Augustin Rafael Reyes
Competent entrepreneurs can explain their company in terms of what the product does. Good entrepreneurs can explain their company in terms of their customer and their market. Funded entrepreneurs can pitch their company in terms that an investor can relate to.
For most entrepreneurs, it’s not easy or intuitive to put the investor version of the story together. They can talk a blue streak about the product, the customer, maybe the market. But they cannot pitch the business as a good investment in a way the investor can quickly grab onto.
Turns out, there is an easy formula that works nearly universally. The key to this formula is that it covers all the required subjects, but strings them together into a coherent and engaging narrative flow. Once you grok the formula, it all kind of clicks and you suddenly understand what it is you are trying to convey. From then on, it’s easy. (Note in addition to talking about the subjects here, I have also discussed why you should sweat your executive summary here, talked about the importance of keeping a pitch deck lean here, and about the importance of practicing your delivery here.)
You need to understand and cover all the building blocks, so make sure you have them down, but the key is in the arrangement of those blocks. First I will show you the framework, then I will take you through the pieces. From a high level, here is the flow:
Many investors say the team is the most important thing, and I agree, so some people recommend that you start with the team. They are wrong. We are trying to craft a narrative here – hook them with the story of the customer and the problem. Team is important, but as you can see from above it just comes later in the flow. Here are the building blocks, piece by piece, in order.
Problem & Customer
Every time I sit down with an entrepreneur for the first time, I always start the conversation the exact same way. Before we’ve even settled in, I’m already asking “who’s the customer and what’s their problem?” If you are telling a story, this is the logical place to begin. If as an entrepreneur you cannot describe who your customer is and what problem you are solving for them, you’ve got work to do.
Market
The next thing to do is to talk about how these customers make a market. What its size is, whether it is growing, whether it is fragmented, is it ripe for disruption, who the other players are; in short, what makes it interesting.
Jessie Owen
Solution
Here you want to talk about the solution, rather than the product per se. This is about the attributes of the thing that solves the problem. Benefits, not features. What does the perfect solution look like, not details about what have I built.
Product
Here is where you say, yeah, I’ve built a solution with those required attributes, and I’ve solved it in a cost-effective way. Given enough resources, anyone could solve virtually any problem. Your solution needs to be practical and economically viable.
Plan
This is the story of how you are going to get your solution to the customer. Your business model, your go to market strategy. What are you actually going to be doing and selling and what the key challenges are going to be along the way.
Go To Market
Here is where you get more specific about your actual sales strategy. Are you selling with a direct sales force, over the web, through partners, through distributors? Where are these customers and how can you locate them, talk to them, and bring them on board cost-effectively? What is the cost of customer acquisition going to be relative to the life-time value? (Hint: LTV better be higher than CAC, or you’re in trouble.)
John W. Iwanski
Your Awesomeness
Now that your listener has a handle on what you are doing, now you tell them why you have the stuff to pull it off. Yeah, you are super-smart and have the right education, skills and experience, but you also gel as a team – keep in mind that a high-functioning team is very different from a group of high-functioning individuals. Investors are looking for 1+1=3.
Company Development
Here is where you talk about where you are, where you have been, what you need to do next, what resources it is going to take, how long it’s going to take. You are going to talk about a plan that makes sense, is realistic in terms of both time and resources and is sequenced logically.
Financial Model
Now that we understand what we are going to do, let’s talk about the resulting financials. What is the revenue model? What kinds of gross and net margins will this company generate? How fast can it grow? How much capital is going to be needed down the road?
Exit Options
Once it starts to grow, who’s the buyer? Are there different kinds of potential buyers? What do they value the company for? What kinds of prices are they likely to pay? How much traction/revenue/growth is required before the company will be of interest to them?
Call to Action
We know we need help. We’d like to get you involved. Here are the details of our current fund-raising.
By using the formula you are taking an enormous amount of detail and weaving it into a narrative that hooks the listener immediately with a human interest story about a customer and their problem, and then takes them through an interesting discussion about solving it. The result has flow. Flow is key to telling a good story and it is key to organizing your company’s information into a cohesive investment hypothesis. Of course this is not the only way to do it under the sun, but with a little tweaking it always works really well. No point in messing with success.
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If you enjoyed this post, you might enjoy my other posts on Angel Investing, Communication, Entrepreneurship, Video Interview Series, or my recent curated links you might have missed on: Investing & Entrepreneurship.
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Thanks for the informative, helpful, and practical outline.