As adults, we are familiar with the adage, “Money doesn’t grow on trees.” However, kids do not understand the notion that money is a resource that must be earned and is not one that is easily acquired.
A family friend’s daughter recently declared that she deserved a raise in her allowance — from $100 to a whopping $500 a month. Her parents asked her to put into writing her needs to justify such a hefty increase and why they should be committed to it. She would thereafter present this at a family dinner the following weekend. I found this rather amusing and looked forward to the ‘pitch’ and the result which I’d reveal at the end of this article.
This article aims to enlighten and inform founders on the skills they need to pitch their idea whether to an investor, employee, prospective employee or partner.
Pitching is probably the most important skill any founder must master. Almost all the great African founders: from Aliku Dangote, Mo Ibrahim, Strive Masiwa, and Tony Elumelu, to the likes of Iyin Aboyeji, you will find that most if not all have had to pitch to investors at one time or another. The great thing about pitching is that people are not born with it however, some people are more naturally gifted and can sell anything to anybody. But it is something you can learn if you commit some time to learn the skills that you need to put forward a good pitch which could reap good benefits.
What is a pitch?
A pitch is derived from what we call a sales pitch. The original meaning of the word pitch is a high voice note; to raise your voice note so that you can get a high pitch. It’s recognizable. You can describe pitching as raising your voice, not shouting, but raising the voice of your idea or product to someone, so much so that they notice and respond favorably to your product or idea. That’s where the sales pitch comes from.
This article is going to center on what the most common scenario is, which is, a founder pitching to investors. Whilst it’s going to focus on that scenario and using that as a context, it is important to know that the skills we will talk about are also critical if you’re pitching to an employee or customer for example. These tips would help you in whatever way shape or form you’re trying to pitch.
Do note that this is not an exhaustive list nor is it a framework that says, “if you do all of these 10 things, you will always get a positive answer”. Depending on who you speak to, people will have different things to say. But from my years of investing, speaking to founders, and pitching ideas whether in the corporate world or as an entrepreneur, I have found these tips very helpful for me and a lot of founders I know.
#1: Be very clear on the value your product or service creates for your customer:
In terms of startup lingo, this will be called the value proposition. It’s important to be clear on this. Many founders are still not clear on what their value proposition is and this is because several things are needed to help you get that clarity. The most important one is: what is the job to be done for the customer? Your product or services should be doing a particular job for the customer. You need to be very clear about what that job is. In some cases, your product or service may be taking away pain and you need to be very clear about what that pain is. One of the reasons, that people are not very clear on the value proposition, or they make very broad general value propositions is the notion that, if you build it, they will come. For example, a founder created a canopy for cars based on the assumption that a lot of cars are being parked outside and every time it rains, the cars get dirty, and people need canopies to cover their cars.
While that’s a great thought, the problem is that most people now go off and start building canopies after which they try to sell the canopies to people who have cars. Some founders started their business this way – thinking there is a problem, creating a product, and then trying to sell that product. In some cases, that could work but, in most cases, you would find that what you think is the problem is not the problem. So, as a founder, you need to go out. What would I do differently if I was making those canopies? The first thing you really need to do is do some research. Go and speak to random people on your street or random people in your area and ask them: anytime it rains, or your car gets dirty, if you had a canopy would you be happy with that? What you would find is that some people would say “No, I don’t need a canopy” some will say “absolutely” while some others would say “yes, but I want it for free. I am not going to pay money for that”
You need to be very clear on your value proposition and the only way to be clear is for you to speak to your proposed customers to find out if that’s really a pain for them. Once you get some clarity on the value proposition, you understand the pain and that’s what your pitch should be able to communicate. One of the first things investors would be looking at is “does this person understand the pain their market is having and is their product going to solve that problem.” The best pitches can communicate this very clearly in plain English without technical jargon. The best pitch, instead of saying “we need the canopies” says “I have done some research and out of 200 people that live in this area, I spoke to 20 of them and 18 of them have come back to say this canopy issue would solve the issue of their car being dirty each time it rains. Out of those 20 people, 5 of them said they are not going to pay for it, but if they get it for free, they will use it. The other 15 say they will pay any amount of money to make sure their cars are covered.”
This is what is popularly known as market research. It is telling you that there is a problem that gives you some clarity on the number of people that are happy to pay for that problem and you can begin to create a product based on that. The value proposition is very important.
