“Pharaoh's Magicians” and the Business Case Presentation

My last entry was about a character you run across in the business-case pitch setting: Dr. No.

“Pharaoh’s Magicians” are another beast in the menagerie.

Most of us know the story of the Exodus, where Moses led the Hebrew slaves to freedom in the Promised Land.  Great story.

But when Moses first pitched liberation to Pharaoh, he tried to impress Pharaoh with his technology.  He threw down his staff and his staff turned into a snake.

Pharaoh turned to his house magicians, and they said, “Oh, that’s nothing.  We can do that.  In fact we already have.”  And they threw down their staves, which also turned into snakes.

That’s the enemy: an in-house group who not only can do what you can, but have done it already or could do so in two shakes of a lamb’s tail.

What Pharaoh in our business world wants to entrust a new project to an untested outsider when the in-house crew, whose warts, after all, one knows, says they can do the same thing?

That is the basic pitch of Pharaoh’s Magicians: better the devil you know than the devil you don’t.

Unfortunately, it might not be true.  The devil you know may well be worse than the devil you don’t, particularly if the situation calls for agility, nimbleness, or speed.  The in-house magic shop absorbs quite a bit of resources and has a long latency.  Just think of the application backlog in your IT organization.

The Bible tells us the proper response to Pharaoh’s Magicians: Moses’ snake ate the magicians’ snakes.

Best thing: a key benefit that the business organization needs which can only be delivered by your stuff.

“Dr. No” and the Business Case Presentation

If you have ever made a business case within a large organization (in fact, if you have ever tried to make any kind of presentation to a large organization) you will have run across Dr. No.  He or she is everywhere.

When I was a geek working in some large organizations, I would occasionally get called in to presentations, either by fellow geeks or by third parties.

My gut assumption was that I was being called in to sneer at something in the presentation.  Why else would they pull me from my terminal and bring me into a conference room?

I was a Dr. No:

• “No, that won’t work; we tried that three years ago and go nowhere.”
• “No, those guys can’t do it.  They don’t have the right pedigree/headcount/technology stack”
• “No, it can’t be done.  It’s NP-complete/violates the Second Law of Thermodynamics/Moore’s Law”
• “No one wants that.  Our customers are asking for the very opposite.”

(The last one is kind of rich, since no one ever accused geeks of caring too much about customers (although many of us do).)

Dr. No’s are dangerous, because they do have the ear of their management, and it is often the case that management has brought them in, like attorneys, to find problems and flaws.  But they can be neutralized or even won over.

The first order of business is to understand the psychology of the Dr. No.  Why does he assume he is being brought in to sneer?

The main reason is low self-esteem.  She can’t imagine that any exec would have her in a meeting for her opinions.  After all, her opinions are insignificant.  The only possible motive for having her there is to find fault, and the only way to impress the execs is to find every possible flaw.

The situation is complicated by the fact that execs indeed often do want Dr No’s to find fault.  But, like attorneys, they want to find the real flaws, not every possible flaw.  They want, ideally, for Dr. No to exercise some judgment, to give a thumbs-up or a thumbs-down based on the balance of flaws and virtues.  They want, in essence, a business partner with a specialist point of view.

This analysis provides the key to handling the Dr. No: make him feel like the business partner he should be, and he will be an ally instead of an enemy.

Easier said than done, you might say.  But it’s straightforward:

• Excite her (technical) greed.  There is no geek who doesn’t love cool tech stuff.  Get her excited about something in the approach, or, better, let her think that her group or team can do some of the cool stuff in the approach, and you will have won half the battle.
• Treat him as if he were a business partner.  Ask his opinion about the business implications of the idea.  When the exec opines on something, as Dr. No what he thinks or feels about the same thing.  Find something in his background with a business or business-case angle and use that information to slant something his way.  If you’re in the same organization as the Dr. No, this information should be readily knowable.

An adroit combination of these two approaches will have most Dr. No’s (Dr’s No?) eating out of your hand.

Fear and Greed in the “Geek/Suit” Use Case

We have discussed this a bit in posts here and here, but maybe bringing some of the points together will help us understand the fear/greed topic as a whole here.

The main fear for non-geeks in a business-case setting is we will piss away a lot of money on some scheme I don’t understand and it will cost a billion times as much as we thought and take a billion times longer and it still won’t bring about the business results we want.

Cost and time are of course intimately related in a software project and closely coupled in other geek ventures, but some references in the presentation will exacerbate them:

• Advanced technology.  As my old Theory of Computation professor put it, “if you went onto an airplane and they told you they had just replaced all the software on the plane with new versions, wouldn’t you want to get off?”  Nothing excites Fear like bragging about advanced technology, and whereas geeks frequently want to talk about it, it’s the kiss of death in a business-case pitch.  Stress tried-and-true technology.
• Agile.  Any reference to new processes can ignite Fear, but Agile – in big business settings – is sure-fire to do so.  Why?  Because the suits know damn well your team isn’t agile: after all, they work for BigCorp,  don’t they?  The promise of Agile – more control over the project – seems contrived.
• Huge, dispersed, or multi-headed team.  Maybe this ought to excite Fear more than it does, but it is Fearful enough for those who have experienced the miraculous schedule-killing effect of a complex team.
• Multi-year timetable.  The chance that anything will come in on time over multiple years is negligible.

And of course, the Fear-inducers with respect to ultimately getting the right results:

• Working Closely with Sales.  Sales is a fickle project manager.  Sales people are notoriously attracted to Bright Shiny Objects and a business project whose guiding star is some group from Sales, or close coordination with Sales, is doomed to mission creep and an ultimate product with a billion features and no integrity.
• Market Research.  Another Fear-inducer about quality of ultimate results, mainly because it’s hard to find honest helpful market research; most of it acts like a mirror, telling you that you are the fairest in the land.

