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.