Thursday, July 24, 2014

Story 2: Learning to Pitch

Last week I attended two events related to pitching a business idea to potential backers like a VC or an angel funder.

So I would like to quickly recap what I’ve learned to be important so far.

First, I need to pitch my business in both a 30-second and 2-minute version. The first is called an elevator pitch. I cannot do this quite fluidly yet. Can you?

As for talking to investors, short, concise pitches are very important because the longer I talk the more it will confuse people. And also I need to make short pitches to many, many people until a true believer appears.

To make these pitches effective, there are some very important points I’ve learned from these events.

First, many of us are engineers and so we tend to speak in "engineerese." For example, in my specific situation, I can say, “Our business makes access to DICOM images and HL7 information easier by providing REST APIs to JavaScript codes running in HTML5 browsers.” This would work if I am pitching to an audience of mostly Hospital CIOs and such, but if I am going to get money from angels or VCs, none of what I’ve just said will make sense to most of them. They are normally not industry specialists.

Something better might be, “Our business makes access to medical images like CAT scans and ultrasound a lot easier, so programmers can quickly make imaging applications on iPhones, iPads and Desktop web browsers.” This is probably not the best example, but I think it improves the chance of getting more people to understand what I am talking about.

Another important thing I’ve learned is that I have to understand the competition and be able to clearly differentiate my product from others. We all tend to think that our products are so superior and there are no other competitors. That may be the case, but nevertheless we have to be able to deliver the facts, not just guesses.

The next important concept is getting traction. Rather than me explaining this, this web site describes that well (http://www.thepitchclinic.com/investor-pitch/traction-investors-want-it-heres-how-you-show-it). In my situation, I interpret this to mean that I should not be wasting investor money and skidding down a slippery path; hence no traction. Instead, traction seems to mean that they will look to see if we are going to make solid progress in whatever we are developing, and have a good sales and marketing plan, and the staffing to demonstrate it. To this effect, we can demonstrate our progress from week to week to potential investors and customers. These days, we can do that with remote screen sharing easily, and not much time or travel is required.

The investors do not want to fund a project, no matter how clever it appears, that has no clear path to make it marketable and to make money.

Of course the most obvious item to cover is to be able to describe how much money we can make for them and how easily it can be scaled up. In this area, too many people make overly optimistic or broad assumptions like being able to grab 10% of the market, or stating too broad of an answer like, “Any business can use our product.” There is not much fact involved in these responses. All these tend to indicate that you haven't done enough market research.

When pitching the idea to funders they will ask lots of questions. The mistake many people make here is that they do not answer the question straight, or throw a number that requires some math. For example,

(Q) How many customers do you have?

(A) There are about 2 that indicated some interest and one that we will try in August.

That answer should have just been: just one.

(Q) How much do you make?

(A) 10% per transaction.

Perhaps the better answer could have been:

(A) Typically $10 per transaction, which is 10% of the cost and we get 1,000 transactions per day. So that’s $10,000 per day.

Lessons Learned

  • Everything in my startup story must be fact-based, and I should only tell the facts, without speculation, honestly and straight to the point.
  • Many investors do not care how clever your ideas are; ideas are a dime a dozen. They need to get a clear understanding of your plans to make a great return on their investment