#2: You must be very clear on the market opportunity in economic terms
Using the same analogy of a canopy for example. You should be very clear on how many people are in that market. When it comes to looking at the market opportunity and this is in economic terms, there is no point telling me a hundred people will buy my canopies, but those hundred people may want to pay 1 dollar each which equals 100 dollars. What is more important is the 100 dollars, not the 100 people. In some cases, if it’s a social enterprise or a non-profit enterprise, the key metrics may be the number of people not necessarily the cost. It doesn’t need to be commercially viable, or commercials are not the priority in terms of economics. Their priority is people. However, in all businesses i.e., you’re selling something to make money, it must make economic sense. If I am making a hundred dollars from canopies, I should be able to make those canopies for about 50-60 dollars to make them profitable. There is no point in those canopies costing me 120 dollars and all I can do is sell them for hundred dollars. You need to be able to convey your market opportunity in an economic sense and the very best pitches can communicate this properly. Associated with that is what you call you: total addressable market, service addressable market, and service obtainable market. These are different types of markets and they all come out from each other. Most popularly known in the industry are your TAM, SAM, and SOM.
For example, if you are creating canopies, your Total Addressable Market is how many people have cars. Also, it must be geographically restricted because if you live in Abuja, you’re not going to sell canopies to people in Chicago hence, the people with cars there should not be a part of your TAM because it has nothing to do with your market. If you’re only going to sell cars in Abuja, your TAM, since it is currently restricted to Abuja, is the amount of people that have cars in Abuja. That’s a more realistic TAM.
When you go down deeper to see what your Service Obtainable Market is, that is how many people own cars in Abuja and park their cars outside. So, if we say for example that a million people in Abuja have cars, how many of those million people park their cars outside because your canopy isn’t going to serve the man that has a garage because he doesn’t have any need for it? You would need to do that research and sometimes it is very difficult to get these numbers, but you need to get some credible sources.
You bring that down to your SAM, which is how many people park their cars outside in Abuja. That’s the addressable market, the market you can address. For example, right now you only have the capacity for five hundred canopies. So, your obtainable market is out of the whole of Abuja which area do I know for certain I can get around five hundred people? So, your obtainable market is which area can I begin to sell to now
For example, if your canopy is a hundred dollars, how many people among the people that park their cars outside can afford a hundred dollars? Some of those people would be cleaners, laborers, etc. who do not even have a hundred dollars to eat, let alone pay for a canopy. So, you will narrow it down to the people that can afford a canopy. That now becomes your obtainable market. These are the people that you can go to tomorrow and if you convince them, they will be able to pay for your canopy because they need it. They have their cars parked outside, they have the money to pay for them, and they also live in Abuja. That’s the market you should focus on.
The good thing about knowing your TAM and SAM is that as you begin to grow, you begin to see more opportunities. There may be opportunities to make canopies cheaper and maybe if you sold them for fifty or twenty-five dollars you can sell them to a lot more people. So, it is good to know what those market sizes are. The better pitches are very good at communicating market opportunity, especially in economic terms.
#3: The best pitches communicate well-thought-out economics
The point in all of this is that there is a lot of credible work that needs to happen to get the pitch right. Most founders already do some of that work, but they just do not write it down or bring it together and that’s where they probably need help in bringing all of it together. Founders need to consider two things.
The direct cost. For example, what is the direct cost of making the canopy? How much do the metal, cloth, screws, nails, and everything I need to make that canopy? What are the direct costs? How much do you need to make one canopy? That is the direct cost.
The indirect cost is usually variable. For example, I am going to host the canopies in a warehouse, i also need to transport the canopy. These are not direct costs needed to make the canopy but it’s a cost I need to store the canopy. These things must be considered and thoroughly understood. Do you need to pay a sales rep to go and sell? If you do, how much is their salary? These are indirect costs.
What your direct and indirect costs would do for you is give you some clarity on what your operational expense is. How much will it cost you to operate this business? And that should be projected over a period of which I usually recommend three years but sometimes three years for a startup may be too much time. Anywhere between twelve to thirty-six months. Usually, twelve to eighteen months is what is usually advisable because the startup ecosystem is changing very quickly. So, if you can get an understanding of this, what is it going to cost me? I intend to make five hundred of these canopies and this is how much it’s going to cost me. Now what you need to be able to work out is, if it’s going to cost me one million naira to make these five hundred canopies then whatever I sell those canopies for, I need to be able to make at least 20-30% more by the time I sell the canopies. At the end of the year if I don’t do anything else I should have about 1.2 million in my account. This is after paying everybody and sorting all quarters. That’s why you’re in business; to make a decent return which is about 20-30% which for most startups is a lot more because they are growing very quickly. However, you need to be able to demonstrate that hence the need to talk about the economics which has to be thought out. It needs to be able to tell people that this is what it will cost them.
You need to factor in things like how much money are you going to make during that period. How many customers are you going to serve? How much will it cost you to get one customer? Is that customer going to be with you, how much are you going to make from the customer? There are many terminologies in the industry that you need to be aware of. Things like customer acquisition cost, customer lifetime value, how much you’re making from the customer, and how many customers you’re going to make. You must know these things and the best pitches can communicate that.
