4 Common Mistakes that Kill Your Startup Pitch
We've heard our share of startup pitches over the years. They ranged from intriguing to laughable. Some pitches revealed fundamental flaws that would doom the startup to failure. No amount of investment money could save these ventures. In other cases, the venture brims with promise, but its founder fails to prove its investment potential. To help you avoid the same fate, we want to share a few of the pitfalls startup founders face when pitching, and how you can evade them.
1. Relying on Hype Instead of Market Need
The first step to seeking funding—or even pursuing your business idea in the first place—is to make sure you're solving a real problem. A startup that that fixes problems offers a high-demand product or service. Potential customers already lining up to pay. It's more valuable than a startup that depends on hype.
Many startup founders fall into the trap of paying attention to hype, instead of the needs of their target market. There are many reasons for this.
First, there's the fear of missing out (FOMO). It's easy for trendy concepts to dazzle aspiring entrepreneurs like you. You may worry that you'll overlook the chance to "disrupt the market." And then, you might worry, someone else who does will reap the rewards instead.
Emotions drive FOMO. Anxiety, excitement, or jealousy can cloud your judgement. You could become too optimistic about your chances for success. Or make impulsive decisions. FOMO makes it difficult to take a step back and conduct accurate analyses of your market.
Second, there's noise everywhere. Startup founders need to know when to ignore buzzwords, exaggerated claims, and misinformation from influencers, social media, and traditional media. Furthermore, your target market could get temporarily caught up in hype storms too.
Third, a big market doesn't inherently mean big opportunity. Hype can mask market saturation. In crowded markets you may not be able to provide something unique and different enough. Your offer may not convince customers to switch from established companies. Sometimes startups create a product or service first. They have a solution in search of a problem instead of a problem in search of a solution.
Relying on hype instead of market need can undermine your startup pitch in several ways. Like many investors, we look for products and services that show a firm likelihood of success. We want to see a clear path to becoming profitable. Hype-driven pitches are shallow, empty, and come across as guesswork. Founders with pitches based on hype lack a clear understanding of their potential customers. Hype-driven pitches also threaten exaggeration and impossible promises. They can't show realistic scalability, market validation, or competitive advantages.
For example, a startup called Juicero raised funding for their high-tech juice press. They first priced their machines at $700 each. Customers would also need to buy special packets of fruit and vegetables for the machine to squeeze into a glass.
Juicero believed their product would change the massive green juice market of the USA. Investors, according to TechCrunch, were inspired by the wildly successful Keurig coffee cups. They didn't want to miss out on the "next big thing" in kitchen appliances.
But the hype didn't last long. Customers and journalists found out that the machine was not better than their own hands for squeezing the packets. Americans could find perfectly good juicers for under $50. Potential customers simply didn't want it. Juicero tried and failed to solve a problem that didn't exist. It didn't understand its ideal customers. Juicero shut down in 2017. Investor excitement and media coverage alone couldn't save them.
So how do you make sure you're not falling into the same trap as Juicero's founder and investors? The key question is whether your idea solves a real problem that people are willing to pay for.
Smart market research is the only way to find the answer. You need to gather cold, hard data. Seek information about demographics, psychographics, behavioral patterns, pain points, and preferences of your target market. You also need to understand both your direct and indirect competition.
Validate market demand by surveying and interviewing potential customers. Ask them about their preferences and pain points. Test prototypes early for interest and user experience. Make sure your value proposition resonates with your ideal customers. Don't forget the gold standard of market validation: pre-orders.
2. Making "Change the World" Claims
While almost everyone wants to make a positive impact, many startup founders go much further. They want to change the entire world. They’ll settle for "disrupting" a few industries. But specific, mundane ideas have higher chances of success. For instance, a startup that streamlines shipping between China and Turkey holds more promise than a crypto idea that will "revolutionize finance."
Many startup founders present their venture as world changing. They make this mistake for several reasons.
First, it all sounds very impressive. You might think that investors equate ambitious goals with big profits. Or that a big vision is enough to inspire confidence from potential investors.
Second, you may truly believe it. Most entrepreneurs are motivated by passion, purpose, and progress. You see something that's not working, or could work better, and want to fix it. Along the way you can forget that the world is too big, complex, and abstract for one business to save.
Third, we're-changing-the-world claims can seem necessary. Business is hard. Attracting attention is hard. Finding the right employees is hard. Standing out from the competition is hard. Winning over customers is hard. Getting startup funding is hard. Some startup founders falsely think they can replace this hard work with a bold story.
"Change the world" claims can undermine your pitch in several ways. Remember, if something sounds too good to be true, it probably is. Grandiose claims make you seem, at best, naive. If not lacking all credibility. They also tend to be vague. Investors, including Misulis, need to see a clear map to success. Vague goals, no matter how big, don't make for good maps. You also risk setting unrealistic expectations and promising what you can't deliver. Which damages your reputation and can make it impossible for you to raise funding in the future.
