Mention ‘pitching business ideas’ and thoughts turn to episodes of the Dragon’s Den or Shark Tank, where entrepreneurial hopefuls are sometimes eviscerated by their business idols. In the real world, Kevin O’Leary isn’t going to call you names on a stage.
So while pitching your business in real life isn’t going to involve the drawing of blood that those shows do, it can be very nerve wracking. Certainly no investor wants to waste their time, particularly if you’re not prepared to answer their questions. Some of those questions could be very detailed and probing. You need to do your research and have that information at the tip of your tongue, before presenting to the people who can make or break the financing of your business idea.
A sales tip to start
When someone does business with you, they are buying more than the product or service. They are buying an idea. Your product or service solves a problem that they have and that’s why they want it. The two essential keys to selling anything is to have a full understanding of what problem you are solving and what your unique selling proposition is. If you understand those two things, you can sell anything.
Let’s delve into those two items a little bit further.
What problem are you solving with your business idea?
The most important question to address with your business is what problem you’re solving with your product or service. You’re not selling a book, you’re selling the calm a person feels when they curl up with a good story and a cup of tea. You’re not selling yoga classes, you’re selling the sleek lines muscles become when a person does yoga on a regular basis.
Whatever it is you are selling, approach it from the point of view of how you make someone’s life easier and you’ll find customers are much more interested. A great example of this in marketing was an IKEA advertising campaign that blew the competition away. The Swedish giant renamed products based on the most frequently Googled problems they could solve.
Example? A daybed for the spare room was renamed “My partner snores”. The real name is “Hemnes”, but which is more compelling to you?
Some other examples? A candle lantern was renamed “My boyfriend doesn’t see me”. A mattress wedge was renamed “She doesn’t want to cuddle”. Hilarious, true to life problems, fixed with a little common sense.
What is / are your unique selling proposition(s)?
When you know what problems your business is solving, you need to figure out how you’re different from your competition. You need to figure out your unique selling proposition, or USP. After all, if you think about it, most items or services we use have already been invented. It’s about the spin we place on our products or services that makes the difference.
Even the most ubiquitous product or service can have a USP. For example, a local newspaper in a rural community can get leverage from the fact that it is delivered for free directly to homes via Canada Post, as opposed to being dropped at the end of the driveway. Further, community newspapers are not considered to be flyers, so even someone who has indicated ‘no flyers’ will receive the paper. That’s a solid USP relative to other print mediums, for the purposes of getting advertising.
Be clear on what your USP is so that you can leverage it in all your marketing and pitches.
Before you pitch, do more research
If you’ve got a pitch set up with potential investors, you need to do your homework. The better prepared you are, the more fluid, and therefore convincing, your presentation will be.
Research what an investor is going to want to know. The ‘due diligence’ that an angel investor or venture capital group are going to do on your business idea before signing a cheque is what you need to understand so that you can be prepared to answer those questions. Like what?
- What is the volatility of the industry your business is part of?
- Who are the members of your management team and what are their skills and backgrounds?
- How is this business going to monetize and become profitable?
- What’s the competition like?
- What do the current financials look like (invested capital, sales to date, etc…)
- Does this business have a plan for growth?
You need to research the investor(s) before you pitch to them. Why? Because in the same way that you would have a different resume for applying to different types of jobs, your pitch needs to be geared toward the investor that you are approaching. The more you know about them, the more likely you will be to find the angle that works. Research their bios, check out their social media accounts, and do some research on other investments they have made, other businesses they have worked with, and what the outcomes were.
Make sure you understand what drives each of them so that you can adapt your pitch accordingly. A person who runs restaurants and has only ever invested in the hospitality industry might be a hard sell for a business needing funding to open up a tattoo shop!
Part of that research includes anticipating every question the investor might ask and to practice your responses to these questions. If you can answer every objection clearly and smoothly, it shows you’ve thought about it! Past presidents have done this before a major press conference, so you should too!
How to prepare your pitch
How you pitch will depend a lot on who your audience is and how long you have to make your presentation, but these points will apply in some form to most any pitch you make:
- Prepare yourself. Investors are putting their money and their faith in you, as well as your business idea, and the impression you make is half the battle. They want to know that you know your stuff and can think on your feet. So get ready to BE ENTHUSIASTIC, perhaps even more than you would normally be. Enthusiasm is catching and you want the investors to catch it!
- Dress to impress. Have you seen the ad on TV for dryer sheets with the guy with the wrinkled shirt facing stoney faced investors? That’s you if you don’t spend some bucks on the garb! That said, your look should be industry appropriate. If you’re a chef, wear your whites. If you’re a contractor, wear your boots and hard hat. Just be tidy, neat and clean and you’ll make a good impression.
