When we put the words “small business” and “business pitch” together in one sentence, do you have flashes of the famous reality TV show “Shark Tank?”
The show has been around for a while; entrepreneur contestants pitch their business ideas in front of a panel of investors—the “sharks”—in hopes that one of them will want to invest in their idea.
As each episode ends, we cheer for the contestants who are able to impress the sharks and land investment deals. However, for those entrepreneurs, a whole new struggle begins after the show ends.
The truth behind pitches
Forbes spoke with 237 of the 319 contestants that made it on the show in the first seven seasons and found that a whopping 73 percent did not get the exact deal they had on-air and that about 43 percent said that their deals never came through at all.
For any startup founder pitching their idea to investors, landing the deal is never a guarantee.
So, what are they doing wrong?
Sometimes investment deals don’t work out because the businesses themselves aren’t as solid as they should be.
They’re missing one of the four pillars:
- A good business idea that has been validated
- The right team in place to scale the idea
- A passionate, cohesive story
- The numbers to back it all up
Having worked in an Australian app development company that helps small to medium enterprises, I’ve come across many small business owners who have brilliant app ideas but fail to animate them in their pitch.
The people we come across generally fall in one of these three categories:
- Have funds and an idea, but zero know-how on app development
- Understand app development, and they have funds and an idea
- Have an idea, but no funds or knowledge on app development
The ideas that I am talking about here are game-changing, have vast potential and addressable market, and can create a buzz in the industry—if and when they see the light of the day. It upsets me how these wonderful ideas with so much potential fail to capture the attention of investors and die a slow, painful death by pitch deck presentation showdown.
Before you create your pitch, set your trajectory for growth
The app development market is pretty different from other businesses, primarily because by the time your app is fully developed, you probably already have a distributor to spread the word in the app store marketplace.
But, if you have an idea for an awesome app but no technical app development skills, you’ll go through pretty much the same drill as small business owners looking to scale. You’ll be looking for both investors and the right talent on your management team to drive growth.
Every successful small business goes through four stages during its entire existence:
- Existence: expanding from pilot production to broad-scale production
- Survival: generating enough cash flow to stay in business
- Success: business model works and is stable, but there is still untapped potential
- Growth: stepping into a bigger market opportunity with expanding services or new products while maintaining constant profits
The main concern for a newly started business of any size is the existence stage.
The concerns during the existence stage are:
- Executing a solid marketing plan to gain popularity and foster wide adoption: proving the viability
- Delivering quality product and services
- Having enough capital to cover this phase
Whether you are a newly started restaurant, a brand new coffee shop, a retail store, or even a manufacturer of technology-related products, for investors to take you seriously, you have to get past the existence stage.
There are a number of ways to get funding for your growing business, but each has pros and cons. Before you seek outside funding from investors, make sure you really need it, and that you can sustain the growth trajectory that investors will expect.
In this article, I will share how founders can blow investors’ minds by basing their pitch on four strong pillars that are not only essential to make an impact but also to make you understand what is expected out of your business idea.
1. The eureka moment—validating your great idea
Just having a business idea won’t make you rich or successful; having the right business idea will. How will you know if you have a good idea? Validate it. This first pillar is absolutely critical.
In the long run, you’ll save time and resources and avoid ever pitching a failing idea to investors. So to have a brilliant pitch, you have to set the foundation with the right business idea.
So, how should you validate that you’ve come up with a life-changing business idea?
Use Google before anything else
The moment the genius idea strikes, rush to Google to check the following:
1. Keywords
There is a tool called Google Keyword Planner that gives you insights into what people are searching related to your product, as well as search volume. Not only will this give you an idea of what people are thinking and searching, it will also give you the opportunity to tweak your product idea as per the demand.
Another simple way to find the keywords related to your industry is to look for “searches related to” section in the bottom of the page on Google.
Both these ways can help you understand more about people’s opinions/take/issue with a specific product or industry.