What Is Not of Interest to Suits (Generally Speaking)

• Discussion of technical risk.  As the sorry story of the Obamacare website debacle unfolds, one can only imagine the yawning, fidgeting with gizmos, and other signs of audience uninterest that greeted the tech team’s feeble attempts to discuss the tech risks of the project at the outset.  Suits hate to hear any details about technical risk: all they want is the geeks’ assurance that tech risk will be manageable and will be managed.
• Discussion of technical merit.  As with risk, so with merit.  Suits don’t want to hear what approaches are preferred, and why.
• Discussion of Schedule/Budget risk.  The one thing that is sacred in the Obamacare discussions is the immovability of the end date.  One of the first big software projects I worked on as a programming professional had a delivery date of April 1.  No one saw – or at least admitted they saw – the irony of a project end date of April Fools’ Day which, as early as January of that year, we all knew was completely unachievable.  Yet we solemnly swore that 4/1 was written in stone until the week before.

All this is quite a change from the investor presentation setting, where most of the questions from potential investors revolve around risk and reward (although here, too, the discussion is almost never very technical).

Is There an Argument for a Framing Slide in a Business Case Pitch to Suits?

In an earlier post on raising money from investors, I argued for the importance of a “framing slide” at the beginning of a presentation to help your audience situate themselves within your pitch.

Is there the same argument for a framing slide in business-case pitch to suits?  And does the slide contain the same bullet points?

Yes, and no.

Yes, a framing slide is good in a pitch like this, and for the same reason: It shows respect for your audience, understanding of what questions will be on their minds at the beginning of your presentation, and a promise to answer those questions.

But, no, the questions on the mind of a business-case audience are not the same as an audience of potential investors.

A group of suits hearing a geek pitch a business case are not generally investing their own money, or even the money of limited partners.  They are spending out of a budget or hearing an argument to lobby for budget.  Therefore the budget and use of funds, although important, is perhaps not as important as the investor pitch.

What business-case investors care most about is:

• Whose turf is affected by the proposed initiative?
• How will that stakeholder benefit or suffer?
• What are the bona fides of the team making the case?
• What argument can be made to my superior in favor of this business case?

(Not an exhaustive list, perhaps, but one that stems from an attempt to get into the mind of the audience.)

The core insight here is that business cases within a large organization have much more to do with turf than with ROI.

Make no mistake, a business-case pitch will need slides on budget and slides on ROI (perhaps lots of them).  But the essential first slide is all about the politics.

Classifying “Suits”: Early Adopters and Early Majority

Geoffrey Moore of “Crossing the Chasm” fame is often misunderstood on the topic of Early Adopters and Early Majority.

Moore actually has three kinds of early customers: Innovators, Early Adopters, and Early Majority.

Most of us confuse Early Adopters with Innovators.  When we meet a visionary customer, we wrongly assume they’re an Early Adopter.

What’s the difference?  Innovators love technology and innovation for its own sake.  They want one of everything to play around with.  Innovators are essentially indifferent to the business value of an innovation.

Early Adopters, on the other hand, care about the business value of innovation.  They are willing to take a risk on an innovative technology approach, but they are doing so as a calculated risk in order to gain a business advantage.  Early Adopters see the business advantage of an innovation and accept the risk of using it in order to reap the business reward.

And, finally, Early Majority customers want to “let Joe drain out the risk.”  They don’t want to take chances with new technology until they believe everyone else is doing it and they are in danger of being left behind if they don’t.  Early Majority customers wish that innovation risk would go away.

Within the organization, then, geeks are likely to comprise mostly Innovators and Early Adopters.  And suits are likely to comprise mostly Early Adopters and Early Majority (as well as Late Majority and Laggards, but those are topics for another day.)

The business value of an innovation and the unvarnished risk associated with it are the two things Early Adopters want to be crystal clear about.

The business value of an innovation and the strong hint that everyone else is already doing it are the two things Early Majority want to be crystal clear about.

It’s possible to speak to both of them in the same pitch, since Early Adopters don’t care what everyone else is doing (much) and Early Majority don’t listen to blah-blah about risk as long as they see others taking the risk.

Why Marketing and Engineering Don’t Understand One Another

The inner workings of the tension between Marketing and Engineering are similar to the tension between management and tech staff discussed in my last post.  Similar, but different.

Safe to say that the two don’t understand one another, but the twin elements of unpredictability and needing one another are absent.  And there is a new element: Marketing and Engineering each think what the other does is magic.

Let’s take these one at a time:

• Unpredictability.  Marketing and Engineering don’t trust one another, but that’s not the same as finding the other unpredictable.  “Those weasels from Marketing, they always do this.”  “You know Engineering will throw up their hands.”  We know what the Other is going to do, we just don’t like it.
• Needing One Another.  Management wishes we believed we need one another, but in fact neither of us is giving the other a paycheck or the wherewithal for a paycheck, except in a very abstract and attenuated sense that makes no impact on our feelings for one another.  Part of the very tension between the two stems from the fact that there is no urgency to try to work with the other side.  We can fold our arms – and do – and wait for steam to come out of their ears.
• Magic.  Probably the most interesting of these points.  Marketing has no idea of how software or hardware or even physics works.  To them, everything Engineering does is essentially magic (per Arthur Clarke’s Law #3: “Any sufficiently advanced technology is indistinguishable from magic.”  And, on the other side, Engineering has no idea of how to persuade markets to value or like things; the idea of persuasion in Engineering is that you present your listeners with a fact, and, if they are agree, they are persuaded.  The methods that Marketing uses to involve markets emotionally are magic to Engineering.

One consequence of the “magic” problem is that neither side knows how to assess a promise or a caution from the other side: “We don’t think we can make that schedule” (Why not?  Why not just add more magic?), or “We can’t sell that to soccer moms” (Why not?  Just use your Jedi Mind Tricks on them?).

