pitching their company. You definitely need a pitch deck.
- When You Are Seeking CoFounders: If you're looking for cofounders, there is no better way to convey to them your concept, and the value you can bring to the table than through a pitch deck.
- When Your Apply to an Accelerator: Many accelerators require a pitch deck in order to apply. They use the deck to evaluate your company and decide whether or not you should join the next cohort.
Which is More Important, the Pitch Deck or the Business Plan?
In can be argued that the pitch deck is more important than the business plan, because it is likely to actually be seen by others. If you don't have a good pitch deck, you wont get the opportunity to talk in more detail with potential investors. You won't excite and evangelize the startup community and your early team around the company's growth. And, it may ruin your ability to connect with key mentors and partners that could catapult your business. That said, with no plan, the pitch will not work. Investors see pitches day-in and day-out. They can sense a snake oil salesman, an impossible tech product, and an unprepared founder from a mile away. If you don't know your stuff, then the best pitch may help you get the meeting, but it won't help you get funding. That said, the plan doesn't have to be in the form of a traditional text-based business plan.
I hope this has helped you to better evaluate the differences between pitch decks and business plans, and why you might choose to develop one or each of them for your startup. If you're building your pitch deck, I strongly encourage you to work with pitch deck experts. We evaluated different options for getting your pitch deck designed here(including DIY, all the pros and cons).