Traction: what to show when you’re still an early stage startup

Startups are 70% execution, 15% sweat, 10% luck and 5% the idea. As such, traction is one of the most important aspects of a pitch. It shows everyone that your company is more than a nice Power Point and that you actually can deliver what you plan. It’s a mandatory piece.

 

Ideally, use real results!

 

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Source: AgendaPet‘s Pitch Jan’14

Perfect scenario: use top line (revenue) evolution. A growing graphic, doubling revenues every couple months, is all you could dream of. It shows your business has potential and is in a good momentum. More than the actual amount, investors are concerned with the growth pace. I don’t remember who said it, but: “growth solves everything if you’re a startup”.

If revenue evolution doesn’t make sense for your company, you can replace it by your must crucial variable, such as customer base, visitors, sessions, quotes, calls…

Word of caution: if the base is too low, do not try to trick your audience; even though going from USD 10 to USD 20 is a 100% growth, it’s still only 10 bucks… just don’t do it!

 

If you’re not there yet, focus on conversions!

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Source: AgendaPet‘s Pitch Jan’14

If you don’t have growing results to show yet, you should focus on conversions. Conversions tell how good is your execution and give a good sense of potential results. If you’re still in the test phase, or don’t have a history yet, using the conversion you’re achieving will do the trick.

I also recommend showing the conversion differences form paid/ organic acquisition channels, so your audience can analyze how healthy is your go to market strategy.

If churn and/ or repeat rate is important for your business, I suggest you to include that as well, so the audience has a complete vision of customer acquisition and maintenance flow.

All in all, when you focus on conversions, you’ll be providing the audience the means to calculate the lifetime value of your customers.

 

If you don’t even have conversions to show… go with milestones!

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Source: AgendaPet‘s Pitch Aug’14

Every time I give a pitch workshop I get approached by an early stage entrepreneur, super worried because he/ she doesn’t have real results to show yet. Well, I won’t lie to you… it’s not ideal, but there’s a way out.

You need to show evolution; how better off you are today compared to 4 weeks ago. People need to see that “you’re on fire”; that your company is evolving steady and fast.

In some cases, specially B2B businesses, it may be the close of a big contract; being granted a patent, getting a much needed approval from an agency, closing a partnership, reaching a development milestone, are other options.

One rule here, though, is not to show what I call “almost results”; for example, you’re almost closing a contract, but haven’t yet. Another: you’re almost done with development… Think about it: you have no results to show and what you show is not 100%. It sounds bad; too bad! So, go only with the 100% done milestones.

Also, I recommend showing the milestones from the near future, so people understand the importance of current achievements and what’s next.

 

Showing traction separates the “talkers from doers” and is the perfect closure for a pitch, even if you’re early down the road. Be smart, be concrete and, most importantly, don’t BS! Result should speak for itself!

 

What’s addressable market anyways?

An important part of a pitch is describing your market. Audience needs to know how big of a problem you are solving; how common it is, and to what extent of population it is appealing.

“The bigger the better” you might think… well, think again! On the urge of making the opportunity look bigger, we tend to generalize the target audience; that’s a mistake.

What really matters (specially to VCs) is to know your addressable market; what portion of the entire vertical/ industry you’re addressing is really your target.

tam-sam-market

Source: Wikipedia

 

Real life example

I’ll take AgendaPet‘s pitch again as an example. As you know, AgendaPet is a pet services marketplace, so people can book the best professionals for their loved animals. Yes, we’re that cool!

In that sense, our overall market are the 1 billion pets all over the world. However, we believe AgendaPet’s focus will be on the #1 and #2 markets, US and Brazil respectively. That’s the served market. More than this, we understand our target (addressable market) will really be those people who are responsible enough to visit a veterinarian regularly; they will be the ones to whom our service will be more appealing. We could even take it one step further, and drill it down again to only the urban areas we plan to service roughly 50% of the market).

Instead of 1 billion pets we would be addressing “only” 30 million dogs and cats, or 3%. But hey, that’s still a shitload of potential customers!

Side note: if after making the math behind the addressable market you are left with an irrelevant ($) potential, well, that’s a perfect time to rethink your business.

addressable mkt

AgendaPet’s Pitch excerpt

 

Why bother all the trouble?