- If you feel that you must use slides in a PowerPoint presentation (and really, you shouldn’t), don’t be reading them or cue cards throughout the pitch. You need to be able to reel off the data about your business and your plan. That said, visual presentations and even better, interactive presentations, are a big hit. If you have a product, you need to have it set up or have it available for investors to touch or experience for themselves. This kind of presentation is usually far more compelling. “The duration of exposure to an item will foster increased pre-ownership attachment to an item and increased valuations in a manner similar to duration of actual ownership. “ SOURCE
- Use storytelling but don’t overdo the back story by sharing with investors five minutes worth of irrelevant information. Make an emotional connection with the investors, in the same way as you will with your future customers. It’s more compelling than a recitation of facts and figures. People tend to purchase from emotion, rather than logic. They will often rationalize a purchase that they ‘love’ with the right numbers.
- Give the investors the top 5 essential key points about your business idea, not the 20 year sales forecast. If you haven’t been given a time frame, your pitch should be 10-15 minutes at most. If you were given a time frame, come in under that limit. You want to allow time for questions. The point is that you need to have your key points down COLD:
- What is your product / service? Use your elevator pitch here. And include why your team is the one to execute the plan you’ve put together and why this investor should be involved, which proves you did the research on your audience.
- USPs for your product / service.
- Who your target market is, in as much detail as time allows, and how you intend to reach them.
- Your revenue model. Is your business scalable moneymaker or will it forever be a cottage industry? Know your financials and be accurate. Exaggerating about the profits to date or projected sales to inflate the appeal of your business will only be discovered down the road and you’ll look very bad. Know your metrics including your costs. For example, customer acquisition cost (CAC) metrics. Knowing how much it’s going to cost you to acquire customers is key to your profits. Make sure you know these figures inside and out. (SOURCE) If you have sales, talk about them! Existing sales and growth models are compelling! A story is great but if you can’t back up anecdotal elements of your business with real facts and figures, it’s going to be hard for an investor to see the value and more importantly, how they will gain by investing in you.
- Growth plan / exit plan. This last point is one that so many entrepreneurs overlook. Will you IPO, will you franchise? How will the investor get their money back plus profits and in how much time. What’s the ROI for them?
- Practice your pitch so that you stay within your / their time limit. If they’ve given you 15 minutes, don’t take a minute more. Make sure your pitch is well paced, moves along and doesn’t stagnate on any one point for too long. Then practice it again. And then again in front of humans: your dog won’t make many objections. Film yourself to see what you look and sound like and work on getting rid of your placeholder language (ums and aws are distracting). The more comfortable you are, the smoother your delivery and the more effective you’ll be.
- Don’t leave the room without a ‘next steps’. If the investors don’t say no or aren’t prepared to give you a conditional answer, find out what’s next. Ask for feedback if none is provided. Be open to what they have to say. Even if they say no, you might learn something you can use next time.
Common errors entrepreneurs make when pitching their business
- Your presentation is unstructured to the point that the investor doesn’t understand what your business is, even 10 minutes in. If this happens, they will have lost interest and you’re out before you’ve even begun.
- You get defensive in the face of all the questions. It may seem like you’re being attacked, à la Dragon’s Den, but you’re not. It’s not personal. The investors want to see that you know what you’re doing, and they want to test your mettle, so to speak. They want to know that you can handle anything thrown at you. If you lose it at the first poke, they’re not going to see you as a business person worth investing in because YES, they’re investing in the product / service, but they’re also investing in you.
- You are giving the investors too much backstory and detail so that the salient features of why they should invest are lost. That said, if you make a claim about your product or service, you had best have a clear and concise plan as to how you’re going to fulfill the plan. Grand statements with no meat won’t work.
- You don’t know anything about the person(s) you are pitching to. That’s like going into a job interview not knowing anything about the company you’re applying to. It’s a big no-no.
- You’re not prepared for tough questions. You love your idea but you have to see it from the point of view of someone who is going to be spending their money on you and your idea. What will they need to know that will make them feel comfortable investing? They’re looking for the holes in your plan. Find those gaps first and fill them.
- You don’t stick to the time frame allowed for your pitch presentation. If you can’t get this right, why would they invest their money in you?
- Don’t make statements that are patently untrue. You look at best unprepared and, at worst, totally deluded. A big one that many investors see is entrepreneurs saying that there’s no competition for their business. Just because they might be different from your doesn’t mean to say that they aren’t competition to you. This is the kind of false statement that will make you look either clueless or totally arrogant. Instead, acknowledge the competition but identify clearly how you are different and why that difference matters. It’s okay to acknowledge a negative. In fact, it makes you sound very aware and clear. Don’t dwell on them though.
- Forecasting growth with no figures to back that up. Announcing that you plan for the company to have $1 million in net sales by the end of the year is great but if you can’t back that up with facts, like booked sales, etc, you are blowing hot air and investors will see it.