Understanding the source of the tension between the two groups should help us to talk to one another and, hopefully, break through.

What is the Source of Tension Between Management and Tech Staff?

A first way to approach the divide between geeks and suits is to understand the nature and dynamic of the tension between management and tech staff.

For my money, the heart of it is we need one another but don’t like one another.

From the geek point of view, management is unpredictable.  When you say something to a suit, you have no idea what you’re going to get back: it could be a pat on the cheek; it could be a knife in the back; it could be flattering praise; it could be a curse and a blow; ultimately, it could be a pink slip.

What’s to like for a geek about a system whose output isn’t predictable – or at least understandable – as a function of your input?

But it’s a system that we need.  The pink slip says it all: management controls access to food, clothing, shelter, self-actualization, and self-esteem.  So your whole Hierarchy of Needs is in the hands of a lunatic.  That’s the geek point of view.

Strangely, management thinks of geeks almost exactly the same way.  When you speak to them, you have no idea what you’re going to get back: a smile; a snarl; a great demo; terrible news about a slipped schedule or a new tech obstacle.

What’s to like for a suit about a system whose outputs aren’t predictable from your inputs?

And, it’s a system that we need.  Without the geeks, the Morlocks of modern industry, management can’t get food, clothing, shelter, self-actualization, or self-esteem.

Both sides find the other side unpredictable and incomprehensible.  That’s a recipe for some touch Solution Pitching.

Features vs. Benefits

The core shortcoming in a “geek” presentation attempting to make a business case is surely touting features rather than benefits.

A feature is an attribute of the solution under discussion.  It’s one of the things a solution can do:

• “The new JetEdge can achieve speeds of up to Mach 20”
• “The T_g of the material is 1200 degrees C.” (thanks to Jack Lesko for that one!)
• “We have achieved latencies of down to 2 ns”

The problem with features, of course, is they’re inside out.

People who are deciding on the merits of a solution don’t care what it will do (even if they say they do); they care about what it will do for them.

What a solution will do for a potential solute (is that the right word lol?) is a benefit, and benefits are what a presentation should pitch.

• “The JetEdge can get you to London before you left”
• “The new material can line exhaust pipes without turning plastic”
• “Web apps can be written on the new platform without messy client-side code”

It is so common for geeks to conflate features and benefits that it’s worth wondering why.  I have two theories, not necessarily exclusive:

• Geeks hate to lie, generally speaking, and a feature sounds like a fact whereas a benefit sounds like a (potentially false or lying) opinion.
• Geeks hate to urge someone else to do something; we believe that everyone should make up their own minds about things.  Touting benefits sounds like urging.

Needless to say, geeks have to get over it!  Without urging, those suits are never going to fund your business case.  In fact, the gist of a presentation – bearing in mind all of the caveats from previous posts – is respectfully urging the listeners to take a certain course of action.

The trick is being respectful.

Use Case #2: Geeks and Suits

Time to switch gears.

I know the most about entrepreneurs pitching business ideas to investors, because that’s what I’ve been doing for the past 10 years.

But prior to that I was a tech guy, and got a lot of experience (among other things) trying to get the managements of my companies to take on a new tech project, and watching my tech brothers and sisters do the same thing.

I want to turn to this use case next, and spend a few posts on special Solution Pitching angles to Geeks and Suits.

Of course, the fundamentals remain the same:

1. Know what your audience is thinking
2. Benefits Not Features
3. Be Respectful

Onward and upward!

When They Pepper You With Questions…

I’m a little puzzled how irritated presenters become when they are peppered with questions by an investor audience.

The questions can, of course, be hostile, and I’ve fielded my share of those from the other side of the table.  No question, some entitled jerk sarcastically asking rhetorical questions about your venture is one of life’s more exquisite tortures.

But the irritation is common even when the questions are neutral, or even positive.  It’s not uncommon, at the end of a meeting where the investors pretty much got the idea of the venture and approved of it, for the entrepreneur to say something like, “well and we only got through 4 slides.”

Is the point to get through all the slides?

I thought the point was to get the point across, and the slides are a means to an end.

If so, then a bevy of questions from the audience just means that your slides aren’t doing a very good job of getting the point across.

I hate to be a pest, but a good clean introductory slide would go a long way toward bringing the audience on board (and hence, if my theory is correct, should damp down the # of questions).

And anything else that shows you understand the audience, know what they want to hear, and give it to them, will reduce the volume of questions.

To put it another way, the questions can tell you what your audience isn’t hearing:

• Tell me about the fundamentals: I’m not hearing how this is a business rather than a neat idea.
• Will it scale: How do you see exiting from this business, and how will I make money at it (See my “Fear and Greed” posting)
• Isn’t <x> doing this already: I just heard about them and they are a) failing miserably or b) tearing up the turf.  What is your Hammacher Schlemer promise?

It’s easy to get caught up in the heat of a question session and feel like you are being interrogated.  And you are, in a way.

But in another way, questions are an attempt to get you to fill in context that’s missing from you pitch.  An attempt you should respect.

“We Hardly Ever Run Into Them”

This is a common presenter response to a competitor question, and a suboptimal one.

Why?  At least two reasons:

1. It avoids the issue.  Your audience raises the question because they have run into these competitors, and they want to know what you think of them.  Saying “we hardly ever run into them” is a way of dismissing the competition without rendering them a respectful analysis.
2. It’s beside the point.  Even if this statement is Gospel truth, it’s beside the point because there are numerous reasons why you might not be running into them.  One very common reason: the market may be so big compared to your penetration (and theirs) that neither of you is seeing the other yet, although you may end up as cutthroat competitors as things develop.  In this case, saying “we hardly ever run into them” is disingenuous; you may well hardly run into anybody (yet).