2. Google Trends
Now that you have got some good keywords with you, it’s time to check if they are trending in your country/capital/region. Go to Google Trends and search for the keywords and select the country where you want to see the trends.
3. Market research
Spend some time conducting market research. Search for statistics related to your product—trust me, you will find ample of data within a fraction of a second. Study the reports thoroughly and see who are your competitors (direct or indirect) who are delivering the same product or something similar to what you are thinking.
Now, ask yourself three questions:
- Was there enough search volume related to your idea? The more search volume on your targeted keywords, the greater the demand in the market. If people are searching for terms related to your solution, that’s the first step toward validating that they would pay for the right one.
- Is your idea similar to the existing competitors who also happen to dominate the market currently? Every business has competitors. If you don’t think you have any for your idea, think more creatively or reconsider your solution—maybe there’s a good reason why no one is doing what you propose.
- Does your business idea demonstrate unique value? The more generic an idea, the more competitors you have to vie with, and the more marketing dollars you’ll waste. What’s your edge over your competitors? What is this one thing that keeps your customers coming back to you (that your competitors don’t have)?
After you successfully finish your research put on your best walking shoes and head out in the wild, a.k.a the real market.
Go for personal surveys
Go to a public place like a coffee shop or maybe a park and ask people if they use your competitors’ products. If they do, then what do they like about them the most? What do they dislike?
After carefully noting their responses (and not asking leading questions), give them your elevator pitch—the short and sweet version of your idea.
Request their contact information (if they are comfortable and you manage to do it without sounding creepy).
Tell them you will let them know when the final product will launch. There won’t be a greater validation at this stage than people willingly signing up for it.
Create an MVP
An MVP or a minimum viable product is a scaled-down, cheaper (cost-wise) version of your full product. Most MVPs aren’t really scalable, but they’re meant to test whether there’s a market for your solution.
For example, if you want to start a national restaurant chain, the MVP for you might be a food truck. Before you open a food truck, the MVP for you could be selling from temporary locations where you find your target audience. All the research work that you did at your home will pay off here.
If you’re seeking investment, it won’t be enough to say that you think you’ll be able to sell your idea. You’ll have to actually demonstrate that you’re generating revenue and increasing your client base. Your MVP’s success will be a key component of your investor pitch deck.
2. Demonstrate your passion
Passion serves as the groundwork for your pitch. Angel investors and VC funders are truly investing in your good idea, but your passion and commitment are important too.
Demonstrate how much you have invested yourself mentally and physically in this business idea and assure them that you will face any future hindrances head on.
Always know your “why.”
If your “why,” your mission and vision, are unclear and haphazard, the investors will be able to pick up on that.
Here’s how you can demonstrate your passion and hard work the right way:
Tell the story
Studies show that storytelling helps you form a connection with the listener and elicit empathy and positive feelings. You need to leverage this and incorporate into your pitch.
Make it character-driven. Who will benefit from your product or service? When you tell investors about your target market, use a customer persona (if not a real, anecdotal) to illustrate the details. Say their name, age, gender, location, occupation, income level, interests, and so on.
After the character is defined, bring in the problem points. Say what your customer is experiencing to set the stage for how your solution can help. Mention the struggles and challenges they face.
The problem should be relatable to your product and should automatically guide the investors toward the next logical question: What is the solution?
If your solution can’t help the character of your story, the investors will decide not to help you after all.
The solution part becomes highly impactful when shown through storytelling, and not just told.
Use the results from your offline hustle (MVPs and surveys) that you did. Show the investors how your product actually solved the woes of the customers and relieved them.
Also show them how you solved the problem in a way that was different from your competitors, thus giving you an edge.
3. Prove that you have the dream team
The next pillar is your team: you, any co-founders, and other roles that will be critical for scaling.
Demonstrating that you have the right team in place is key. Even if you have the best idea, if your team isn’t top notch (or if your investors don’t know why they top notch), you might not land investment.