#4: Your pitch should be very clear on what role your product plays in the bordering ecosystem
This is not something most people will tell you, maybe because they don’t understand or haven’t experienced it themselves, but I know the importance of this. It does quite a few things for you. The first thing it does for you is, to know the role you play in the ecosystem. Using the canopy for example, in our ecosystem, making a canopy for cars is obviously the car manufacturing and car sales ecosystem or possibly car maintenance. What we should be able to do is be aware of not only what we are doing for customers but what we are doing for other people. So, for example, the guy that is selling cars, that wants people to come and buy and enjoy the car would have some indirect benefit from the fact that I am providing canopies to protect that car. The guy that’s providing insurance for cars, who is going to pay you money if your car gets damaged, has some benefits from the fact that I am now protecting that car, thereby creating an environment where it is less likely that your car would be damaged because I am protecting your car. So, if I understand that, as a canopy maker what it does for me is several things. The first thing it does for me is that I can now see where I can get partnership opportunities. So, if more and more people in Abuja are buying cars one of my channels to market would be going to partner with the car sellers and work out deals with them. You can say, “Mr. A since more and more people are buying cars how about, every time you sell a car you sell my canopy as well? It’s not a must but you just offer them my canopy and tell them this canopy will protect your car. For every canopy, you sell with your car you get a commission.”
So, that already begins to identify opportunities where I can begin to make more money or more sales. You can go to the insurance guy as well and give him a similar offer. Off the back of that, you’re now playing a role in the ecosystem where other entrepreneurs and service providers are now looking to you. A very good example is kobo360, a logistics company in Nigeria. So, I was talking to a founder who was building an agricultural company. He called it the Amazon for farm produce. His idea is from the farm to fork, to get your product from the farm to the plate. He handles everything that happens in between by providing a platform that makes it easier for the tomato to go from the farm to your plate of rice. He doesn’t do logistics but what he has been able to do and what kobo360 has been able to do is to say “come you can work with us. We will do the logistics for you, and you can do what you need to do. You don’t have to pay for it, the customer will pay for it” You now see how kobo360 is not dealing with the customer directly anymore. They are now working with partners to sell their products. In other words, when you understand the ecosystem and the fact that your product or service is not in isolation (no service is in isolation) and you also understand the role you’re playing in that ecosystem you can identify real good opportunities for your business. In some cases, some startups have pivoted, and they no longer serve the customer. They now changed from B2C to B2B because it is more profitable for them to serve other businesses and partners than to serve customers directly. If you’re able to communicate this to your investors, it’s going to be a lot more attractive. So, if for example, I say to the investor “I am going to sell to a hundred customers. I believe we can get a hundred customers. I tell you what’s interesting, Mr. A sells cars and I am confident as I have spoken to Mr. and he’s open to the idea that when the canopies are ready I should give him another hundred and he will sell them. Because he sees my canopies as being very important this would be a lot more attractive pitch to me as an investor. You must know what role you are playing in the ecosystem and how you can take advantage of that.
#5: You must be able to communicate what you need now in terms of finance and your product, in the context of where you’re going
This is something very difficult for founders. Not surprisingly so, because as a founder most of the time you can only see the big picture. You are just starting this business, but you can see yourself serving one million customers because that is where you want to get and a lot of times that is what you are communicating which is very good. But at the same time, you need to be able to communicate where you are in real terms today. What I always tell founders is, in your pitch have a roadmap slide (in some cases I tell them to put a road on the slide). What that roadmap does is at the end of the road you put your destination. Your destination is one million customers and then you put a time: We are in 2022 and you will hit those one million customers in 2025. So, you put your destination as one million customers in 2025. At the end of 2024, where would you be? Will you be at six hundred thousand customers? That figure should be stated there. Obviously, not just putting customers but in terms of economic terms as well.
At the end of 2022, which is when you’re pitching, where will you get to?
At the end of 2023, where would you be? You put it there.
If you’re pitching to somebody in January or February, what you should be focusing on is your milestone for the year. Most of the things on your slide should be able to communicate what you need to get you to the end of 2022. Also, you should be able to tell me how you plan to get to the end of 2023, and 2024 and how you plan to make that one million in 2025. So, there is a way you can put one slide that tells those things. It’s a very clear slide that gives you a picture of “these are the things and what the product would be”
Again, serving one million doesn’t mean it will be one product. It will be changing especially for a startup.
