What Makes a Bad Pitch?
I have heard a lot of pitches over the past couple of months. At the end of every single one, I have had a different reaction. Depending on a variety of factors, I fluctuate between “woah, that was really good” and “woah that was horrendously bad”. Of course, frequently, my initial reaction can be chalked up to the presentation skill of the pitch-maker. So I always try and distill my reaction down to the idea. I always end up asking myself - is that a good idea?
Of course, there need to be some parameters set up here to better understand the question. What I am really asking is “Is that a good business idea?” and “Is this a fund-able project?”. There are a lot of things that are great ideas, but don’t really make sense for venture capital. For instance, you might want to start a dog shelter or a soup kitchen - those are great ideas, but it probably wouldn’t make sense to invest venture capital money into them. What a venture capitalist is really looking for (at least, what this venture capitalist is really looking for) is a business that is going to expand at a high growth rate and make a profound impact on their respective communities.
But even that definition is extremely broad when you start to think about it. And if you factor in the realization that most oft-recounted VC ultra-success stories involve companies that are breaking into markets that barely exist, it becomes extremely hard to realize what a high-growth business really looks like. The super-successes of tomorrow never look exactly like the super-successes of today.
So there are a handful of questions I always ask myself to make sure that I start thinking about the pitch in the right context:
Does it actually solve a problem?
There are a lot of people who come up with a solution before they realize a problem even exists. From there, they try and retrofit their nifty gadget or product into a problem that seems to be pretty big. The problem here is that is way harder to accomplish than the other way around. This isn’t to diminish a product pivot, but that normally happens after the Company has some traction toward the pivoted market.
Does it actually make money? Does the business model make even remote sense, today or in the future?
There’s an old phrase out there that says “you can sell a lot of dimes at the price of a nickel.” Growth for the sake of growth is normally a bad thing. Does this idea have a path towards profitability and is that path realistic (or at least only require a handful of small miracles)? This is one of the big reasons why a potential investor asks an early stage company for financial projections - to better understand the future business model and to make sure the entrepreneur understands the future business model. The chances of the business model changing are pretty high, but having a plan in place shows forethought and understanding that an entrepreneur isn’t just doing something cool - they are starting a business.
Can this product be sold into the intended market at all? With relative ease?
Sometimes the reason that a problem exists is because there is no one who is willing to pay for the solution. Alternatively, sometimes the problem exists because the entity charged with purchasing the solution has difficulty doing so. A long sales cycle can break a startup, especially if it is not recognized early on.
What sort of advantage does this company have? Are there any advantages other than, “I thought of it first”?
Being a first-mover is not the worst thing on the planet, but it certainly doesn’t guarantee success. And having great, protected technology is not necessarily a surefire route toward economic accomplishment. But having a clear advantage should be evident, even from the first pitch. One of my favorite advantages is having a non-repeatable business model, like when the incumbent cannot do the same thing as an entrepreneur because that would bust up their existing business model.
Does it take a ton of capital to get off the ground?
If a startup requires a minimal amount of capital, that’s a good thing for an early stage investor. Less capital intensive businesses mean less dilution for founders and investors and an easier route toward success (generally speaking). But saying yes to this question doesn’t mean an idea is bad. Much like question number , having a firm understanding of this issue is what matters - if the path toward venture success exists and is believable, that’s what matters.
Do I want my name associated with this idea?
This is a bigger question than some might assume. In VC, there are a lot of failures. Failure is basically a default state for a lot of companies. It’s all about the constant struggle of moving out of failure into sustainable success. With this high frequency of failure comes diversity of how failure is achieved. Something not working because there is no product-market fit is fine, even laudable. But something not working because of fraud, deceit or contempt can cast a pall over the reputation of a VC. Being associated with a malcontent can be bruising in an industry that require high levels of character judgement and analysis skills.
There are a couple of core themes within each of these questions to keep in mind. The first is understanding how much thought an entrepreneur has actually put into a business. The more they have researched and gamed-out their business plan, the more likely they will be to answer all of these questions. Another them is that if the pitching-company already has customer traction (and that traction wasn’t a miserable process to attain), then it solves a lot of problems. Having a customer contract in hand speaks volumes.
Now that list is just a place to start. I am sure that there are plenty of other great questions that investors ask themselves when hearing a pitch. I am very interested to hear about those as well. The biggest question I have, however, is probably also the simplest to answer: are you actually taking action on this proposed business? Have you actually done more than just put pen-to-paper? Is this a real business or just a fantasy.
If you want to really make a good impression, talk about the actions you have already taken to move toward success. No good business ever got off the ground without a little bit of sweat equity and elbow-grease. The real key to a good pitch is have a good business to pitch about.