The logic gateways of pitching your startup
At Juntobot, I meet with hungry young startup founders every day, and every day I basically say the same thing to all of them. As opposed to having these conversations on a one on one basis (and being limited by my calendar), I decided to capture what I tell the startups I mentor in a series of articles entitled the “Logic Gateways”. The first article in this ten article series is an introduction to the concept and the underlying principles behind the logic gateway mechanism for pitching your business. Each subsequent article examine the next “gateway” in depth and suggest further reading (or in the cases where I remember exactly where the idea came from, reference that specific book, research paper or article) so that you can dive in further if you want.
This is a scenario that plays out almost every day (like a scene from a startup version of Groundhog Day):
Startup: Hey Devin! I have a sure-fire million dollar startup idea. Can you connect me to the investors willing to part with their sweet VC money?
Me: Great! What problem are you trying to solve (with your startup?)
Startup: See, it’s this cutting edge safety widget —
Me: No, tell me about the problem — not the solution.
Startup: But, but — wait so there’s a widget AND an app that —
Me: Is your safety widget for personal safety, public safety, institutional safety…? What are you trying to solve?
Startup: <Blinks, clears throat, looks at notes, tries to stifle growing frustration>
Now, I work in tech and around entrepreneurs, so please keep in mind 99 percent of the people I talk to are at least 10 times smarter than I am, no exaggeration. I don’t care how brilliant you are, this is not a question of raw intellect -- it’s a Shark Tank problem. Most entrepreneurs I meet have been conditioned by TV and movies to think it’s easy. All you need to do is show up, give your pitch to Mark Cuban and, voilà, five minutes later you walk out with $1 million dollars for your squeaky bath slipper company. Spoiler alert: This is not how it works.
I always tell them, at the end of the day, investors don’t really care about your novel idea or amazing new product that’s going to change the world. What they care about is the problem you are going to solve, and how you are going to solve it. Full stop.
In almost all cases, the actual “idea” itself is usually buried somewhere deep down in the middle of a pitch deck made up of jumbled content and slides the entrepreneur has put together to tell a story. What is needed is not only to put the idea into a context others can wrap their heads around, but also -- and more importantly -- to determine whether it is a business-worthy concept in the first place.
The Logic Gateways
When you “sell” somebody on your company there are a series of "logic gateways" an investor, an employee, a journalist, or an incubator/accelerator executive needs to go through to decide whether they are going to invest their time and/or money in your business. If you talk to these people they will probably disagree with me, and indicate that it is purely a logical choice on their side. You will usually hear them say something along the lines of these catch phrases that I hear all the time:
- "It’s all about product market fit."
- "It's all about the team."
- "It's all about the financials."
- "It's all about it being de-risked."
- "It's all about their traction."
Now I am not saying that they are lying and I am not saying that these are not the main decision points that this individual investor bases a decision on. However, what I AM saying is — in order to make their decision, and justify their decision — they need to travel through a series of logical gateways in their mind. If you do not successfully address and "win" in each of these areas, you cannot pass through the gateway into the next area. If you cannot pass through the gateways to the area the investor feels is the most important for them, they will have written you off before you even make your case.
And if you do not successfully pass through the rest of these gateways the prospect will kill the deal on the basis of the smart due diligence that uncovered unacceptable risk in your business. Each of these gateways pulls on the levers of risk or value, by either raising the emotional value or lowering the logical risk for doing business with you. Please note there is a rational reason why each of these gateways needs to be addressed and an emotional benefit to passing through each one.
These logic gateways are:
- BHAG/MTP - What is your BHAG (Big Hairy Audacious Goal) or MTP (Massive Transformational Purpose). Are you solving a problem that is going to have a 10x effect on the world and can you explain it in a way that is compelling?
- Personal Motivation - are you motivated to keep at solving this problem when anyone else would give up?
- Validation - do you have a deep understanding of what your customers want and need and what their situational objection would be if you provided them what they wanted and needed?
- Value Proposition - do you provide a value that is compelling and what your customers actually want and need that counters their situational objection?
- Differentiation - do you have a defensible differentiation? Do you know your direct and indirect competitors?
- $ (P&L) - how are you going to make money? Do you know the floor of your pricing (a 5x multiple of your cost of goods sold (COGS) and how close to the value based pricing ceiling you can charge?
- $$$ (Market) - how big is your market and how are you going to penetrate it?
- Team - Do you have a team that is an unfair advantage? Do you have a team with the relevant skills and experience? Are you able to maintain cohesion through difficult and challenging situations?
The point is: there are no shortcuts. You have to build a real business that solves real problems. Now of course there MIGHT be a unique value proposition for using a specific bleeding-edge technology to solve a specific problem in a certain way. But, realistically you should think of this as a “report out” to this person that explains how you have a viable business model that serves a large market, solving a major problem in a way that is more in touch with what customers want (emotionally) and need (logically) than the competition. AND it must be profitable.