Much better to say something like this:

“We see our major competition in the market today as X (an incumbent) and Y (a rival).  We believe this is because the market is still maturing and customers aren’t sure what solution they should be adopting, so the FUD from X and a known name are pretty important.  When they pick Y, it’s because Y offers self-service teleportation, which we think is a key feature.

“Z (the company mentioned) has gotten a lot of venture money from good firms, but their approach is too techie for customers, we think.”

Respectful; lays out your views of the ecosystem, lays out your competitive differentiation.

Solution Demos

I had the opportunity to see a company demo Wednesday, and was struck by the disconnect between the demo-ers and the audience.  Pretty much like a Solution Pitch situation.

The audience were investors in the company and wanted to see how the new platform “looked”.

What “looked” meant to the audience, I thought, was “how a user might use it” and “which features would delight users”.

If I had been the demo-ers, and I knew that this was what the audience wanted, I would have structured the demo as “walking through a couple of use cases”.  “Signing up”.  “Making a transaction”.  “Getting a report.”

Instead the demo-ers focused on something like a guided tour of the product.  They started walking through screen after screen showing the various commands that could be executed at that place in the product, and the various options (in the form of dialog boxes) that could be selected to go along with the command.

Not hard to imagine what happened next: the audience began to fidget and display other signs of unrest.  Signs to which the demo-ers remained insensitive.  Or maybe they noticed and didn’t know what to do so just went ahead with the tour.

A common scenario.  The audience wants to see use cases, scenarios, stories, and benefits.  The demo-ers give them screens, options, and features galore.

Outcome?  The investors didn’t get to appreciate how cool the new software was (and it did seem cool behind all the guided-tour noise).  The demo-ers felt that the audience wasn’t paying attention.

I’ve been there myself, on the demo-ing end, so I don’t feel any superiority to the poor guys giving the demo.  In fact they kind of grokked what was going on and tried to switch to a more use-case style, but even here they dwelt on the many options that the user might select at each point in the interaction rather than building the interaction into a compelling story.

I think a moment spent beforehand brainstorming about what the audience will be thinking and what they therefore might want to see would help many a demo.

The Personal Motivations of Your Audience

I had a conversation a month or so ago with an entrepreneur.   She was asking me about pitching to X, another investment firm in the DC area.

I asked her whom she was pitching to at X, and she said Y.

“What is Y looking for in an investment?” I asked.

“$10M check over the life of the fund,” she began.

“No,” I said, “What is Y looking for personally, to make her mark at X?”

“Oh,” she said, “I don’t know.”

Surprising that she hadn’t thought it through; she’s an excellent Solutions Pitch person in general.

My guess would be that Y wants a sleeper B2C property that will brand her as a great investment picker when it gets good markups in the next round or two.  So she wants some connection between the opportunity and her “special sauce”, whatever that might be.

That’s still somewhat impersonal; I don’t really know Y.  The point is: your audience has a personal stake in the opportunity you’re pitching to them.  One of your jobs is to find it out and gear your pitch to making the connection clear.

How to find out?  Well:

• Homework beforehand.  Be sure to know what Y invests in, what she says in her social digital exhaust, anything else you can gather from the ‘tubes or from people who know her.
• Ask her at the pitch.  Not, “what is firm X looking for” but “what investments particularly interest you, Y”.  (And, by the way, why they interest Y [I’ve been longing to write that for a long time].)
• Note what she reacts to.  If she fidgets and tunes out when you’re talking about B2C, then she’s probably B2B.  If she perks up and asks questions about market size, she probably cares about big markets (maybe even mistakenly).

The personal motivations of your audience are completely grist for the mill.

Red Oceans and a Good Competitive Slide

 

My last post mentioned the idea of a “red ocean” in connection with the market for a new startup.

Unfortunately, with still too many dollars chasing too few independent VC thinkers, red oceans are the norm amongst venture-backed companies rather than the exception.  This happens because lemming-like investors pile onto an idea that some leader takes on and fund three, four, or more startups with substantially the same product or service in substantially the same marketplace.

In any case, this puts a premium on the presenter to properly account for their competition.  I think there are three principles here for pitches that meet the needs of investor audiences:

1. Be Respectful of your competition.  I talked about this at some length in an earlier post.  Gist of it show that you do not underestimate them, but have a plan for overcoming them.
2. Focus more on incumbents than startups.  This is very good marketing advice in any case.  For the most part, your customer prospects will have heard of the incumbents – the gorillas or others in your space – before they will have heard of your startup rivals.  There’s no sense educating them about your rivals if they haven’t heard of them already.  So it just makes sense in a customer pitch to show how you are superior to the existing players rather than the striving new ones.  This applies to the investor pitch as well.  The main thing is to get your potential customers to try something new, and the main thing your investors will care about is likely how you will do that.  (Of course, you should have slides in reserve about your competitors in case they ask.)
3. Have a crisp Hammacher-Schlemmer Promise.  Very important for investors as well as the market.  I posted about this here.

What Else Counts in Presenting a Hot Market?

There’s more to describing your market to an investor audience than its size.

As discussed in the previous post, the issue of whether or not a large amount of money in the market is changing hands is more important than its raw size.

At least two other points deserve consideration:

• Is it a red ocean?  In case you’re not familiar with this term, please take a look at the Blue Ocean Strategy website, which has links to a bunch of materials from the group that thought this up.  A red ocean is an ocean red from the blood the many competitors are drawing from one another, with no one getting an advantage.  Sadly, many venture-funded markets today are red oceans for the simple reason that copycat investors fund multiple instances of the same company.
• Is it an Enthusiast, Early Adopter, or Early Majority market?  Or worse.  The basic text here is Geoffrey Moore’s “Crossing the Chasm” (website here).  Each kind of market values different things in an product or service, and mistaking one for the other can kill a venture.

That’s all for today.  Sorry for the rush.