Well, simply put, the addressable market numbers are the only ones you should (certainly VCs will) use to make your projections; at least you should use those numbers to check what portion of overall market you plan to dominate. That will give a reality check on your predictions.

 

The fallacy of the “1% of the market”

You probably heard that before: “if we get only 1% of the market… we would be rich”.  To me, when I hear that, it triggers a mental response: “if I dated only 1% of the Victoria Secrets Angels I would definitely be a very happy man”.

The fallacy of the 1% of the market is a huge red flag in pitches. It means that you either haven’t done your homework on market analysis, or that you’re incredibly naive.

Getting to your expected market share should be a result of your business levers (conversion, CPA, investment…), not the starting point. The result could even be higher than the 1% (of the addressable market). Take Uber, as an example: if you were the entrepreneur behind it, would you have ever guessed you would reach 40% of NYC’s individual transportation market? I bet you wouldn’t.

 

To conclude, let’s all repeat out loud, in cult like unison:  “addressable market is the only market number it matters; it shows the market you’re really competing for.” Or keep thinking about 1% of Victoria Secrets Angels…

Pitch stages

Which topics should a pitch contain?

10 in 10 entrepreneurs ask me that. Answer is not so straight forward, though. More than checking items on a list, when deciding what to cover in your pitch you should be worried about building a solid/ clear storyline and manage the different stages of the presentation. Having said that, I like to split a pitch into 5 big segments:

Pitch stages

Pitch stages

1) Opening:

I shouldn’t have to write this… but people do mess up right in the beginning. You must start by presenting yourself, professionally:

  • Hello…”
  • First and last name: “…my name is John Doe…”
  • Position: “…I’m cofounder of Company X…”
  • Thank for the opportunity: “…and first of all I’d like to thank you for the opportunity… we’re really thrilled…”

It’s impressive, but people just forget those simple things. They present themselves without their last names, or using nicknames. Startup pitches are supposed to be informal, but those 4 points are just basic etiquete.

I also recommend that your name + position + name of company are clearly stated in the first slide, so people can write it down properly.

Example of first slide

Example of first slide

On telling what you do in the company I have one personal preference: C-level titles (CEO, CFO, CMO…) are a huge stretch to describe someone working on a 5 to 10 people startup. It’s the same as calling the janitor of your building “Head of Infrastructure”. When telling what you do, you need to transmit 2 informations:

  1. Are you a member of founding team (meaning you have equity – founder, cofounder)?
  2. What kind of tasks you handle the most (“I’m take care of marketing and sales…”)?

Calling yourself CEO just make my eyes roll.

2) BAAM

Audience will decide on the first 30 seconds whether to pay attention to you or check their e-mails, update their Facebook status, watch the latest cat video on Youtube etc. You need to convince them from start that you are worth their attention; you need to make a blast (that’s why I call it “baam”, like a bomb). The video above, from the movie “Guilt Trip”, with Seth Rogen and Barbra Streisand, shows us exactly what a “BAAM” should look like.

For making a blast we use “grabbers“; really common in sales pitch techniques. These are structures that help you emphasize an specific aspect of your business, whether it’s the size of the market, how common is the problem you are trying to solve, or how cool your numbers are. We will dedicate an article only to grabbers, but to anticipate there are four main types:

  • Story telling: one of the most used by startups. You tell a story of a (real or fictional) character, exploring the problems you are trying to solve: “meet Ane. Ane is…”. Check an example on Preemadona’s pitch at Techcrunch Disrupt SF 2015.
  •  What if: this is a really effective grabber, and good to be used when you can assume your audience has some deeper understanding of the problems you are trying to solve: “what if I told you…. and what if there was…”. Check a personal example, of a Pitch I with AgendaPet did at the U-Start Conference in Brazil.
  • Numbers game: sometimes numbers behind your business/ opportunity are so interesting (and surprising) that you start by exploring them. With this grabber you present the audience with 4/5 numbers, which will be complemented in the next seconds: “I’d like you to remember those numbers: 4, 30, 5 and 200. We have more than 4 million users, 30% active…”
  • Props: props (or physical elements) alone are more rare to see. It consists of making use of a physical product, prototype, or even magazines/ newspapers to attract the attention to the problem you’re solving. People are naturally drawn to physical elements. The example is the movie above (you can click here to open in another window).