HealthTech startup Theranos is a good, if extreme, example of grandiose claims backfiring. The company promised to revolutionize blood work. Theranos claimed it could run tests for life threatening diseases on a portable machine with only one drop of blood. (Current blood tests, which can require 30 milliliters). If true, blood tests would become far quicker, cheaper, easier. They would also become more convenient for both healthcare providers and patients.
Unfortunately for Theranos and billions of healthcare patients worldwide, this technology is still science fiction. In the U.S. v. Elizabeth Holmes, et al. case, the founder and CEO of Theranos were charged with various fraud counts. Theranos shut down. The case against them said they lied to investors. That they misrepresented the company’s future potential and financial condition. "Change the world" claims can turn dangerous.
There are a few ways to keep your pitch believable, grounded, and targeted to specific market needs. Stay honest and transparent. Don't try to hide your startup's weaknesses. Acknowledge threats to your startup, limitations, and risks. Set realistic goals and regular milestones. Figure out concrete objectives and reasonable metrics. Create a route to tangible results. Hold your vision in the back of your mind but show us your detailed plan for execution.
3. Believing that All You Need Is a Good Idea
Every startup begins with a good idea. But an idea, no matter how brilliant, is worth $0 without the right execution. You must prove that you're the right person or team to bring it to life. Bring evidence of your expertise, commitment, connections. Show us a solid business plan.
There are a few reasons why some startup founders think a good idea is enough.
First, the media misleads aspiring entrepreneurs. Media narratives emphasize the "eureka moment." They focus brilliance of the idea, not the hard work needed to succeed. News, movies, and TV shows simplify the process of growing startups. They romanticize entrepreneurship. They obsess over the exciting aspects and cut out the tedious ones.
Second, your startup will take over your life (if it hasn't already). Which keeps you focused inward. You can easily forget that ideas are free. Others can come up with the same idea independently—as tale as old as science and invention itself. Current and future competitors with more resources can replicate or improve your idea.
Third, if this is your first startup, you're likely to underestimate the skill, timing, and luck needed to get your product to customers. Jobs include drudgery, but so does owning or building a business. No one likes to think about the boring moments.
Believing that all you need is a good idea can undermine your startup pitch in several ways. Investors know that startups are risky. There's no way to pretend otherwise. Challenges can appear at any point. In product development, integration with other systems, scalability, supply chain logistics. In competition with other startups or established companies. Getting too caught up in your idea damages our confidence in you. It also signals a dangerously hazy business model. It also makes investors worried about your ability to respond to market feedback.
For example, Zoomo tried to take advantage of India's $10 billion used car market. The company created a peer-to-peer marketplace for used cars. Experts inspected and confirmed the condition of all the cars on the platform.
This seemed like an excellent idea. An inspection report and warranty could overcome the mistrust buyers feel when purchasing a car. Buyers could feel sure that they wouldn't be stuck with a lemon. Peer to peer transactions cut out the middleman. The benefits of lower costs could reach both buyers and sellers. And technology multiplies growth. Zoomo could scale fast.
However, two years later the startup returned its remaining venture capital funds and shut down. The idea was good, but the founders couldn't implement it. The business model failed. Zoomo didn't set a pricing standard, so buyers and sellers haggled. Conversion rates stayed low. 20 cars were sold for every 100 they inspected. Offering other, extra services didn't help.
How can you make sure your pitch is more than just your idea? The answer is detail, detail, detail.
Be ready to learn your venture inside and out. Get rid of all general, fuzzy, nebulous, ill-defined or rough statements. Lay out every inch of your market landscape. Size, key players, trends, competitors, customer segments, and developments. Describe your product or service comprehensively. Technical specs, features, benefits. Use pictures or demos. And don't ask for substantial investment without tangible progress or traction.
4. Forgetting that Trust in a Startup's Founder(s) is Key
If doubts about a startup's founder(s) arise, even the best ideas may fail to get funding. Many amazing ideas have crashed and burned because the people working on them weren’t competent. Founders need to demonstrate the right personal characteristics, skills, and commitment. Investors, including Misulis, look for entrepreneurs who aren't going to burn out or quit too soon. They want ones who are open to others' ideas, who are trustworthy, flexible, adaptable, mentally strong, and curious. Investors invest in people first, ideas second.
Many startup founders forget that their trustworthiness is key. There are a few reasons for this.
First, in most realms of life, trustworthiness refers to personal character. Someone is trustworthy if they don't lie, cheat, steal, or betray others. Obviously, investors don't give money to people with poor character. It's easy to forget that in the context of your pitch, trust also refers to your ability to execute your plan.