Market Sizing: Why and How

Quick PaaP Test: Someone walks up to you at a party and wants you to join their teleportation company.  Do you care if the market for teleportation is big?

Well, what you care about is not whether the market is big or small, but whether or not you can make a lot of money in it.  And that depends.

Some big markets are already done; the players are set, the money is flowing, there’s no room for newcomers to make a difference or make a score.

Think soft drinks today.  A huge market, but no big transformations.  It’s trench warfare: a few points of share for Pepsi, a few points for Coke.

You would want a market where a new change was happening, an old order was about to blown away, and there was a real chance for newcomers to grab a lot of new business.

So, #1 characteristic of a market: is a lot of money likely to change hands soon?

I call this a “big wind”.  Is a big wind blowing in this market?

#2 question: how much of that big wind can the teleportation company get?

Savants call this the “addressable market”, and it’s not a simple question to answer.

To answer it right, you have to have a model of how money is going to be taken away from the incumbents, how the customers are going to shift over, what will be the reasons that will pry the first, second, and third waves of customers away from the old solution.  And you need to quantify those waves.

#2 characteristic of a market: a bottom-up analysis of addressable opportunity.

Sadly, most market sizing work in presentations is the opposite of this:

	What Investors Want to Know	What the usual pitch contains
Big Wind	Is a lot of money going to change hands in this market?	Is this a big market?
Addressable Market	A bottom-up analysis of how customers will transfer to new solution	“If we could just get 2% of this [huge] market we’d be rich”

You see what’s wrong here?  The usual pitch contains easy answers to non-problems; investors want hard answers to real problems that the business might face.

Please Stop Complaining About How Busy You Are - Meredith Fineman - Harvard Business Review

Please Stop Complaining About How Busy You Are - Meredith Fineman - Harvard Business Review

Great observations, but doesn't go to the heart of the matter: people protest how busy they are so that they won't seem idle.

It's like the women in "Schindler's List" who prick themselves and put blood on their cheeks and lips so they will appear robust and won't be "selected".

The "uber-busy" are afraid they'll be flagged as members of what Marx called "the reserve army of the unemployed" which seem increasingly a feature of our times.

The Needless “Market Need” Section

Instead of a“framing slide” as the way to begin a pitch, most entrepreneurs are coached to start a pitch with a long section – the longer the better – on the “market need” for which their product or service is a solution.

It’s not uncommon for a pitch deck of forty slides to have 15 or 20 on this topic, covering these kinds of issues:

• The absolute misery of people who suffer from the problem
• The vast numbers of people affected
• The profound inadequacy of existing “solutions” to the problem
• The size of the affected market.

Nothing wrong with this kind of discussion in and of itself, but the first words on the first pitch are probably not the place to do so at length.

Why?

Because pitchees will rapidly sort into three groups:

1. Those who understand the market-need argument and agree that the market is a big one
2. Those who understand the market-need argument and think it’s not a big one
3. Those who don’t know where they stand but are willing to stipulate that the market need is big in order to see what you have to say about: who your team is, what your solution is, and how much it’s going to cost them (in other words, the stuff that should go on the framing slide).

Emphasis here is on “rapidly”.  I would guess I go into one of these three buckets midway through the first slide on the market need.

If my experience is typical – and the investors I’ve spoken to seem to agree that it is – then the Solution Pitching approach to Market Need to have one slide on market need, not twenty.

What might be on this slide?

• The problem: “people spend collective years driving cars to work.”
• Some argument about size: “Commuters spend $40B per year on autos, public transit, air travel, and rail.”
• Some argument about market adoption: “Commuters have not adopted teleportation in the past because 10% of the transmitted people were not successfully re-constituted on the receiving end.”

So, enough detail so that your audience knows what problem you’re proposing to solve, why it’s a big potentially lucrative market, and why the market will be ready for your solution.

The rest of the “market needs” slides can go into the back of deck as an appendix in case more detailed questions come up.  There will certainly be more discussion about the market, and I will say more about it in a subsequent post.

The Framing Slide

I recommend beginning a presentation with a single slide with the following information:

• What your business is, elevator pitch: “We build faster-than-light teleportation systems”
• How far along you are: “We are building the first prototype for the scalable system”
• Who you (and your team, if any) are, by function:  “We built the first teleport prototype at NASA”
• What you’re asking for: “We’re raising $200M to finish the scalable prototype”

Maybe there’s other bullets that go on this slide, but these seem like the essential ones.

Why?  Put yourself in your audience’s shoes: they don’t know who you are or why you’re there.  They need a framework to put the rest of your presentation into perspective.  Who What and Why supplies this framework (basically the same advice given to news story writers; get it into the first paragraph).

I can’t tell you how unusual it is for a presentation to have such a slide.  Of all the deals I’ve seen at Valhalla, I think maybe 5 or 6 had something like this.  The presenters who had framing slides tended to be return entrepreneurs (although it was by no means the case that every returning entrepreneur used them).

How do most presentations begin?  A slide with our name, the name of the company, and a relatively non-specific tag line.

So in this case it would be:

• Valhalla Partners
• Regent Teleportation
• “Journeys Simplified”

This does nothing to help frame the presentation.  I get it that you’re talking to me, but it’s actually not really news.  If your name has to do with what you do, that’s a bit helpful, but not as helpful as saying what you do (and in today’s world, most startups have names that tell you very little about what they do; to be fair, most investor groups don’t have such names either).  And the tag line may be useful in some context, but is not helpful here.

Or the first slide will have a handsome graphic and plunge right into the market problem.

In this case, the first slide would show commuters waiting for a crowded subway train, and say

• 100 billion commutes take longer than they should

You get the idea.

I think a framing slide stands out (since there are so few of them) and shows respect for your audience (since you show that you understand what they’re thinking at the beginning of the pitch).

What’s not to like?

