Venture Hacks

Summary: Pitches usually fail because they answer the wrong questions. The right questions depend on the stage of your business—for example, some businesses are just getting started with an idea, while others are printing money. Focus your pitch on the key questions for your stage and if you keep getting non-key questions, something is wrong with your pitch. This post includes a hierarchy that you can use to classify your business and the key questions for each stage in the hierarchy.

[Ed: This is a guest post by Eric Ries, a founder of IMVU and an advisor to Kleiner Perkins. Eric also has a great blog called Startup Lessons Learned.]

Every company will need to pitch itself from time to time. Usually we think of pitches in the context of raising money, but that is only one of many pitch situations. We pitch to potential partners, vendors, publishers, conferences, employees, and even lawyers.

Pitching is different from selling a product, because it is not part of our regular business practice, it is not something that relates to our core competence, and it tends not to happen in a repeatable and scalable way. (I’ll exclude those non-lean startups who basically exist for the purpose of raising bigger and bigger sums of money. You’re not one of those are you?)

Pitches usually fail because they answer the wrong questions.

Most of the times I have seen pitches fail, it is not because they are poorly written, or that the entrepreneur lacks passion. It is because they don’t answer the right question.

My favorite example of all time comes from students in an entrepreneurship class. Their idea was to build a next-generation autonomous robot, that could be used by defense and security agencies around the world. The whole pitch was about how valuable robots could be in the future. They even included a slide with The Transformers on it.

Now there was nothing wrong with their analysis: anyone who invents a technology as sophisticated as The Transformers is definitely going to make a lot of money. But these students completely failed to address the one and only question on their audience’s mind: can you three guys really build the robots of the future? (Turns out, they were incredibly well-credentialed graduate students who had, in fact, developed some interesting new robotics technology. But you wouldn’t have known that from their pitch.)

The right questions depend on your business’ stage.

I have come to believe that there is a hierarchy of pitches, and that understanding where your pitch falls in this hierarchy can assist in making decisions about what information to highlight. Pitches that sit higher in the hierarchy tend to be more successful, and if you can fit your company into one of those categories, you can get better results or better terms.

Now, just because you can do a thing, doesn’t mean you should—there are plenty of other great resources, like Paul Graham’s essays, that can help you think through whether and when to raise money (or do other kinds of deals).

With that disclaimer out of the way, here’s the hierarchy of pitches:

1. Printing money.
   Key questions: Are those numbers real? How big is the market? Can your team execute the growth plan?
   Most important slide: Valuation.
2. Promising results.
   Key questions: Can you monetize that traffic (or drive traffic to that profitable destination?) Do you know why you’ve achieved those results?
   Most important slide: Hockey stick.
3. Micro-scale results.
   Key questions: Who is the customer, and how do you know? What is the potential market size? What are the business economics?
   Most important slide: Lessons learned.
4. Working product.
   Key questions: What does the product do? What’s the launch plan? Who’s on the marketing team?
   Most important slide: Live demo.
5. Prototype product.
   Key questions: What will it take to ship a working product? How do you know anyone would want it? Who’s on the engineering team?
   Most important slide: Demo (if the product solves an obvious problem), engineering resumes (if the product is nearly impossible to build), or “a day in the life of a customer” (if neither of the above).
6. Breakthrough technology.
   Key questions: Who owns the patents? Can we make a product out of this technology? Are there any good substitutes?
   Most important slide: Barriers to entry.
7. All-star team.
   Key questions: Has the team made money for their investors in the past? Are they domain experts? Are they committed to an idea in their domain of expertise?
   Most important slide: Problem we are trying to solve.
8. Good product idea.
   Key questions: What kinds of risk does this company need to mitigate (technology risk, market risk, team risk, funding risk)? Is it a revolutionary and novel idea? Is this team the one to back? Can the team bring the product to market? Who is the customer? Who is the competition? Will they fail fast?
   Most important slide: About the founders.

[Ed: Here’s another way to think about the key questions and most important slide. The key questions should describe how you will get to the next stage of the hierarchy. And the most important slide should prove that you’re at the stage you claim to be.]

Focus your pitch on the key questions.

In a pitch meeting, try to spend as much time as possible talking about the key questions for your pitch. If you find yourself getting asked non-key questions, try to use your answers to steer the conversation back to the key questions.

But here’s the most important part: if you keep getting non-key questions over and over again, something is wrong with your pitch. Either you misunderstand where your pitch fits into the hierarchy, or you are not using the early part of your pitch to establish it.

Don’t keep banging your head against the wall—if you can’t convince your potential partners that your startup is printing money, try to figure out why. Experiment with different narratives. If you still can’t do it, move one level down the hierarchy and see if you can make that story stick.