The easiest advice you can give to a first-time entrepreneur is to ask him or her to make their pitch better.
Two reasons to start with:
1. That advice (unintentionally) implies that everything else about the business is quite all right and all it requires is a pitch upgrade.
2. If you are that entrepreneur, you might take that quite literally and start working on the components of the pitch (narrative, length, structure, sequencing etc.) and/or the mechanics of its delivery (tone, style etc.)
Combine reasons #1 and #2 and you have a disaster in the making.
As an entrepreneur, you might start believing in your own (flawed) story and start searching for someone who can “just” fix the pitch and you will be off to the races.
Upgrade your pitch ONLY after you upgrade your story.
Recently, an entrepreneur wanted help with his pitch upgrade and it was not hard to see that it was not the pitch that was the problem but the assumptions he was making about the business was wrong. The way the business was structured, it would fail the moment it started getting traction. I spent some time explaining why the business idea was flawed and how to fix it. The entrepreneur nodded in agreement. A day later, I got an email with the old pitch with a request to make a few minor changes so that he can get through an upcoming review.
A bad business model cannot be salvaged with a great story.
In fact, a solid business model and a great story will at best have 10% chance of succeeding so anything that’s less than 9 out of 10 on the business model is destined for failure very shortly.
Your pitch is important but it’s not everything
Your pitch is super important. It’s like the cover of the book. Without a good pitch, doors are shut for you. But, that does not mean that you will get a carte Blanche for moving ahead. It’s a start and at bests a door opener. Without getting the underlying elements strong, your attempt to get a strong pitch will be futile.
The genesis of the real problem
As an entrepreneur, it really starts with you. If you ask someone to just help you with the pitch, you might just get that – an upgrade on the structure of the pitch or an upgrade on the mechanics of its delivery. The underlying problems may not go away.
So, stop asking people to help you with your pitch until you are totally convinced about the strength of all the underlying elements.
Where can you start?
I always advise that you *start* with three key elements in the business model. I am emphasizing start here mainly because there are a lot more elements that you need to get right to get your business a head start.
Here they are:
1. Source of Revenues:
Somewhere in your business model, there will be someone who will need to pay you for something (a product or a service) – so you start with your potential target customer. The general flaw in this department is the assumption that when your product or service is ready, the target customer is open and willing to engage with you to transact and acquire the product or service.
Any target customer (you included) will have an unbelievable amount of resistance to change even when he or she knows that the change is good for them.
The benefits (A) of changing from where they are to the new state has to be super significant as compared to the “perceived pain” (B) you think they are experiencing in the current state.
Because you want to believe in your service so badly, you might miss a few things such as:
a) What percentage of your target customers acknowledge that they are experiencing any level of pain in their current situations. Remember that people get used to some level of pain and assume that it’s part of their life.
b) What percentage of your target customers are open and willing to consider a change if a viable solution comes their way
c) What percentage of target customers will actually follow through on their promises and make the switch to include your product or service as the solution.
d) What percentage of target customers who made the switch actually continue to use your product or service for a foreseeable future.
The answers you get for the above may not be pretty but ignoring those answers won’t make the questions go away magically.
2. Cost of Delivery:
If you give something really amazing at a throwaway price, you might find a boatload of people standing in the queue to buy that amazing thing. However, you might go bankrupt fulfilling the requests as you will have costs of delivery. When you are green, it is very easy to underestimate the costs of delivery because in your mind things will happen flawlessly because YOU are in control of the delivery.
A few things that are easy to miss:
* It ALWAYS takes more time and more money than your wildest estimate to deliver something awesome. So once you have estimated everything, you can safely double that number so you are not surprised.
* Murphy’s law (if anything can go wrong, it will) will spring up as an unwelcome guest every now and then. You need to factor that in.
* Needs change and new players will come into the market. You will need to change your best laid plans (fancy term – “pivot”) based on the new findings along the way. You need to factor in the “change costs” that is involved in the pivots
* When you pivot, you may realize that there needs to be a change in the team composition as the earlier team members may not actuarially be the right fit for the new direction. Any change in personnel comes at an “emotional” cost and there is no simple way to factor that in.
3. Mode of Distribution:
This seems simple but we all know that it is not. How do you take something you have created to the right target market?
A few things that are easy to miss:
* The cost of acquiring a customer (CAC) is always higher than what you estimate. This is because, for you the solution makes perfect sense.
* It is easy to overestimate the power of your personal network to bring the deals to the table. While you are important to everyone in your network, they also have a lot of other people in their network to pay attention to. So, talking to everyone in your network may be easy but transacting with your network takes time, effort and energy.
* Any meaningful distribution network that has access to a large enough audience will be approached by many companies to get their products pitched through that network. The result is that you need to “win” the mindshare of these networks to give you the attention. This means you should have spent a LOT of time beforehand to build and nurture relationships with key distribution networks. For your first company, “build it and they will come” is something that is more of a dream.
Your story should at least incorporate the elements that will remove the doubts in the three key areas above. Your pitch should be succinct enough to create enough curiosity to want to know your story.
PS: One more thing: It is a common flaw to focus on building an ecosystem that will consume when your energy has to be spent on building ecosystems that will contribute. Let me explain. In any ecosystem, there will be players that will consume (companies to whom you will pay) and there will be players that will contribute (companies who will pay you). The temptation is to start talking to a lot of people to whom you will pay because it’s just an easier conversation. Most of them will support you completely because in case you succeed, they will win. If you get into this trap, you will lose twice – once because you lost a lot of time that you could have used to build the ecosystem that will contribute and twice because now in your mind there is a higher sense of progress.
Focus on building an ecosystem that will contribute before you focus on building an ecosystem that will consume.
Rajesh Setty is Co-founder & Director at Compassites. His mission in life is to help bring new ideas to life, with love. His core belief is that while good ideas matter, the magic really is in amplifying them. He has co-founded a number of technology companies and a publishing company over the last few years. He consults and speaks on the topic of leverage, the secret ingredient that will bring an unfair competitive advantage for any company.