In other words, your team should be capable of laser targeting and solving the challenges they’ll face.
Briefly mention their diverse experiences and background so investors can see that your business is balanced perfectly. Your team should get a slide in your pitch deck. Don’t spend 20 minutes talking about them, but make sure you have included enough information about them in your business plan that your investors can learn more if they’re interested.
4. Master the numbers
If passion is the engine of your small business, then numbers are the fuel that keeps it running—the final pillar.
As a founder, you know that your financials are the barometer tell the real story about the health of your business.
Demonstrating to investors that you have a handle on key business metrics as they relate to your business model and forecast is essential. You can try to fake them, but don’t—remember that it’s an investor’s job to verify that they’re solid. They want to know that you’re thinking about the things that might affect your ability to scale, and taking steps to reduce risk.
You’ll want to be able to show your TAM, SAM, and SOM, or your total addressable market. Telling the investors about how much scope the product has, without showing them how much of it you can tap from the market, is a mistake.
Next, you have to be able to show how much can you earn with your product, and how quickly—in other words, you need to be able to show your forecast.
Using a business dashboard can help you track your financials and make accurate projections. Not only do they help you track your performance, they save you from being deluded from time to time and keep your feet on the ground.
If you don’t want to get into the core of accounting, at least make sure you know and understand how to calculate the important financial metrics.
In case the investors are keen to know how you arrived on your numbers, you need to whet your knowledge on the following (you can highlight them in your pitch for better presentation):
- Revenue generated from one single customer for a certain time period. Say a customer pays $50 for your product and uses it for a month, so this means your revenue generated from this customer is 50×30= $1500.
Nerdy term for this: LVC, or “lifetime value of a customer” (also known as LTV, or “lifetime value”) - Total cost that is involved in gaining a paying customer. This means before they bought your product, how much direct or indirect cost did you incur? This includes the commissions, advertising costs, trial periods, and so on.
Nerdy term: Acquisition cost for new customers (sometimes referred to as CAC, or “customer acquisition cost”) - Expenses that were surpassed by revenue. The bigger the difference between what you spend to deliver your solution and your revenue, the better. Nerdy Term: Margin
- Time it takes for you to convert a potential customer into a customer. Remember, a shorter span impresses the investors.
Nerdy term: Sales lifecycle - The monthly cost of operating the business. It includes fixed expenses like payroll, rent, legal and technological fees, and so on. You basically have to tell the time period until your cash runs out once you’ve been funded.
Nerdy term: Burn rate
Closing
Let’s assume the investors like your idea and are sounding positive about your amazing idea, your team, passion, and your numbers. Can you safely assume you nailed the pitch?
Not just yet!
A magnificent closing is that extra push that you need that’ll crossover the investor from a “consideration” to a surefire “yes.”
So what should be your closing actions?
1. Reiterate
Telling them why now is the time to launch your business. You are basically underlining why you are here today for the pitch. Re-state how your product will swoop in like a superhero and solve your customers’ problem, and how your marketing plan and strategies will help you gain traction.
2. Spell out your funding ask
It is critical to mention how much money you’re asking for and how you plan to use it. Give the top-level overview during your presentation, but make sure you have detailed documentation available in your business plan.
3. Describe your exit strategy
An exit? What?! Investors generally are not going to invest in businesses whose founders don’t have an exit strategy—they really make the majority of their money when your business is sold. Don’t be coy. Tell them what you’re thinking. They want to know that you’re all on the same page.
Summing up
Lastly, don’t forget to have your business plan ready and handy. If the investors are serious about your idea, they will definitely ask for it—and you don’t want to make them wait weeks or months. You’ll lose your chance.
Leave no stone unturned and provide a satisfactory answer—even if it’s that you’ll get back to them tomorrow—to all their queries. The last thing you want to do in an investor pitch meeting is be thinking through details about your company on the fly. Practice your pitch, and anticipate any objections so you can answer them with confidence.
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