What, How and Who: Pitching your Startup to Investors
By Tim Wilson
After 15 years on the investor side of the table, I have seen/listened/read thousands of pitches and presentations. Every entrepreneur believes they are answering the same questions: the who, what, and how of their startup, but the reality is typically far different. Entrepreneurs are biased toward the how, confuse how with what, and assume the who.
This is what I look for and how I do it.
The difference between what and how
What is always a measurable benefit to who, with benefits coming in two flavors: economic (who makes more/saves more money) and emotional (who feels safer, feels more attractive, experiences more enjoyment, etc.)
When making a purchase decision, humans trade between economic and emotional benefits. Understanding the benefits you intend to deliver, i.e., the “what”, is the first thing I look for in a startup. The second check box is the “who”, i.e. are there enough buyers that want these benefits that we can create a large company together? The third item on my list is the “how.” How tells me how you intend to communicate and deliver the “what” to the buyers. How also communicates whether you can deliver those benefits and make money in the end.
To illustrate the difference between what and how, let’s imagine the co-founders of Lucky Brand jeans pitching me for their first round of capital:
“Tim: We believe that 5% of the male 24–40 year old population does not buy Levi’s jeans from Costco…” They’ve outlined who their customers are, so that’s a good start.
“We are going to develop a line a new line of jeans that are ripped, frayed, sanded, patched and hand washed and augmented with some authentic hardware and playful details.“ This is part of the how that that I look for but it costs money to do this!
“Our customers derive satisfaction from wearing $80 jeans, jeans that not everyone can afford and that will set them apart from everyone else as free thinkers and economically upwardly mobile.” This is an example of an emotional benefit.
So far, I am clear on their belief statement, i.e. they believe 5% of the population of males 24–40 will pay $80 for a pair of partially destroyed jeans but feel good about doing so. If I continue the meeting, I expect them to tell me how they are going to spend money on associating the brand with free thinking/upwardly mobile segments of the population.
I may not agree with them, but my mind is now engaged and I know we’re talking the same language. With a foundation established, now I can move on to breaking down the specifics of their proposition. Without that foundation established, I would likely pass on the opportunity as we’d be hard pressed to have a productive conversation.
Let’s now consider two other business plans.
Company “A”
Slide 1: “We are a hardware accelerated software defined solution”
Every slide deck has a “who are we slide.” This one jumps into jargon that may or may not be a how.
Slide 2: “Solutions out there today can’t scale causing an over spending on IT budgets and a slower adoption of new technologies”
Every slide deck also has a problem statement. So far, I am still wondering what this company does.
Slide 3: “The team.”
I am on Slide 3 and still wondering what they do, for whom and how they pull this off and make money. I am uncertain about this company but certain that they need a marketing lobotomy.
Entrepreneurs: You need to get to the punch line. In your opening salvo, be precise. You are competing for my attention, as well as your customers’ attention. This business plan went into the Pass Pile without a meeting.
Company “B”
Slides 1 & 2: The Market Opportunity and Why The Market Opportunity Exists
Every startup, of course, believes they are tackling a huge opportunity. This is a very different starting point than Company A above. Here is how Company B pitched:
· “We have a $20B+ market opportunity to replace the engine inside a [vehicle] with a new engine.”
· “We will be the largest player in the market selling this new engine.”
· “We will quickly achieve rapid revenue growth and be cash flow break even in 2 years.”
· “We will take advantage of smartphones, sensors, and battery technology to develop this engine and revolutionize the market.”
There’s a lot to pick apart in these bullets. The slide is missing who the buyer will be and what makes this engine different from the existing, leading engine. They claim they will be market leader, grow quickly and be cash flow break even. None of these claims are direct economic or emotional benefits to the buyer of vehicles with engines in them. Pitch me what you plan to do for your customers and how. I can imagine the rest.
Let’s reimagine Company B’s pitch with Elon Musk pitching the first Tesla. Perhaps I would have heard this:
“We are building an electric car for men between ages 24 and 40 that can outrace a Porsche at the same price point.” Here we have both what the product is and who is the target.
“It won’t go very far at first.” This is a transparent acknowledgement of a potential shortcoming that would eventually get found out in deeper diligence.
“You will get high fives from gear heads at the red light, potential partners will line up to ride with you, and you get to ride in the restricted lane and brag to your friends about being environmentally responsible.” Lots of emotional benefits offsetting the fact that you can’t drive very far.
“We will deliver that experience using technology licensed from Lotus, a proprietary electric motor to go fast and a new class of lithium batteries. Here is the team I built to pull this off.” All of these indicate Tesla has thought through what it takes to deliver beautiful, fast cars that don’t go very far.
I am fully engaged. My next question? How do you find males 24–40 willing to drop $120,000 for your first model? “Tim, that is the easy part. All I have to do is find Lucky Brand stores and open up right next door.”
Tim Wilson is a Managing Director at Artiman Ventures, an early-stage venture fund investing in white space companies creating or disrupting multi-billion dollar markets. He represents Artiman on the boards of Crossbar Semiconductor, Kaybus, Prysm, Mossey Creek Technologies, and Nutrinsic,