Whether it’s pitching an investor, pitching a story about your business to a journalist, or pitching a job offer to the next wunderkind coder you want on your team — it’s all sales. You need to create a pitch that sells something real and worthy -- not just a derivative idea with a bunch of buzzwords sketched out on a napkin. This isn’t the dotcom boom and investors, journalists, and good employees have grown skittish, skeptical, and risk averse. They’ve seen it all before and will see through your BS.
Working with Emotion and Logic in a pitch
In Sales 101, every interaction is based on the premise that prospects have both emotional and logical responses to what you are telling them. At a certain point, people simply make up their minds and justify this decision with a couple more due diligence questions.
Any further fact finding or discussion past this point is personal justification. The majority of people make decisions emotionally despite how logical they might feel their decision making process is. The logical decision making process is what your prospect goes through to ensure they uncover the evidence that justifies the decision they already made. It is about lowering the risk of making the choice they already want to make (either for or against).
Therefore from the point of initial contact - the logical, risk averse portion of the brain kicks in more and more and starts to question the decision they have made. If you have not "made the sale" before the logical and emotional lines cross in your prospect's mind, you have not “convinced” them and you have lost the sale.
Using the Logic Gateways in a Business Pitch
So how do you successfully heighten their positive emotional reaction and calm their logical, risk averse objection finding reaction? Each of these gateways pulls on the emotional and logical levers, by either raising the emotional value or lowering the logical risk for doing business with you.
This is what is going on in their mind if you successfully pass through the gateway :
BHAG/MTP
What is your BHAG (Big Hairy Audacious Goal) or MTP (Massive Transformational Purpose)?
- Emotional Reaction - I feel pained about a major problem and excited that somebody is going to try and solve it.
- Logical Reaction - You seem to really be resolving a major pain and there is money in resolving pain. Also I clearly understand the problem you are solving so I feel like you might have something here.
Personal Motivation
Why do YOU care about this problem?
- Emotional Reaction - I feel bad for you or I can tell this is a real passion project.
- Logical Reaction - I know you are actually going to stick. I believe you will work to solve this — even through the “valley of the shadow of death” that all startups face.
Validation
Do you have a deep understanding of what your customers want and need and what their situational objection would be if you provided them what they wanted and needed?
- Emotional Reaction - I feel good that you clearly understand what your customer wants. Also you are not crazy, there is actually a problem that has potential (paying) customers that need it solved.
- Logical Reaction - You have done your research and have a good chance of being able to achieve product/market fit.
Value Proposition
Do you provide a value that is compelling and what your customers actually want and need that counters their situational objection?
- Emotional reaction - Yeah! They are building something that the customer obviously wants!
- Logical Reaction - Good it looks like they will have product market fit if they do this right.
Differentiation
Do you have a defensible differentiation? Do you know your direct and indirect competitors?
- Emotional Reaction - Wow! They are going to kill these guys!
- Logical Reaction - They seem to have a defensible competitive advantage here.
$ (P&L)
How are you going to make money? Do you know the floor of your pricing (a 5x multiple of your cost of goods sold [COGS]) and how close to the value based pricing ceiling you can charge?
- Emotional Reaction - They are going to make soooo much money. I want some of that money!
- Logical Reaction - This makes financial sense. If this is true they have a good business model.
$$$ (Market)
How big is your market and do you know how are you going to penetrate it?
- Emotional Reaction - Sooooo much money!!! This is going to be the next Uber!
- Logical Reaction - This is a large scalable market and they understand it. If they get even 1% of this market they are going to be rolling in it.
Team
Do you have a team that is an unfair advantage? Do you have a team with the relevant skills and experience? Are you able to maintain cohesion through difficult and challenging situations?
- Emotional Reaction - I wouldn’t mind being trapped in a conference room with these people for the next 5 years.
- Logical Reaction - they can do what they say the need to do. The team alone is worth the investment.
If you pass through all of these gateways you will successfully make your “sale.” Whether that is hiring that key employee, getting that investment, or having a journalist write that impactful article about your business. If you do not successfully pass through the gateways, you will hear feedback like “you are a bit too early for us” or “I am not sure what you do?”or maybe “I usually don’t work for startups.” These are all objection phrases that indicate you failed at one of the logic gateways. Your job is to figure out which one and fix it; however, please note, as with most things this is not a flim flam, con job, quick fix. You have to really have a Big Hairy Audacious Goal, you need to have thorough research on what your customers need and how you are uniquely positioned to address this in order to successfully pass through the logic gateway. Think of your pitch as a report on your company’s activities and less of a promise as to what you think the listener wants to hear. For a great read on what NOT to do read Seth Kravitz’s excellent article on the Fyre Festival’s pitch deck here.
Next week I will dig into how to craft a Big Hairy Audacious Goal or Massive Transformative Purpose that will inspire your listener, get them to eagerly run through the logic gateway, and raise the emotional power of your pitch and business.
In the meantime, did you have a question about something in the article? Did you agree with it wholeheartedly? Let me know in the comments below and I’ll do my best to answer your polite non trollish comments...
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