5 Lessons from 150 startup pitches

I just reviewed several hundred startup pitches for Capital Factory. Most were on paper and video; 20 were invited to pitch in person.

three little pigs

Interesting patterns emerged:

  • Everyone makes the same classes of error.
  • Those who avoided just one of those errors stood out in the crowd.
  • These are problems with the business concept or the founder’s attitude, not specific to raising angel money.

You’re probably making a lot of these errors too.

Not that I blame you! After all, these became clear to me only after seeing hundreds of applications; you don’t have the luxury of that perspective.

So for the next few weeks I’m doing a series on these mistakes and what to do about them.  This post serves as a hyperlinked table of contents.

Here’s the list:

  1. Invalid competitive advantages
    “Superior SEO” and “unique features” are not competitive advantages.
  2. Lacking an unfair advantage
    You need one killer advantage that no one on Earth can beat you on. (‘Cause you might get beaten on everything else!)
  3. No one said they’d buy it
    You don’t need statistically-significant studies before you begin, but it’s astonishing how many founders blaze ahead before they’ve found even a single person willing to give them money.
  4. Incorrect positioning against competition
    The two faults here are opposites: Believing that uniqueness means competition doesn’t exist, or defining yourself by the competition instead of constructing your own message.
  5. No significant route to customers
    If your marketing strategy is to run A/B tests and build RSS subscribers, you’ve already lost.

There’s also this list, equally common but I didn’t feel the urge to write an entire blog post on each one:

  1. Unable to describe the company in 60 seconds.
    We’ve all heard of the elevator pitch, but when asked to produce it almost no one succeeded. This is important whether or not you’re raising money because it means you understand your customers and why they buy your stuff.
  2. Building for yourself instead of the market.
    “Scratching your own itch” is how many great ideas begin, but it’s not a business strategy. Often you assume your customer is the same as you — sees the problem the same way, wants to solve it your way, and wants to pay for it. But you’re explicitly not like your customers; for one thing, you have enough initiative and insight to quit your job to start a company. It’s easy to let your idiosyncratic preconceptions prevent you from observing what the larger market will accept.
  3. Pretending your faults don’t exist.
    You have all sorts of shortcomings: First startup, inexperienced, ignorant about how “sales” works, buggy software, whatever. None of it’s a problem if you’re willing to acknowledge and cope with it, but if you persist in lying to me and your customers about it, that’s a problem. (And a lie by omission is twice the lie.)
  4. Don’t know what you don’t know.
    I don’t care that your resume doesn’t prepare you for a startup — mine didn’t either! But if your answer to any question is “How do I know? I just do,” then I know right away you’re not only ignorant but incapable of fixing that ignorance. How do I know this will result in your business drifting aimlessly until you finally run out of money? I just do.

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  • http://www.helengregg.com Helen Gregg

    I know a lot of people talk about the ‘elevator’ pitch.. i.e. if you can’t describe it in the amount of time it takes a lift to get to the ground floor then there’s a problem.

  • http://www.loopycode.com Edan Maor

    I’m looking forward to the articles.

    I’m especially interested in #2 (Lacking an unfair advantage) and #3 (No one said they’d buy it). I guess you’ll answer in the article itself, but I’m wondering how long you expect to build a product before getting a customer. After all, there are a certain class of programs for which you *can’t* get a customer without building some prototype (or am I mistaken?)

    • http://blog.asmartbear.com Jason

      Every time I’ve talked to someone who insisted they needed to built the product before getting customer validation, it’s turned out not to be true.

      Think of it this way: You’re at a party, and you happen to be talking to exactly your perfect target customer. You should be able to chat about it for 30 seconds and get their interest, and 5-15 minutes after that when they realize they are interested, right?

      That’s what it’s like getting customers before you have a product. Except you get to use other props like mock-ups and designs and focussed conversation.

      If you can’t get people to do that, why will they be super excited just because you have a web app?

      • http://www.loopycode.com Edan Maor

        How does this work in a B2B product? I don’t tend to meet small business owners at parties, and even if I explained the product, I’m not sure what kind of feedback I can get other than “Sounds nice, let me know when you can show me something”.

        • http://blog.asmartbear.com Jason

          If the person you’re talking to isn’t a potential customer (for the sales pitch) or an investor (for the investor pitch), why would you expect them to ask to be shown it? And why would you want to show them anyway?

          Still, even technical B2B products can be described to laymen, just using analogies. For example I describe Smart Bear’s software code review product Code Collaborator like this:

          “Software developers review each other’s work just like authors and editors of books and articles. Just like Word has “track changes” and “comments,” we make a similar tool which integrates into the tools software developers use, plus we add in metrics, reports, bug-tracking support, and other things needed with more formal processes.”

          • http://www.loopycode.com Edan Maor

            My question wasn’t clear. I meant to ask, assuming you have a B2B product, how do you fix the “No one said they’d buy it” angle?

