The Entrepreneur Insider 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 Jeff Reid, founding director of the Georgetown Entrepreneurship Initiative.
When you find yourself pitching to an investor—whether formally or informally—it is vitally important to show passion for your business or idea. If you don’t appear excited, it’ll be hard for an investor to support you.
Show your passion in what I call the “Six Steps to a Successful Pitch.” I coach students at Georgetown University’s McDonough School of Business to use the framework below. You don’t always have to go in this order, but it’s smart to touch on each item.
Any successful pitch should have six components:
- Define the problem
- Describe your solution
- Explain the business model
- Make the ask
If you have a defined time limit, like in a pitch competition, practice in advance to make sure you get all of your points across. If it’s unstructured, you’re likely to have less than two minutes to make a pitch. In that case, you need to get the investors’ attention quickly and prepare for a give-and-take conversation. In any case, you need to be concise and hit the six steps.
Who you are is important. The introduction is not a time to list your entire resume, but do tell your investors where you’re coming from and provide context for your ideas. An investor would love to know if you have years of experience working in your industry, as well as any other skills in your background that gives you credibility.
The “hook” is what gets their attention. It could be a personal story or a striking statistic—something that cuts through the noise and captures their interest. Keep your story compelling and quickly move your listener to understand why the issue matters.
Define the problem
The problem needs to be clearly defined. Without knowing who has this problem, what it is, or how big of a problem it is, it’s hard for an investor to understand the context of the solution you want to propose. Remember to be very clear. Don’t use too much jargon or technical language. I tell my students, “Imagine your grandmother is listening.” Start broad. You can always share more details later.
Describe your solution
A classic mistake entrepreneurs make is talking more about the solution without framing the problem. I have taught workshops for students across the university and coached students who have won international pitch competitions. It’s a common mistake to lead with, “My idea is X…” without any context. The solution only matters if you first understand the problem. If investors don’t believe the problem exists, or that it’s important enough, they’re not going to care about your solution.
Once you have laid the foundation for the problem, you can address how you plan to solve it. Are you inventing a new technology? Is it a twist on an existing product or service? What makes it different?
Explain the business model
Once you have described the problem and the solution, investors will want to understand your business model. It’s the answer to the question: “How do I make money?” This step is important for nonprofits and social ventures, too, as investors need to have a clear idea of how you are going to stay sustainable.
Make the ask
Another common mistake is forgetting to make an “ask.” Sometimes you might choose to lead with the ask, like what you see in Shark Tank. And while you should lead with the headline—there is no need for suspense, as your pitch isn’t a short story with a surprise ending—you should “preview the ask” by mentioning up front what you will be asking for at the end.
An ask isn’t always for money. It might be, “Can we set up a time to have another discussion?” It might be, “Could you introduce me to your colleagues or friends?”
With investors, however, you want to be clear that you are looking for money. At the time of the pitch, you are asking them to listen and engage. They won’t write a check on the spot. Be specific about the amount of funding and the type of funding you are seeking. Make an ask that requires a response. One of the worst things you can do is make a pitch that gets people excited, but you don’t make an ask and they don’t know how they can become involved.
Jeff Reid is an adjunct professor of strategy at Georgetown University’s McDonough School of Business and the founding director of the Georgetown Entrepreneurship Initiative. A proven strategic leader in the arenas of entrepreneurship, venture capital, education, technology, and economic development, Reid believes strongly in the power of entrepreneurial communities and networks to create social value.