Perhaps it’s because the focus of entrepreneurship is so strongly on the big idea, not execution, but I’m continuing to see smart, well-educated founders continue to make the same mistake, over and over again.
That mistake is filling their pitch decks with ideas, assumptions, assertions, generalities, and opinions. The latest example of this popped up during the review of a pitch deck in which the founders asserted that they could build a network of healthcare professionals to act as a referral channel for them. But when I asked the question, “How many of these individuals are in private practice versus being employed by hospitals, clinics and other healthcare organizations?” they couldn’t answer the question! Not only that, they hadn’t even given any thought to it. They just assumed that there were enough independent practitioners who they could work with – they’d done not only no primary market research, but not even any secondary market research. Yet they were asking me when they should start raising money! My answer was when they could answer my question and turn their all their assumptions and assertions about their target market into hard evidence.
Founders also tend to speak in generalities. I have to work hard to get them to be specific, to give examples and provide data, not opinions. I’m not sure what the genesis of this problem is, but it’s a common one and one of my tests of whether or not a venture is “investor-ready” is if they have scrubbed their pitch decks of as many assumptions, assertions, generalities, and opinions as possible. Obviously if you are building a company on a new idea you can’t have a pitch that’s 100% facts, that wouldn’t be a pitch that would be a history lesson. By the nature of new ventures founders are trying to project the future not recapitulate the past, but their goal needs to be to minimize assumptions.
As I’ve written elsewhere, founders need to treat their ventures as scientific experiments: their big idea is their hypothesis which they need to prove by running experiments and gathering data (from the customer development process). They need to run smaller experiments, such as surveys and pilot projects, to prove (or disprove!) their idea. There are two dimensions to this data: validity and reliability. Validity means that your data supports the hypothesis. Reliability means that the data is consistent. You can’t rely on one data point to prove your hypothesis.
Perhaps founders are reading too many high tech pundits whose writings are by their nature based on opinions, not facts. In fact, in the world of traditional media the difference between reporters and columnists is that the former deal with evidence and facts and that the latter are free to express their opinions, to assert, to assume, to opine.
Whatever the origin of this problem, I know that VCs will tear these pitch decks to shreds. VCs are hard-nosed, evidence-oriented people. They will question every assertion, every assumption that a founder makes. VCs are risk averse, and they aren’t about to invest in an idea that totally lacks any market validation. So founders, roll up your sleeves and scrub your pitches until you are left with your one big idea and your evidence that validates your idea.
A related, but different problem I have found with founders and their pitches is that they tend to operate at a high level of abstraction. They have a tendency to avoid the concrete. Again, I’m not sure why this is. But I spend a lot of time asking the same question over and over again, “Can you please give me an example?” Ideas are concepts, they are not empirically based on experience. As Bill Gates and others have said, “Ideas are cheap.” And that’s probably because the materials of an idea are cheap – they are immaterial.
The best way to avoid these dual traps of reliance on assumptions and talking in abstractions is to get out of the office, which is the breeding ground for immateriality, and into the marketplace, which is where ideas come up against harsh reality. As Mike Tyson said, “Everyone has a plan … until they get punched in the mouth.” So painful as it is, get out there and and don’t just talk to prospective customers, interview them. I promise you that customers will not be talking in abstractions! Be prepared to take a few punches, but better from prospective customers than taking a knockout blow from an investor.
I’d advise prospective founders who are still in school to take a course or two in journalism, to learn how to interview, gather facts, and tell a story. That will serve you better than Entrepreneurship 101.