            Let’s say I have an idea for a product, aimed at small businesses. How do I know whether they’d buy it or not without showing them a working demo?

            • http://blog.asmartbear.com Jason

              Same answer! Still should be able to express why it’s exciting, who would buy it, what pain it solves, etc., without having the product.

              Agreed they won’t actually give you money yet! But you should get to the point where they say, “If you built all this, I want to see it, and if it does what you say, then theoretically yes I would pay $100/mo for it.”

            • http://www.salesways.com Chris Hamoen

              This is a common issue with many new entrepreneurs – you believe that in order to sell, you need to have a working, operable demo.

              Not true. Mockups are nice, but you can start selling even earlier. Find a SMB (or 10!) and ask them for their time to review your plans. Say you’ll have a beta program (or early adopter program), and they’ll receive special pricing (NOT FREE). Ask for their input as you go along, but stick to your vision while remaining flexible.

              Most techy-types can’t imagine why anyone would be interested in buying something that doesn’t even exist….but if that were true, why would investors put real cash into it either?

              Sell the vision!

            • mahboud

              Ultimately you are selling to a “pain”. If the listener has a pain that what you are describing will resolve, then they will endorse you without a demo, and even talk to VCs about how great your idea is. If you are selling the solution to a non-existing problem, then maybe a demo is what it will take to get someone to consider whether they have extra money to blow this quarter on something they don’t need.

              Go look for a real pain before you worry about having a demo ready.

  • jeteye

    Wow, it is incredible how simple this list is but how often people still refuse to abide by it. Just be realistic about these and your chances of success increase exponentially.

  • http://blog.virtacore.com Scott Simko

    Nice list IMO, I think most people who pitch are too close to their idea. In that I mean they need to pitch it to someone they don’t know to get honest feedback. Yes, this can be tough and if you can’t find someone to pitch to , I’d recommend pitching yourself and recording it. Then listen to yourself and see if a 6th grader can understand your idea, the tax code isn’t written at a low level for no reason (remember the people you are pitching often have no idea about the details of your market).

    My formula for a 60 second pitch would be:

    -Brief comparison of what you are, i.e. social media + flickr and how you are different
    -Brief explanation of your business model (how do you make money?)
    -Brief explanation of your team (experience), who codes?
    -If you already have people paying for your service you must mention
    -If necessary your market size
    -Leave them wanting more

    Hope this help, best of luck
    @scottsimko

    • http://blog.asmartbear.com Jason

      I love all these ideas, from the problem of closeness to the ways to solve to the key elements. Thanks for contributing!

  • http://www.hypedsound.com Jonathan Jaeger

    “Building for yourself instead of the market.” This is true, but in the same light, you should build something that you would want to use yourself. If you don’t want to use your product personally, there’s little hope for you to sincerely convince others to do so.

    • http://blog.asmartbear.com Jason

      I agree — all of my companies (including a new one to be announced shortly) came directly from something I wanted myself.

      Unfortunately most people figure that’s the end of the story, when it’s actually just the start.

      (More on this in future articles.)

      • http://www.kobayashi.ca Brent Kobayashi

        Jason, I think this is perhaps one of the most important of your points. Looked at another way, ask yourself why are you creating this product/company? If it’s to prove yourself right, then there’s a good chance you aren’t going to head in the right direction.

        I suggest you try very hard to prove yourself wrong. Think of all the questions that might prove yourself wrong. I think most likely you’ll discover that you were at least somewhat wrong – but now are more right having gone through the exercise.

  • http://www.deepshiftlabs.com/dev_blog/?lang=en-us Igor Kryltsov

    1. “Unable to describe the company in 60 seconds”
    I would call it “Unable to describe business or venture or project in 60 seconds”. May be people pitching you are always 100% business=company but this could not be always the same to me. Everyone knows elevators were created to pitch business ideas not to describe companies :)

    2. “Building for yourself instead of the market”
    This is because it is a lie, to me. If you are building it for yourself you need it regardless and you evaluated time and value of doing it for yourself. You do not need money if you are truly doing it for yourself (and your customers, suppliers etc.). ‘Built for yourself’ guys should come up with fully working system, I guess. Don’t they?

  • http://tabbles.net Andrea D’Intino

    Great article – as usual… :-)

    One question: your definition of “startup pitch” would be:
    1) a pitch to a potentianl investor (only)
    or
    2) as well a pitch to a potential customer
    ?

    …any difference among the 2 you would highlight within a line or so? :-O

    (thanks!!!)

    • http://blog.asmartbear.com Jason

      Great question.

      It applies to both pitches, but those are rarely the same pitch. Ways they differ include:

      • customers want pain solved or pleasure gained whereas investors see that as the means to an end (success business) and need to understand why this is a business
      • investors want to know the market is big; customers don’t care whether it’s built for 100 people or 100 million.
      • your goal with a customer is to get another 2 minutes to talk about whether they’d buy it, whether it’s a fit for their personal situation, whereas your goal with an investor is to get another 2 minutes to get them excited about the entire opportunity.

