Passion alone won't cut it.
The Entrepreneur Insiders network is an online community where the most thoughtful and influential people in America’s startup scene contribute answers to timely questions about entrepreneurship and careers. Today’s answer to the question “What’s the best way to pitch a startup idea to investors?” is written by Michael Maven, founder of Carter & Kingsley.
Your approach to pitching startup ideas should vary. You need to consider whether you’re creating a B2C or B2B product, and whether you’re serving a single or dual/multi-sided market.
Here’s the single-sided, B2B-product approach:
Love it or hate it, when you’re pitching, you’re selling. You could be selling a product or a startup idea, but it’s still selling. So it helps to understand how marketing works and how sales are made.
The first step is to put yourself in your audience’s shoes. Who are they? What time did they go to bed and what time do they wake up? What are they thinking on their drive into work? What are their frustrations? What do they value? Where do you fit in? What do they need to see and hear in order to buy what you’re selling, and what objections may they have?
This crucial step is skipped so often because it requires a close-your-eyes type of active imagination, but it’s half the skill of successful selling. What questions would you like answered if you were giving someone millions of dollars in funding, hoping to see a return? Are these questions answered in your pitch?
Get introduced to some investors and ask what their investment criterion is like. If you lead with highly customized value and a little persistence, investors will even talk to you cold. Investors and VCs are usually super busy, and have a lot of people fighting for their attention. So cater to that. Be attentive. Never waste their time or overrun when you ask for 10 minutes. Speak in plain English and be concise. Think of this as a lesson in communicating efficiently.
Next, you need to show an understanding of your market. Do you know who the buyer is? Can you accurately describe the emotional pain side of the problem he or she is experiencing? Then, as if you’re in a legal court, can you show proof and the practical side of why your proposed idea is a good solution? What exactly is your value proposition?
You should also think about proof you can deliver today, in terms of your teams’ previous experiences. The idea here is to build trust in your abilities. Do you have proof of concept? What traction have you had already? Even better, do you have people who have already committed financially for a solution that will be delivered in the future? If you have enough of these, you’ll be way ahead of the pack because you’ve already found a business model.
Kris Duggan, CEO of Betterworks (which raised $15.5 million Series A), agreed: “Investors now say, ‘Oh you want to see an investment? Great, show me your first 10 customers.’ Or, ‘You want a series A investment—are you doing a million dollars yet?’ If you don’t have a plan to get there, it’s totally a non-fundable business.”
Next, the driver of your business—your marketing. What exactly will you do to stimulate sales? Will you have a built-in viral mechanism? What channels will you use? Have you investigated similar existing products to intelligently estimate the lifetime value of your customer? Alongside that, what is the expected cost per new customer acquisition? Here, you should be explaining your revenue model and the existing market evidence that it’s sustainable.
These are questions that many of our established clients can’t answer when they begin working with us in the current market. So if you walk into a pitch with these answers, you’re set to impress (even though you will mostly be guessing).
You’ll also need to address your competition. Who are they? What’s your unique selling proposition? Why will customers buy your product instead of the competition?
Your answer here needs to be something measurable. Drive, passion, and vision don’t count. Every startup claims to have that. Your customers also have to care about the difference you’re going to provide. Adding a new colored toolbar is not a competitive advantage when all the customer wants to do is send and receive emails.
Your unique selling point also has to, ideally, not be easily duplicated. What exactly are your unfair advantages? Make them clear, and show what customer-valued, measurable benefits put you ahead of your competition.
Everything up until this point covers a solid business model geared for startup success. However, you still need a revenue plan.
Trying to predict how much revenue you’ll generate with a completely new business in a relatively unknown market is rarely going to be accurate. Forecasting revenue is more suited for established businesses releasing further products based on previous sales history. For a startup, these numbers are completely fabricated.
However, you’ll still find investors who ask for it, and strangely enough, will pick through your revenue plan to see if it calculates. You can provide some numbers based on a similar product’s growth (pick a good curve).
At the end of it all, you should be able to answer why an investor should listen to you and believe what you say. Why should he or she fund your company instead of the next, and why sooner instead of later (or never at all).
If you can do that, it will set a wheel in motion. You’ll develop a keen sense of where your business is going next. That grows into concrete positioning and business confidence that will be sensed by any investor, and you’ll increase your chances of being funded.