Foreword
A world-class pitch for investors is not just a powerful presentation about your product or service that makes people want to buy it. Your pitch needs to make an investor fall so much in love with what you’re doing, believe in the team, the technology, the future potential and your determination to pull through, that they are willing to put huge amounts of money at risk with the danger of losing it all.
There are a lot of very useful articles already on this subject like for instance in Forbes Magazine which I strongly recommend you to read it if you are interested in this subject. In my view it’s a great outline but does not guarantee success. You need to understand that a pitch is not just a fancy PowerPoint with all the facts and figures. The pitch is a way to tell the story in such a way that the investors literally buy into it. In other words: “You need to touch their heart before you touch their mind”!
If you are looking on how to build a story-brand, how to create your hero story I strongly suggest to read the books of Don Miller on this subject.
As a member of the Business Angels Club in Berlin I have seen well over a hundred investor pitches. Out of that experience I identified 10 fundamentals you should look at. Here they come. The first 2 have a somewhat spiritual touch, but as Tony Robbins says: “Business is a spiritual game”.
- Get into a peak state before you pitch, because state is everything!
If you have been following me for a while, I’m sure you have seen various posts from me about this subject. I like the definition of state as the so called “triad”:
- Your physiology
- What you are focused on
- The language you are using
Imagine what the “triad” of a successful entrepreneur looks like. How does their physiology look like when they are presenting their pitch? How do they express determination by the way they stand? How do they connect with their audience with their language, their tone of voice, their movements and so forth? What are they focused on? Are they focused on their success or their fear of failure? Look at these 3 elements and describe the “entrepreneurial triad” in as much detail as possible. Then find your way to embody that triad.
“Your true power is not in the slides it is in your state”! And guess what: you can’t hide your state. Your audience will “read” it within the first couple of seconds and unconsciously make a decision if they truly want to listen to your story or not.
You’re still skeptical? Maybe you’ve also had the experience of so-called roadshows where different presenters use exactly the same slide set at different events. When you look at the feedback from the audiences you often get very inconsistent ratings. At one event they really liked the presentation, at another they really did not, but it was the same slide deck. How can this happen? In essence, the audience is rating the presenter much more than the content.
2. Make your audience understand your why
In previous postings I have written about Simon Sinek and his research on why people do what they do. It is not about what you are doing and not even how you are doing it. Your “why” is your passion about your business and the fuel as well as the navigation system that will help you to get where you want to be on this journey. Your “why” is the inspiration as well as the stimulant to keep going. That is why it is so important to be totally clear on your why. I believe that if you discover your true why, the universe will present you with opportunities that allow you to connect to it. Of course, it’s optional for you to accept this guidance.
3. Fall in love with your customer, not your product
Most pitches I have seen were focused primarily on the product and to a lesser extent on meeting the needs of the customer. If you focus on the customers and their needs, the product or service is just a way to fulfill those needs. If you establish a great customer relationship you can sell many different products or services to them over time. It also protects you from losing business easily to a competitor. Products come and go and some of them have a half-life of a year or so. What stays is if it is being nurtured in the relationship.
4. Demonstrate clarity about the market and your USP
Every investor will want you to prove that you have a clear target market that you understand extremely well. Sometimes entrepreneurs get so carried away by their business idea and its potential that almost everyone becomes part of their target market. Smaller is better and focus is of the essence. Focus will allow you to narrow down on your development efforts and if you come to understand that “niche market” very well, you can pretty quickly become a recognized expert and a leader in that field.
It is always worthwhile to spend time on articulating your USP and try it out on customers in your niche. These discussions in turn will give you an even better understanding of your target market. Also, if you can’t explain your USP to “ordinary people” you do not have one.
Are you clear about who your current and future competitors are? Study their strengths and weaknesses. Create a detailed plan on how you will create and increase market share over time.
5. Present a scalable business model and give them confidence in the growth potential
Investors always, always want to go big. Your pitch needs to present that potential and the investments needed to get there. Is your product or service limited to a specific country or could you go international? If so, what would be the steps. How do the costs scale with the business expansion? Do you need double the resources to achieve twice the revenue or are there economies of scale? What different distribution/partner channels can you use? Allow yourself to dream just for an instance in the pitch and articulate this dream but do not get carried away.
If you have an existing business from a high level, there are 3 primary ways to grow:
- Increase the number of customers
- Increase the average transaction value (upsell/cross sell)
- Increase the frequency of repurchase or get more residual value out of each customer (referrals)
The trick here is that these 3 effects multiply and even small changes at each step result in respectable growth overall. For instance, if you can increase your number of customers by 10%, your average transaction value by 10% and the frequency of repurchase by 10%, you have grown your business by 33.1%. If for instance you can achieve 20%/20%/20% the overall growth is 72.8%!