The World of the VC Investor: More on Fear and Greed

Of all investors, you would think VCs and angels would be people in whom, temperamentally or by design, Greed would massively overwhelm Fear.

It seems things are not that simple.

It’s not that Greed is so much stronger in us that it overwhelms our Fear.  It just happens that we have a particular bag of tricks for quieting our Fear.  To wit:

1. Control (or the illusion of control).  By having the power to overrule the founder and/or exec team of a startup, we believe we are hedging the risks of investing in them.  That, of course, presupposes that our ideas of what to do with the company are better for the company than his or hers (or at least that our ideas are better for our interests than his or hers).
2. Dribs and Drabs.  By doling out our capital in smaller tranches or rounds, we believe we are hedging the risks by tying infusions of capital to company accomplishments (aka milestones).
3. Due Diligence.  By studying the risks in detail before each investment, we believe we are hedging risk by understanding it.  Trading in “unknown unknowns” for “known unknowns”, in the words of that sometime investor Don Rumsfeld.

This may make more sense for investors – whether angels or VCs – who have some operating experience in the businesses and marketplaces they invest in.  Unfortunately, this is seldom so, and even if so, is seldom helpful.

Why?

Even if I made my bundle in enterprise software, the enterprise software of today doesn’t have that much to do with the enterprise software of yesteryear.  Things like SaaS, open source, BYOD, and “the SolarWinds sales model” have completely changed the playing field.  Oh, there are some verities, like “Buy Low, Sell High” or “Keep It Simple Stupid”, but any clown who’s read the digest of a couple of business books knows those things.

And even when an investor knows something about the area he/she invests in, it’s not clear how helpful their advice is.  Why?  Because people are seldom capable of accounting for their own success.  Ask a billionaire how he got there, and he will say, “never drink coffee” or “never make more than 2 decisions in an hour.”  Either these are pablum verities a la “operating experience” above, or they are quirky beliefs that probably don’t have much correlation with the success of the business.

So get an opinionated investor with a lot of pablum ideas with control of your company and you have a recipe, not for hedging risk, but for constantly diverting the company from its focus with boneheaded “try this” nostrums.

We VCs and angels get this, and so we are not less Fearful about our investments.  We may be even more so.

The World of the Investor (for Presenters)

Again, I feel a bit odd even going into this material, but perhaps it’ll just be repetition for some while being news for others…

The Investor (let us give him or her a capital “I” for a generic proper name) oscillates between Fear and Greed:

• Fear that they will lose their money on your project.  Suspicion is the BFF of Fear.
• Greed that they will miss out on opportunity to make a killing.  Manic Haste is the BFF of Greed.

And it doesn’t take much to flip an Investor from one to the other (there is no middle ground).  In fact one and the same statement in a presentation can do it:

“Google has shown that the user base for online documents is huge”

Investor: OMG, what if you could make $2.50 for each Google Docs user [Greed], but OMG why couldn’t Google just take over this market [Fear]?

You can’t win with a bipolar audience like this; the best you can do is inflame their imagination.

It’s safe to say that the Investor will be in a state of Fear going into the presentation unless you’re a returning demi-god entrepreneur or their best buddy has just invested in you (if their best buddy is merely recommending you, that excites Suspicious Fear: “if it’s so good, why didn’t X invest in it?”).

It would seem that Job 1 is to flip the Investor into Greed, but this would be a big mistake because any attempt to do so will simply excite more Suspicious Fear (“why is she telling me all this pie-in-the-sky stuff; what gotcha am I missing”).

No, Job 1 is to return the Investor to the neutral state (which, paradoxically, will probably tip them over into Greed in any case).

The presenter does this by carefully framing the opportunity so that the Investor can hold it all in mind at once:

“I’m Entrepreneur Jones.  I’m asking for $2 million to prototype a teleportation service that will inaugurate in the U.S. in four years.  I’m partnering with two rocket scientists from Berkeley Teleportation Labs, the team that teleported a couple of hamsters to Titan last year.”

Why does this work?  Because the facts soothe Investor’s fears.  If Investor doesn’t know who Presenter is or how much money Presenter wants or how good the team is, or (briefly!!) what problem they are aiming to solve, Investor’s imagination can run rampant.  In a state of Suspicious Fearfulness, this means a spate of Fears going in.  A bad way to start.

The facts at least inhibit the Fear rush, and may even tip the Investor over into Greed.

Competition and the Hammacher-Schlemer Promise

Hammacher Schlemer, catalog seller of gadgets and gizmos, claims to be the “oldest continuously published catalog in the United States”.

But if you look at the catalog, none of the items in the catalog is billed as the “oldest” or the “first.”  Reason?  That’s not a valid competitive differentiation.

If you tell me your company was the first to make widgets, you get points for innovation, perhaps.  If you tell me you are the oldest widget maker, I guess you get points for doing something right, although sheer longevity is not an indication of that necessarily (think of the Postal Service).

Every item in the H-S catalog is either the best or the only in its category.

And that does make for competitive differentiation.  The only other superlative that differentiates would be “cheapest”.

I have challenged some of the companies Valhalla Partners – my firm – invests in to come up with a “Hammacher Schlemer” promise of their own:

We are the <best-or-only> <maker> who makes <widgets> for <benefit>.

Some examples:

• We are the best social network for staying in touch with your friends (Facebook?)
• We are the only web retail site with all the books in the world (Amazon?)
• We are the best word processor for making sure your doc will be readable by someone you send it to (Microsoft Word?)

There are some finer points here.

First of all, an “only” promise is significantly better, but harder, than a “best” promise.  “Best” is debatable.  “Only” may be false, but it’s not debatable in the same way.

Second of all, a promise is as much a challenge or an aspiration as a statement of fact.  Are there some books you can’t get on Amazon?  Undoubtedly.  Do you have a better chance of getting a book there than elsewhere on line.  I think so; that’s where I head first.