      Of course there can be a lot of overlap, but the goals are different. So for example, a customer may or may not care about “the team” depending on whether the team actually helps them (e.g. you’ve retained a celebrity expert they’d recognize), and same with an investor (e.g. one of the founders is a repeat-entrepreneur).

  • http://cl.o.se thruflo

    I’m reading Steve Blank on Customer Development — http://www.amazon.co.uk/Four-Steps-Epiphany-Steven-Blank/dp/0976470705 — right now, so your “customer validation” points seem very familiar. One thing that stands out as an ‘in-book’ reader of what I understand is a seminal text in this area is that you make no mention of what Blank calls Market Type.

    I’d be willing to bet that if your snapshot made those mistakes, they also tripped up on which market they were in and what that meant to their business model validation and sales and marketing processes.

  • http://vermorel.com/ Joannes Vermorel

    Excellent list. I also confirm that most start-up talks fails against this checklist. Yet, #2 does not seem realistic to me. First, if you have an unfair advantage – most frequent case being bizarre national regulations of some kind – then you’re not seeking funds, and certainly not taking part to startups stuff. Second, in technology you can nearly always be crushed by big competitors. If Microsoft/IBM/Google decide to spend each $1B to compete against you, you’re pretty much out of luck. Yet, those large investments also turn out to be pretty rare, and this aspect become risk analysis.

    • http://blog.asmartbear.com Jason

      I very much disagree on both points.

      “Bizarre national regulations” is not even on my list of powerful advantages. I’ll back that up with the detailed post on that topic which describes in detail and examples what does count. Hint: Joel Spolsky doing StackOverflow is an unfair advantage.

      “If [big company] decides to compete, you’re dead.” The world is chock-full of companies who compete directly against the companies you listed, so clearly that’s not true. To defend this point is more detail, please see this post specifically on that topic.

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  • http://www.thricearoundtheblock.com Edwin Oh

    I think the 60 second pitch is the acid test of whether you’ve got your positioning, value proposition, and differentiation down. Rule of thumb I use working with clients and students is “60/60″: 60 words or less in 60 seconds or less to describe what you do, the value to your customer, and why you are different. VERY, VERY hard to do well.

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  • http://www.smacksmog.com/blog Steve

    I love the article. It has really great common sense advice that I think so many people crave.

    I help people with small or under-performing business increase their goals by utilizing Social Media and more specifically by writing blogs. The 5 lessons that you write about are all great “talking points” that anyone can implement in their websites.

    Thanks for a great article.

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  • http://www.cygnismedia.com Ahmed

    Excellent topics you’re dealing with here Jason. Out of curiousity, did you also make one (or several) of these mistakes when you were first starting out? If not, how did you get the knowledge to avoid them?

    • http://blog.asmartbear.com Jason

      I sure did! Most of them, I think.

      I learned the hard way — by screwing up, losing revenue, and for a while always being on the brink of going out of business.

      Also by growing much slower than I otherwise would — it took me more than 2 years before I was supporting even one other employee.

      Some I did avoid by reading certain bloggers, e.g. Eric Sink’s excellent marketing articles for geeks. But a lot you just have to live through of course.

      And some of it’s luck. Some of my mistakes would have been fatal if not for something else, e.g. a specific person at a specific customer site who put up with crap.

  • http://nextgencrm.blogspot.com/ Ami Assayag

    My biggest pet peeve is that many founders don’t ask themselves hard questions – and when you as an investor ask these question, they make statements that don’t really answer the question or insist that there is no problem. I believe that you need to be your own devil’s advocate to increase your chances to be successful.

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  • http://yournetbizmentor.com Dean

    Just carry on from one of the other comments made about using the product yourselve.
    for a sales pitch you need to be 100% behind the product, and being able to explain the pro’s and con’s under pressure, market research is a must, find out who’s your competition online and offline and how you can beat them.

  • http://www.acuara.net steven davis

    Elevator Speech:
    I have a means of manufacturing solar panels that is not only six times faster than the prevailing method, it also warranties full solar cell life without caveat or condition, and, as an added bonus, is fully recyclable at the end of its life with very little, if any, energy spent in preparing the panel for recycling. Interested? Send an email or call me on my cell, 951-505-1381.

  • http://www.greenway-pest-control-utah.com Nate Harker

    This is funny to me… I just finished participating in a business plan competition at my university and the panel of investors ripped teams’ ideas apart because of flaws like you’ve mentioned.

  • http://hobbiesformen.net Gerry

    You really hit the nail on the head with this one. I have given numerous pitches to VCs and private equity funds and the points you raise are right on. Getting the pitch just right is critical. I’ve also sat on the other side and listened to dozens, if not hundreds, of funding pitches and the ones that stand out hit most of the points you make.

    Well done.

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