Second, brainstorming is easy. Your team can come with a miles-long list of tactics and strategies, whether or not anyone in your company actually has the required skills or resources to implement them.
Third, the culprit may be simple lack of awareness. Securing investment is often portrayed as a simple trade. A compelling business idea to grow an investor’s wealth in exchange for money to grow. Discussions about seed rounds concentrate on startups' ideas and business plans. Not much said about the people behind them.
Forgetting the importance of trust in startup's founder(s) can undermine your pitch in several ways. You miss a valuable chance to connect with investors on a personal level. We want to support founders we believe in, enjoy interacting with, and to whom we feel safe leaving our capital. Without this rapport, you're less likely to secure funding. Like all investors, we have a limited amount of capital available. We need to make the best possible use of this money. To do this we conduct a thorough risk assessment. If you can't address our concerns, your venture will most likely be valued lower, or you'll get less investment than you hoped for. Or we might need to reject your pitch entirely.
Clinkle, a mobile payments app, is a good example. The startup's product targeted college students when it launched in 2014. Not much information was released to the press. The company wanted to send payments through sound and include an online wallet.
Clinkle suffered many problems, some from one of its founders, who was also the CEO. The company prioritized perfection over gaining traction with potential customers. By the time the app reached market, it was too late. Better services, such as Apple Pay and Venmo, overtook them.
Clinkle's CEO was charismatic in front of investors, but he was a terrible leader. He created a toxic company culture. Business Insider reported that management treated employees in some departments worse than others. Especially some female employees, whom engineers were encouraged to use as personal maids. Even his co-founders scrammed. Some employees described their time at Clinkle as “permanently scarring” or abusive. Clinkle's CEO made decisions alone, without the input of engineers. He failed to hire people for key job roles, such as payment experts to negotiate deals with major banks. He hid the truth about the app. Incoming executives thought the app would launch soon. Later they learned the architecture wasn't done. The security framework was missing. There was no fraud detection and no designated credit card processor.
There are a few ways to earn trust for yourself and your team during your pitch. Consider contractual agreements, such as regular strategy meetings. Highlight your track record, including accomplishments related to but preceding your startup. Knowing your industry is far more important than whether you've run a startup before. Show us a capable, cohesive, cooperative team. Don't be afraid to praise or give proper credit to key employees for their achievements. Why (besides the fact that it’s the right thing to do)? Investors are more likely to trust you because you realise everyone in your startup helps it succeed. Share your personal story, to paint a vivid picture of the impact your startup has had on your community.
Pitching is both an art and a science. There's no single correct way to present your startup for funding. But there are many ways your pitch can go wrong. But if you can avoid key mistakes, like the ones we've discussed, you're far more likely to secure the funding necessary to turn your vision into reality.
Sources
Katie Roof. RIP Juicero, the $400 venture-backed juice machine. https://techcrunch.com/2017/09/01/rip-juicero-the-400-venture-backed-juice-machine/#:~:text=Inspired%20by%20the%20popularity%20of,to%20make%20juice%20at%20home
Wikipedia. Juicero. https://en.wikipedia.org/wiki/Juicero
Nicole Wetsman. Theranos promised a blood testing revolution — here’s what’s really possible. https://www.theverge.com/22834348/theranos-blood-testing-innovation-drop-holmes
Cleveland Clinic. Blood Tests. https://my.clevelandclinic.org/health/diagnostics/24508-blood-tests
United States Attorney's Office, Northern District of California. U.S. v. Elizabeth Holmes, et al. https://www.justice.gov/usao-ndca/us-v-elizabeth-holmes-et-al
Mayank Khanduja. Why Saif Partners backed Zoomo, a market place for pre-owned cars https://www.business-standard.com/article/companies/why-saif-partners-backed-zoomo-a-market-place-for-pre-owned-cars-115070700766_1.html
Malavika Velayanikal. Millions still in the bank, GoZoomo shuts shop, returns VC money. The whole story. https://www.techinasia.com/millions-bank-saif-partnersbacked-gozoomo-shuts-shop-heres-happened
Shweta Modgil. GoZoomo Shuts Shop Citing Unit Economics, Rivals Droom and Spinny Remain Keen On Market https://inc42.com/buzz/gozoomo-shuts-shop/
Wikipedia. Clinkle. https://en.wikipedia.org/wiki/Clinkle
Alyson Shontell. A SILICON VALLEY DISASTER: A 21-Year-Old Stanford Kid Got $30 Million, Then Everything Blew Up https://www.businessinsider.com/inside-story-of-clinkle-2014-4r=US&IR=T#:~:text=Duplan%20is%20said%20to%20call,gas%2C%20and%20picking%20up%20groceries
