I hear pitches from about 500 founders every year. Any time I have a conversation with a startup, this is what's going through my mind: "Are they going to make the same mistakes I keep hearing again and again?" 90% of the time, sadly, the answer is YES! So let’s change that right here and right now with 10 Commandments for Great Startup Pitches.
Each Commandment has a corresponding Slidebean or Dreamit Ventures video that takes a deeper dive into the subject. Check out our YouTube playlist to see each of these videos.
Without further ado, let’s talk about the 10 Commandments!
Thou shalt start with the problem statement, it shall be clear, and should talk about the strong evidence you have demonstrating the urgency around the problem.
What do I mean? I find the best way to pitch an investor is to start by talking about the problem you are solving. You help put “guardrails” in the investor’s mind so they understand the domain you are in. Many times when founders don’t start with the problem you’re 20 mins into the discussion the audience still has no idea what big and urgent problem you are solving. Make sure you state the problem in an extremely focused and succinct manner. Make sure to include evidence! No hand waving that so many people have this problem. You can’t wave your hands, but you can point at data! How many people have you talked to and confirmed they have this problem? That the problem is painful? How painful? Quantify that and discuss it when you cover your problem statement.
Thou shalt next talk about thy Solution, and the solution shall actually, solve the problem as stated, and should cover the unique insight into the solution.
Let’s discuss. I’ve seen more times than you would believe, a founder talks about a problem, and then goes into their solution. The issue? The solution does NOT solve the problem as stated. So there is a misalignment which often points to a deeper issue with the business focus itself. Next up… when talking about your solution, make sure to hit your “unique insight” into the problem and your solution to it. That helps to get at your differentiation. Where everyone else is turning left, you turned right. They zigged. You zagged. Why? What’s your unique insight and weave that into describing your solution.
When talking about your value proposition, thou MUST be an order of magnitude better than the competition. And you have choices to be an order of magnitude better in your product, business model, pricing, distribution, location, or other ways.
We see so many startups that when you boil it down, they are only marginally better than competitors. And they’ll find out it’s nearly impossible to displace a competitor if you are just marginally better. To win you need to be “10x not 10%.” Want an example? Reach in your pocket or look in your hand. That smartphone you use… do you have the latest and greatest model? Probably not. Why? It’s good enough, it’s paid for, and it gets the job done. So why would I shell out more cash for a phone that’s only marginally better? There you go. Same thing.
Thou shalt calculate TAM bottoms-up, NOT top down. And your TAM is not the size of the entire market, but the size of YOUR market for YOUR product.
Let me explain. First, never quote the size of the total market based on some consulting firms’ report. “The US cybersecurity market is huge. The TAM is $200B.” No, that is NOT your TAM. That is the size of your entire market. Your TAM is your number of potential customers times your sales price. 1m potential customers? Price of your product is $500? YOUR TAM is $500m - 1m potential customers times $500 per customer. Also, when you talk about your TAM, like your math teacher in high school told you, “SHOW YOUR WORK!”
When talking about thy competition, thou shalt NOT use a magic quadrant and instead thou shalt include a table showing benefits and top competitors.
What do I mean? Never, ever use a magic quadrant to show your competitive differentiation. It’s BS. It only lets you differentiate on 2 axes and that’s not enough to truly characterize what makes you unique. Instead, you’ll create a table. As you go down on the ROWS label each one with measurable benefits (not features) and list those benefits in order of importance from the top reason people will buy to the lowest. Then the first column is your company and each column after goes from your top competitors to the least.
Your go-to-market strategy: Thou shalt have a go-to-market strategy and thou shalt cover the most important characteristics of your target customer, why those characteristics are so paramount, and how those map to which customer segments you will go after first, in priority order.