Third of all, an “Amazon-style” promise – a promise that, if you come to my site you will find all of something – is a very powerful promise.  New York Times: “all the news that fits the print”.  Visa: every merchant, not just (like Amex) some.  Etc.

When you present an investment idea – a company or a service or a charity or a new business line – your listeners will want to hear 1) a respectful treatment of your competition and 2) a Hammacher-Schlemer promise about how you’re going to get the better of them.

The Importance of Respecting Your Competition

It’s pretty common in pitches I see for the entrepreneur to give short shrift to competition or to ignore them altogether.

Unfortunately, competition is usually a big deal to the audience of potential investors.  And how the entrepreneur treats the competition is an important element in sizing him or her up.

The basic rule: Be respectful of your competitors.

There are several aspects to this:

• Take their competitive threats seriously.  It’s a real turn-off to hear an entrepreneur say that Competitor A is “no threat”.  Every competitor is a threat.  We want to understand how you think of them, what you say about them, and, most importantly, how you go against them.  “No threat” = “No thought” in the investor’s mind.
• Know them as thoroughly as you can.  A big confidence-builder in a presentation is an entrepreneur who can speak knowledgeably about their competitors.
• Don’t just count immediate competitors.  Usually the stiffest competition is not the other startups that do just what you do, but the gorilla with a product that’s “good enough” or the newcomer with an inferior product which, however, has disruptive potential.  Entrepreneurs who say they have no “real” competition (and who aren’t just talking through their hat) generally mean they have no direct clone competitor.  They are not taking account of – or at least not sharing their views on – the more serious competition that can come from a gorilla or a disruptor.
• Articulate a competitive differentiation.  I want to say more about this in a subsequent blog post.

Nothing in “respectful” means you should cave in the face of competition.  But it does mean you go into battle with them with a plan instead of a blustering sneer.  And it does mean that you share your plans with your potential investors, because it’s part of how we’re forming a judgment about your capabilities.

What If VCs Pitched to Entrepreneurs The Way Entrepreneurs Pitch to VCs

The world is changing, and the “supplier power” of VCs is eroding.  It doesn’t cost what it used to to start up a startup, and the more nimble of us VCs realize it.

So, to make a long story short, we need to hone our pitching skills.  Which means we need to pay attention to Solution Pitching ourselves.

Imagine if we didn’t.  Imagine what an interaction with a VC would be like if we dwelt on the Market Problem the way less Solution-Pitching-savvy entrepreneurs do:

Entrepreneur: Hey, how’s it going?

VC: Are you aware how acute the capital shortage has become?  Many entrepreneurs today tell us that they are literally starving for capital, starving for relationships that will move their business forward, and in deep need of answers to these problems.

Entrepreneur: Huh?  Are you a VC looking to fund me?

VC: I’ll answer your questions in a second, but for right now just let me picture to you the terrible situation that everyone in the technology-innovation business is going to be in when capital shortfalls for startup investment reach $200B in 2015 as they are projected to do by VentureSource.

Entrepreneur: Are you offering capital to people with businesses like mine?

VC: Some sources of capital provide only partial solutions to this problem.  So-called “angels” can offer smaller amounts of capital, but their Rolodex is significantly smaller than what entrepreneurs need.  And bank loans, which many think would be a good solution, are poorly adapted to the risks of a startup venture.

By now the entrepreneur has gone from confused to irritated.  His questions are not being answered, he’s not sure if he’s wasting his time, but most of all he’s being talked at rather than talked to.

It’s not the road to a Solution.

The Piercing Gaze

I’d like to put the PaaP Test to a test.

I’ve been in a lot of presentations where the presenter made morbidly intense or prolonged eye contact with the audience.  In one particularly uncomfortable pitch, the presenter had somewhat bulgy eyes and, in addition, was making unremitting eye contact with me.  I probably didn’t hear a word of his pitch.

Let us call this behavior The Piercing Gaze.

I know where it comes from, of course.  The presenter has been told to make eye contact with the audience, and (s)he believes you can’t have too much of a good thing.

And I think that putting this pitch behavior to the PaaP Test is pretty much like shooting fish in a barrel.  But let’s try.

Say you’re at a party.  A stranger comes up to you, looks you fixedly in the eye, introduces himself, shakes your hand, and proceeds to make some pleasant small talk about the party, drops in some tasteful biographic information about himself, and so forth.  He asks your questions, listens to your answers, and generally carries on well.

Except that he’s staring you in the eyes without moving his gaze the whole time.

We’d be somewhere between alarmed and creeped-out.  But more importantly, nothing else he did would make any difference.  We wouldn’t want to spend a second more with him than we had to.  We’d make some lame excuse the moment we could and flee.

There’s an exercise that people do in Ropes Courses kinds of groups (remind to talk about them some time) where you pair off and stare into one another’s eyes for a minute.  Very intense.  Maybe very revealing.  Definitely not a way to get the Other to relax, trust you a bit, and listen to what you have to say.

A good conversationalist at a party makes eye contact rhythmically: maybe at the beginning of a paragraph, a couple of times (with a smile or an ironic look) in the middle, and then as a closer at the end.

That’s the right way to make eye contact in a pitch.  It’s the PaaP-Test approved way.

The PaaP Test

No, not “Pap” Test.  “PaaP” test.

It’s the “person-at-a-party” test, and I’ve used it implicitly in my posts on your-audience-tuning-out and (in the form of “person-on-the-telephone”) in my post here.

The test is pretty simple: take an interpersonal behavior, and see how appropriate it would be if someone you didn’t know came up to you at a party and exhibited it.

Example: Repeating the name of your prospect or target.  “What would you say, Dan, if I were to say to you, Dan, that you, Dan, could be the winner of more money than Dan has ever taken home in his life?”