3) Main Content

Ok, you started off like a rocket and audience is hooked up. Now, it’s time for you to tell your story and cover the following topics:

  • About you: what does your company do?
  • Problem: what problem do you solve?
  • Solution: how do you solve this problem?
  • Market: how big is the opportunity (addressable market)?
  • Business Model: how will you make money?
  • Differentials: what you understand that your competitors don’t?
  • Team: who’s behind?
  • Credentials: what gives you credibility?
  • Traction: how well have you been performing?
  • Call to Action: what do you need?/ why you are here?

We will explore those point in dedicated posts, but I’ll lay down already few remarks:

3.1 About you: what does your company do?

A common mistake I see in the pitch courses is delaying to tell your audience what you do. Business communication rules contradict the structure we learned as kids (introduction > content > conclusion). In business (and pitches) you start with the conclusion. By doing this you are setting the context and making it easier for your audience to understand the whole presentation ahead.

In that sense, I like to add a quick summary (smaller than a tweet!) of what I do right after the first slide:

Example of quick description slide

Example of quick description slide

3.2 Financial projections

You may have noticed that I didn’t add financial statements/ projections on the content list; I didn’t forget that. If you are a later stage startup for sure you should add your estimations. However, if you are in the early moments of your company, audience usually just won’t believe your numbers! 

When I was in Columbia Business School I remember one professor (which was also a top executive in one of the world’s largest VCs) saying: “when I receive startup projections I cut revenues in half and double expenses, and only then start looking at the numbers”. Audience will be so skeptical at your projections that it will be just a waste of time adding them to your pitch.

Also, if you’re pitching to financial investors bear in mind that they love to make the math themselves; it makes them feel smarter! In this case, I recommend that you trick them into getting to your numbers! If you provide them the market numbers (focus on addressable market, not total market!), unit revenues (price/ margin per user, per product…) and burn rate they will get to your projections and feel smart doing the math in their heads. Rather, if you provide the end numbers already, their “skepticism chip” will activate and drive them to look for gaps in your calculations. Don’t fall into that trap. It sounds bad, but that’s real life.

4) Punch Line

Example of punch line: traction

Example of punch line: traction

Covering the content above will be dense and it’s expected (as shown on the first graph) that energy levels will fall. Try not kill your audience of boredom and keep a high energy level (in another post I’ll give you some tips on how to dominate the stage). With that in mind, I suggest building your pitch flow in such a way to save the “best for last”. That’s probably what audience will remember of your pitch, so choose carefully.

Ideally, a punch line should be the traction you’re having: growth, number of users, amazing conversion, closure of a critical contract, important client, patent authorization, test results etc. The message must be SURPRISINGLY positive, preferably with a growth line.

The image above, from an older AgendaPet Pitch, is a good example. At that time, traffic was our best variable, so I leveraged on it as much as I could.

5) Closing Remarks

Example of last slide + takeaway points

Example of last slide + takeaway points

Time is up and you should end your pitch. Punch line brought attention to a higher level again, so you need to take advantage of that to leave a final message.

If you haven’t do so already, you should make a call to action; tell people what you need/ want, and then close presentation with a brief summary of the main points you want your audience to remember.

If you are worried about the time, you may leave those takeaways in the last slide, together with your contact information (as on the example above). This way, if you run out of time, people will still be able to read your final messages. In some cases, this final message will sound almost like a slogan, reinforcing what you do, the problem you solve and how well you do it.

Finally, just thank people; a simple “thank you: will suffice. I have seen cases where people thank their families, teams, God… please don’t! Another common (and awful) mistake is finishing with: “ok, that’s all I had for today…”. It’s so melancholic! Again. just say:  “thank you”.

Remember to leave the basic contact details on the last slide. Make it big enough so people can take a picture with their phones.

Pitches are all about telling a story. The flow must be logic, following a “cause-consequence”/ macro-to-micro dynamic. A successful presentation will not only tell the story, but will manage the differences in energy level. People won’t retain all the information provided, so you need to point them out to what matter the most. If you deliver a pitch and the only time audience picks the phone is to take a picture of your contact details, believe me, you nailed it!

using demos for pitches

Using Props and Demos: always, but prepare carefully!