Okay, so here’s what you are NOT going to say. You are NOT going to say that your go-to-market strategy is “direct sales” or “network effects.” Instead, you’ll think about your go-to-market strategy like you’re going fishing. You’ll define the characteristics of the type of customers (in this case fish) you want to catch (e.g. the most important characteristics are: edible, live close to shore, and small). Next, you’ll talk about why those characteristics are important to your “business” (of catching fish) (Why? Edible - so I don’t starve, Close to shore - so I can get to fish faster and spend less money on fuel, and small makes them easy to handle and get in the boat). Then you’ll map those characteristics to yield your top customer segments: So in this case… that means we’ll go after flounder as our first target (edible, close to shore, small), and then we’ll expand from there.
Ah… 7. An oldie but a goodie. When you demo your product, thou shalt ONLY demo utilizing a USE CASE approach, showing how you solve specific problems, talking about users like actors in a play, and focusing only on the top benefits of your product.
What does that all mean? You are going to DEMONSTRATE exactly how your product solves the problems you mentioned and always using a “use case” approach.
In the demo, you’ll talk about the role you are playing (like an actor in a play -- e.g. so let’s say I’m a doctor, nurse, architect, software developer), what problem you are solving for that role, and show how the product actually solves that problem. To do this you’ll use phrasing like “Where before doctors had no way of knowing/doing X, now they can. Let me show you how...”
When discussing forecasts and financials, thou shalt not say “our numbers are conservative” because 95% of the time you are completely wrong and your numbers are wildly optimistic.
Your numbers are not conservative. State your level of confidence and the top assumptions you are making.
Instead, for any forecasts, financials, or estimates not only will you not say “our numbers are conservative”, but you’ll openly state your level of confidence in your estimate (on a scale of 0 - 100% and 100% means you’re betting your paycheck). As well, you’ll state the top assumptions you are making when you come up with your estimate. Do this for your financials, sales forecasts, etc.
When discussing how much you are raising, thou shalt not quote “the number of months of runway the money will provide” and instead you will discuss the measurable milestones you are looking to achieve.
Let me be very, very clear >> Time... is not a fundable milestone. I don’t care how many months the money will buy you. Investors don’t want to “buy months” they want to buy measurable goals. E.g. We are raising $3m to enable us to get to $5m in ARR (25 customers each paying an average $200k per year). To add one more “thou” here… Thou shall talk about benefits that are important to investors, not “features.” Investors don’t care that you want to hire 5 software developers and 3 inside sales reps. Those are all “features.” They want to know the quantifiable benefits -- e.g. revenue, number of customers, etc.
And that brings us to our final commandment.
If thou are earlier than Series C, thou shall discuss your Vision and when doing so thou shalt NOT include a discussion of your exit strategy.
We see bringing up your exit strategy when asked about vision from founders and startups who have spent a lot of time around angel investors who are always asking “what’s your exit strategy? When do you think I’ll get my money back?” Your vision should focus on what the world will look like in 3-5 years and how your company will completely dominate your segment. Talk about that big vision. That’s what will get inventors excited. You win and dominate and the right exit will come along (go public, get acquired). But if you focus on your exit early you are absolutely focusing on the wrong thing. We find exit-focused entrepreneurs won’t stick around if things are tough, and startups are usually a series of big ups and big downs.
Here are 3 more BONUS Commandments.
If thou has traction, ye shall discuss such traction within the first 5 minutes of your pitch. Real traction is your strongest evidence things are working. It will cause an investor to pay close attention. And, make sure you are clear and accurate about your traction which brings us to…
If thou art running an annual recurring revenue (ARR) business - thou shalt make sure that when talking about your revenue any revenue included in your ARR is revenue that recurs. You know… annually. That means that revenue from trials, selling services, selling hardware… all things that do NOT recur, are NOT included when you talk about your ARR. Oh, and if you sign a multi-year contract, from that you divide out and talk about only the revenue from each year.
When describing thy team, thou shalt clearly delineate who is full time, who is part-time, and who is just an advisor. Do not intentionally or unintentionally lead investors to think that all the photos on your team slide represent full-time members. Be crystal clear and delineate accordingly.
Okay... follow those 10… er 13 Commandments and you’ll be on your way to a vastly improved business strategy, pitch deck, and much more compelling story for investors!