PaaP Test: If someone did this to you at a party, you’d be circling around them to make sure they weren’t blocking your access to the exit.

Example: Forcing your prospect to listen to your presentation in the exact order you created it.

PaaP Test: Imagine someone at a party who continued through a long canned self-introduction and wouldn’t stop to answer your question about how they know the hostess.

It’s a powerful test.  The PaaP situation is anonymous enough that we don’t have giant expectations of the people we’re interacting with.  But it’s also a human situation, so there are boundaries, and when someone crosses them it’s obvious.

We’ll be applying the PaaP Test liberally in posts to come.

How You Can Tell When Your Audience Is Tuning Out

It seems really peculiar to even write a post about this, since staying in touch with your audience seems at the heart of presenting.

But it’s no surprise, in this era of non-Solution Pitching, that presenters really don’t stay very tuned in, and that includes tuning in while presenting.

So let’s not assume anything, and instead try to come up with a list of telltale signs that your audience is not as into your presentation as you may be.

1. Body Language.  Our old friend body language.  Are your listeners folding their arms, hunkering down into their chairs, avoiding your eyes?  Chances are they’re getting bored, but don’t know how to tell you.
2. Fidgeting.  A special variant of body language.  If your audience is shifting back and forth, legs are tapping, feet swishing up and down: chances are they’re getting bored.
3. Playing with tech toys.  When your audience starts firing up smartphones, tablets, or Google Glass wearables, chances are they’re not doing it to take notes.  They’re tuning in another channel, not you.
4. Not meeting your eyes.  When your audience won’t meet your eyes any more, there’s something they want you to know: you’re turning them off.  (Special case: if you’re staring at them relentlessly, they won’t meet your eyes anyhow.)

Those are probably the Four Horsemen of audience indifference.  And they share a common cause:

If you don’t pace your presentation and take the temperature of your audience from time to time, you will turn them off and they will tune you out.

Let’s suppose you went to a party, and someone started talking to you.  They didn’t stop, they stared at you the whole time, and when you tried to turn away they pulled you back to face them.  You’d think they were insane; you’d tune them out; and you’d look for the first opportunity to run away from them.

But isn’t this just what some pitches are like?

Of course nowadays an amazing number of presentations are given by phone or Webex or the like, so most of these cues from your audience – body language, fidgeting, glazed expressions, playing with toys – are inaccessible.  But even in these venues you can take the temperature of your audience.  Pause frequently, so people can speak up.  Try to have one live audience member with you, so you can use them as kind of a canary-proxy for the unseen ones on the phone.  And – sparingly – ask the unseen audience if what you’re saying makes sense.

Knowing What Your Audience Is Thinking

Something I learned 20 years ago has made a huge difference to my writing, presenting, and pitching: you have to know what your audience is thinking.

The original idea came from a how-to book on writing I read back then, but it’s a common enough meme.  Typing “you have to know what your audience is thinking” into Google just now (sans quotes) gave some 46M hits (although only 8 for the quoted string).

If you bear in mind, when making a pitch, where your audience is going to be mentally at each stage of the pitch, you will certainly make a better pitch.

Take the usual custom (in which entrepreneurs are widely coached) of spending a huge number of slides at the beginning of a pitch describing and justifying the market problem your startup will address.

Complete waste of time.

Most investors will fall into one of three camps in the first 20 seconds of your “market need” recital:

1. I get it, I agree 100%
2. I get it, I disagree 100%
3. I get it, I’m not sure if I agree or disagree, but I’m willing to stipulate that there is such a need for the sake of argument while you tell me what you’re going to do about it.

In all three cases, they’ve made up their mind.  Ten more slides will only put them to sleep.

Of course, short of telepathy, we can’t know what our audience is thinking.  But we can make shrewd guesses along the lines of the above.  And making the effort really opens your mind to how to structure the pitch so that it tracks with your listeners’ real state of mind, which puts you way ahead of the pack.

When a VC “Doesn’t Get It”

Prior to becoming a VC, I pitched startup ideas to VCs (and others).  I’ve had my share of rude, entitled VCs who, I felt, gave me short shrift.

But from the other side of the table, I see if not as a problem with the VC but as a problem of the entrepreneur’s conception of and contact with the VC (s)he is pitching to.

What do I mean?

I just finished an email exchange with an entrepreneur who had cold-called our offices and asked to speak to someone, anyone, about his idea.  To this guy, the relationship with him was irrelevant, and all that mattered, or ought to matter, to me was the quality of his idea and his proofs that the idea resonated with potential customers.

Actually, it’s just the opposite.  With a  very early-stage idea, the character of the entrepreneur matters much much more than the quality of the idea, if only for the simple reason that most ideas that succeed as businesses do so by changing course in reaction to circumstances (what we now call “pivoting”), and the entrepreneur needs to be someone with the vision, fortitude, and, yes, the character, to know when to hold and when to fold.

When the connection is a cold call or a cold email, we know nothing about this entrepreneur’s character.  So I have a general rule that if an entrepreneur is not introduced to me by someone I don’t go further with a project.

What does mean for entrepreneurs who don’t know any VCs?  It means you have to get to know us, through accountants, lawyers, other entrepreneurs, startup helpers such as incubators, accelerators, and the like.  You could also start in a cold contact by introducing yourself and saying something about your background.

This entrepreneur responded to my rejection by saying that VCs didn’t get it, he would never understand us.  I would ask him what he would say if a person unknown to him called him up on the phone and asked him to invest $1M in his idea, how would he react?  He would probably (I would guess) want to know the person he was dealing with a bit better before proceeding with him.  And if he had enough people calling him, he probably wouldn’t have time to get to know everyone who called in.

I wish it were a different world, where there was enough time and bandwidth for everybody.  But lacking that, knowing what your potential investor is thinking will help you figure out how to approach him or her.