You have been working 80-hour weeks for the past months and now it’s time to pitch your idea/ business. The end product isn’t completely finished up yet. Should you show a demo anyways? YESSSS!

Using props (physical elements), demos or prototypes is one crucial aspect of a successful pitch. Not only it allows people to see and feel where your solution is headed to, but also it shows everyone that you have more than a nice slide or a promising idea.

For physical products it’s a must

pitch Preemadona Techcrunch Disrupt 2015

Preemadona Pitch Techcrunch Disrupt SF 2015

If you are pitching a product is absolutely necessary that you show it to the audience. On the video above from Preemadona, a TechCrunch Disrupt SF 20015 finalist you can notice the impact it causes when the presenter shows the product working, live.

But that’s not always the case. Sometimes you don’t have a finished product or prototype; what do you do? You trick the audience with a dummy! I’ll mention 2 real life cases I advised in my pitch courses:

  1. Sensor for diapers: this startup was developing a sensor for diapers that would connect wirelessly to an NFC-enabled hardware  and let now parents when was time to change diapers (based on humidity). They didn’t have a working prototype yet (it was expensive to build one), so I advised them to use a dummy tape (as a band-aid) with same size and similar material so audience could get a grasp on how comfortable to babies it would be.
  2. Chemical enhancer for industrial fats: it sounds complex, and it was! This startup was developing a chemical component used to enhance the usage of some types of fats in the food industry. They didn’t have the product ready, so we just took a small glass filled with salt! It would look like the real chemical and would allow them to make comparisons with existing solutions (how much less volume was needed, how many small bottles you could buy with one of the existing product etc…).

The point here is to close the gap between theory and reality and using props, or prototypes are perfect in that sense.

How do I demonstrate an algorithm?

matrix screen

This real life case happened in the first startup competition I participated. One startup was developing a system that used web crawlers and artificial intelligence to map social media posts, categorize and understand whether it was a positive/ negative comment about a product. The applications could stretch far beyond this example, but it wasn’t finished yet.

In cases like this it’s important to show (even if it’s a simplified version) examples of the algorithm results. But more than showing original social media posts and results in an excel sheet, this group did something really cool: they opened the computer, with the raw code and hit play. A really cool (for nerds) matrix-like screen started to show the algorithm in action, interpreting the results. Boom, audience got hooked!

Software Demos: watch for bugs… they’ll happen when you least expect!

The classic “Blue Screen of Death” during Microsoft’s presentation is just one of many fails in software demos. Systems, specially those under development, do crash… a lot! Several things can happen: you’re using a different machine/ device, last minute updated not properly tested, unstable internet connections and even instability on the servers. Still, demos are crucial!

Keywords here are prevention and redundancy:

  1. Prevention: you can prevent most of those potential issues but using a locally hosted demo, exhaustedly tested.
  2. Redundancy: have a more static version (a PDF file) of the screens you intend to navigate. In case something goes wrong, you can alternate windows and move on with your pitch.

A demo is not a full system presentation, though. It must show actions/ results related to the problems you’re trying to solve. You focus on the main features, mimicking a real user. The video below, from Agrylist, 2015 TechCrunch Disrupt SF Winner, is a good example of software demo:

Agrilyst pitch - Demo

Agrilyst pitch at TechCrunch Disrupt 2015 SF

What if I don’t have the software yet?

You can still make a demo. In this case, though, you could use a wireframe (the draft screens of your system) same way we mentioned about the dummy prototypes. Making a fake navigation through wireframe will give put the audience on the same page in terms of the desired solution and show you know what you’re doing… in details.

example of wireframe

example of wireframe – source: http://www.balsamiq.com

There are many online tools to make wireframes. I use Moqups: it’s simple, web-based, and cheap.

If you don’t have a designer to give the wireframe a more professional look, I’d recommend spending a few bucks on Fiverr and hiring a freelance designer to make your screens look less like a high school home project. High quality design is crucial.

Doing demos is one of the most (if not the most)important things you must do in a pitch. I learned this the hard way: on the first startup competition I participated, AgendaPet was not ready yet. I had even hired a second tech team to make an MVP for that competition, but I was insecure with the unfinished product, so I chose to go with static screens on a Prezi. The feedback I got from judges was that the lack of an MVP brought doubts about whether I was capable of delivering my vision. Tough lesson!