While the web seems to be awash in advice on how to give a pitch I find my mentees still need a lot of help preparing their pitches. Most are engineers who have little to no experience in public speaking, to use an archaic, but accurate term. They probably also have little experience in using graphics in their documents.
In helping a mentee apply for a contest sponsored by incubator Greentown Labs I found that they had sent him the same article on pitching that I had. So it seems time to get that article on my blog. So here is the article: Perfect Startup Pitch? Answer These 10 Questions by Soren Kaplan, author of The Invisible Advantage: How to Create a Culture of Innovation.
Mr. Kaplan is an advisor and consultant to Fortune 100 Chief Innovation Officers and has seen many pitches. He provides a standard template to his corporate clients which is a good place to start for corporate founders, but as you will see, not for entrepreneurs.
Here is his guide to both evaluating a startup pitch or creating one. As usual I’ll interpolate my comments.
1. The Big Idea
I advise my founders that their goal is to capture the imagination of their audience. Or as I once quoted Frank Ingari, an executive at Lotus Development, “Capture their hearts and minds and their wallets will follow.” The best way to do that is with a big idea, assuming you have one! Many viable startups are new approaches to old ideas or refinements of existing ones. They can even be new attempts at previously failed efforts. If you don’t have an idea that is really captivating skip this step and go directly to #2.
2. Target Market
Many templates advise starting with the problem, not the customer. But I agree with Mr. Kaplan; people relate to other people, not to problems. And clearly defining the target customer is often difficult for first time founders. The more clearly you can profile your target customer the more the audience will be convinced you know your market. Give real world examples not just abstract descriptions. So rather than just saying “We are targeting the estimated 1.5 million DIY car mechanics in the U.S. who work on foreign cars”, work your origin story in. “My cousin George has been working on his Datsun 240Z for what seems like forever, and he’s always very frustrated about the difficulty of getting parts and technical information for his car. That’s what gave me the idea for a crowd-sourced platform for home mechanics working on old cars who are willing to pay for parts and schematics, if they can just find them.”
3. Problem or need
As I’ve pointed out elsewhere the problem has to have multiple dimensions:
- It’s clearly painful, not just irritating
- It’s widespread, not just confined to a few people
- It occurs often, not just once in a lifetime
4. 10x Solution
I believe it was Peter Drucker who said that for an upstart company to dislodge a market leader its product must be 10X better than the incumbent’s. That’s a high bar to surmount! You need to choose which of the three typical dimensions used to measure “better”: faster, better or cheaper, known as FBC. When making such claims you need proof points. Testimonials from your beta testers will work, as will media coverage. Investors are looking for validation of your business idea – don’t make them search for it, show it to them.
5. Business Model
Founders seem confused as to what a business model is. It’s business jargon for “how do you make money?” That seemingly simple question has multiple dimensions, just like the customer problem or need:
- Who is the customer? Every sale has three participants: users, influencers, and the economic decision maker or buyer. The real definition of customer is the person or entity who pay you, not necessarily the users of your product.
- Will they pay you more than it costs to both develop the product and acquire and support the customer? In other words your business model must be profitable.
- How will they pay you? A one-time purchase? Purchase plus maintenance contract? Subscription fees? Investors tend to like recurring revenue models like subscriptions, as in cable TV and mobile phone data plans, as they smooth out revenue, which otherwise can be lumpy and cause cash flow problems. Keep in mind the one thing investors want from entrepreneurs is predictability.
6. Minimal Viable Product (MVP)
The MVP needs to test and validate the assumptions (hypotheses) you have made about the business. I prefer the concept of MRP, Minimal Remarkable Product. See my post
7. Competitive Advantage
Investors need to know that you understand who your competitors are and what your advantages are over them. Differentiating your product or service is what is critically important. The world is glutted with new products. Your’s must be truly distinctive and offer clear value above and beyond what the customer is already using. Investors also worry about barriers to entry. If you are successful what’s to prevent competitors from cloning your product?
I like Mr. Kaplan’s definition of financials. It’s not a three-year or five-year financial plan including income statement, balance sheet, and cash flow for every year. These are typically pure fiction for raw startups and investors know it! What you have to demonstrate is a clear and reasonable business model: your capital and operating costs, the cost of customer acquisition, the lifetime value of a customer, the time it will take you to break even, and a growth rate that isn’t just the typically unsubstantiated hockey stick curve. The most important part of financials are the assumptions behind them.
9. Strategic Fit
Founders can skip this one! It’s purely aimed at new ventures within a large organization. “Does the idea significantly advance the organization’s business strategy?” tells you that.
10. The Ask
How much money are you asking for? How will you spend it? How long will it last? What milestones will it enable you to achieve?
Unfortunately Mr. Kaplan leaves out the most important part of any pitch: the team! I think he overlooks this because his experience is working with Fortune 1000 companies and not with real founders. So while he makes some valuable points I would advise you to use a template that’s been developed for entrepreneurs, not for Chief Innovation Officers in Fortune 1000 companies. Try serial entrepreneur, investor and former Apple Macintosh evangelist Guy Kawsaki’s.
He also leaves another critical element: your current status, which I advise should include accomplishments to date, and your milestones or roadmap. Investors want to know where you are today, where you are going, and what are the important, and measurable steps, in your progress towards a profitable, sustainable company.
There is one very valuable link in Mr. Kaplan’s article which I strongly recommend you follow, it’s to a collection of great examples of pitches. I’m a great believer in learning by example. Aaron Lee provides you with 30 legendary startup pitch decks and what you can learn from them.