6. Do not underestimate the marketing efforts
A credible marketing strategy is often missing. “Build it and they will come” does not work these days, probably has rarely worked at all. Putting up a website is not a game changer. You need to drive traffic to it. That is a very expensive undertaking and might not be affordable or even worthwhile. Can you partner with someone who “owns” a particular audience that is of interest to you? Where in the physical or virtual world do your potential customers hang out? You need to go there! Create one or more customer avatars and study their “life”: what are their needs and how do they meet them today? You can start to do this using Google with no money down.
Marketing is a premier place to burn money which is what investors hate of course! On the other hand, you need to create market awareness for your offering otherwise you will never get the business going. Present a smart way on how to handle that double edged sword.
7. Have a profound sales/partnering strategy
As a matter of fact, I have rarely seen much emphasis on this topic, yet it is fundamental to success. Yes, these days (almost) anything goes as far as selling over the web is concerned. Understand your sales funnel, the customer journey from “lead” to “sale” in detail. Test it as much as you can and try different variants. The success of this funnel most likely will change over time due to external changes in the economy, your market, the technology and so forth. Therefore, it is absolutely important to make assumptions on how many prospects you will convert at each step of the funnel, benchmark it with reality and consistently monitor it. In accordance with the principle explained under point 5, even tiny incremental changes at every step of the sales funnels can multiply up to huge overall growth. Investors usually like this programmatic sales approach.
The most expensive way to sell is by employing sales people. Good sales people are expensive and add to your run rate costs. Furthermore, they need to be kept incentivized and managed. Unless you happen to have great people management skills, this will be a huge challenge. It might be smarter to partner with someone who understands your market and pay them a certain percentage of revenue they bring in. This way you are not just adding cost to the business, you are paying only upon success.
8. Be realistic about the effort/time to market
In the startup phase there is a trend to overestimate what you can do in the near future partly because you probably do not have a lot of past experience in the market or the business in general. It takes time to find the right people, get them on board and develop relationships and negotiate contracts. There are third parties that can help you speed this up. Until such time that you have a respectable presence in the market you are again mostly burning money. Some startups are like fatally ill patients that continuously need to be keep kept alive by infusions of money. Describe how you are going for market share vs profitability. In the end, the investor will want to see a good and reliable ROI in the near future.
Do not plan the development of your product or service on the critical path. Allow for failure and delays. There is a reason why the leading edge is also sometimes called the bleeding edge. Sometimes a delay is not primarily your fault for instance when you get low quality parts from a supplier. “Shit happens” and investors will like if you build this into your plan.
9. Show a long-term view on how to develop your technology and maintain a competitive edge – establish and grow vs exit strategy
In the beginning you will most likely be offering just one product or service to a specific set of customers. It is like standing on only one leg. You’re pretty vulnerable. It is not just about bringing it to market, you need ongoing investments and adjustments in order to maintain your competitiveness. And what if a “bigshot” might be entering your market and just try to wipe your business out? Demonstrate that you understand the market and the technologies and can gain market share even in a highly competitive environment. How do you manage transitions? How do you manage maintaining what you have vs developing for the future?
You should not assume that you will always have the best technology in the market. Usually, the market it big enough to allow for various competitive offerings with respectable market share. Be aware that it takes a different mindset to sell the second or third best product in the market.
Last but not least, could your product or service become a commodity so that competitors with a different cost structure, market outreach and partnership can kill your business? Then maybe the long-term strategy you should be driving for is an exit strategy and sell the company. In the end, the vast majority of startups will drive an exit strategy.
10. Provide transparency – present your value and the risks, ask for help
You definitely do not want investors to shoot holes into your story, so you might as well tell them a positive version of the truth. In order to develop trust in what you are doing you need to show them that you are well aware of the potential risks and have a reasonable approach on how to mitigate those. If there is something you do not know, acknowledge it and promise them an answer back asap. That can actually be a nice lead in for more airtime with them. It is also smart to ask investors for their opinion and help, but not the “I have no clue” type of help though. Chances are that this is not their first investment discussion and they have a wide personal network that you can benefit from.
One last word: practice, practice, practice! Test you pitch in front of different friendly and even unfriendly audiences. Encourage people to ask questions – even nasty ones. Finally: get feedback on your performance and refine your pitch.
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