A founder needs to be able to communicate what you need now. If you don’t do that, you will very quickly come across as somebody that’s living in la-la land and investors run away from such people because you can clearly see that they haven’t spent time and are not focused on what they need to do. The subtle test in all of this is the work and discipline to know what you’re doing and not trying to be among everyone else saying ‘we are all in tech, we are all founders. A pitch tells you the real founders, at least from an investor’s perspective, from somebody that wants to just put a fancy slide deck together. However, fancy slide decks don’t do it for the real seasoned investors, they will see through that
#6: A good pitch is also able to communicate the people you need, to deliver customer value
Who do you need in your team to get this thing happening? If you don’t have this person, you should be able to communicate that ‘I need this person and one of my priorities is to get this person. Using the example of a fintech, if you’re a finance person and you don’t have a technology person and you’re raising money, it is going to be difficult for an investor to give you money without you having a technology person because it’s the technology that is going to do all the work. As a founder, I am not saying you can’t raise money without a technology person, but I am saying it will be harder for you. However, it’s still possible. At the very minimum, you should be able to communicate very clearly and quickly that you know you need a technology person and part of the money you are trying to raise is to see if you can get one on your team. This is much better than not saying anything at all because if you don’t say anything, it is assumed that you don’t know you need one. You need to be clear. If you have the right people, you need to brag about them. If you have a tech person that went to MIT, put that out there. What you don’t do is borrow people to act as a member of your team. For example, don’t go and say I know Mr. Gerrad and he is now my CTO. I am not your CTO. I could be your advisor but the fact that I have a background in technology, and I am advising you doesn’t mean I am your CTO. You find that a lot of people do this. One of the things investors do is when they look at the names on the slide deck, they ask how many of the people are full-time and part-time. What they are trying to find out is how many of these people are really your people. Honesty and integrity are a part of anything a founder does at this stage and throughout his career. To be transparent, and honest, and to have a high set of integrity. So, if you’re borrowing people put it clearly out there. “I know Mr. Gerrad, he has a technology background, he is my advisor, not my cofounder, but he is advising and helping me. He has also committed to spending an hour a week with me and I am working with him to identify a CTO”. This is way better than putting Mr. Gerrad as your CTO. Be very clear on the resources you need, who, and what skill sets. If you have the right team, say who they are. If you won’t be very clear on what your plan is to acquire the right team.
#7: Less is more:
This is very important. For example, you are a startup into cryptocurrency and you’re coming to me speaking in the crypto language. I am a finance person with little or no clue about crypto. So, I will just be looking at you with no idea what are you talking about. Side note: It is very important that you have the right investors with you. You don’t want to bamboozle investors into giving you their money because giving their money is not the end of it. When they give you their money, they will keep chasing you to find out what’s going on with their money. What you need to do is get someone who understands your business and understands what you’re doing because there will be challenges. In fact, you might hit so many problems that you may even end up folding up your startup but if you get the right people on board, they would be sympathetic because they understand what you’re going through. You can tell them that Bitcoin is now thirty thousand dollars and as a result, most people are not trading Bitcoin anymore so you’re not getting sales. Somebody that understands Bitcoin will know that you’re saying the truth and sympathize with you and help you think of ways to avoid those challenges or get over them. But if you have bamboozled people and all your investors think Bitcoins are coins that you’ve gone to buy and put in a space in your house, not knowing that they are digital currencies. They might ask you to go sell the coins in the market. That would be a very difficult conversation to have after somebody has given you, their money. The most important thing is to get them to understand where you’re coming from. If they do understand and they want to commit and invest, then so be it. If they do or don’t understand and decide to not invest, then so be it as well. Don’t try to bamboozle people by using big words that will confuse them. That’s not a good idea at all.
#8: Pitching is fun
I think it is the most exciting thing anybody could be doing. There is a popular saying that, if somebody has seen your CV and invites you for an interview it means they already want or like you. All you have to do is go and prove yourself to them. So, you should go there very confident, but people still mess up because there is so much difference between what they say on the CV and who they are. If you are going for a job interview you should be natural, be yourself and hopefully, that’s what you have written in your CV, no pretenses. So, for me, it’s the same thing with a pitch. If you’re a founder and you’re building this great idea, you have researched and you’re so passionate about this thing and then you have the opportunity to tell people about it, there should be a spring in your step. said it should be a dream for any founder especially if you know you’re doing something good. It’s a time to show off either what you’ve done or what you’re about to do. Be very positive, dress the part, be cheerful, and smile a lot but don’t smile like somebody is tickling you from the back. Just be strategic about your smiling. Smile at the right time. Be pleasant and have fun. If you finish a pitch and you say to yourself that was fun, I can almost guarantee you will have somebody give you some funding. But if you come out from the pitch and you’re like, that was tough then chances are you’ve struggled, and chances are you may not necessarily get funding. It doesn’t always work that way, but I suspect that’s how it is in most cases.
#9: Say the truth and do not oversell
Pitches are a balance between optimism and realism. As a founder you must be very optimistic because you will have a lot of people tell you, you can’t do what you are trying to do. So, you need a heightened sense of optimism to be able to go through all of that. That optimism should come from a lot of confidence in the research you have done. Using the example of the canopy, you have spoken to a hundred people and a hundred people have told you they want your canopy, and they will pay a hundred thousand each for that canopy. That’s information and that information has given you confidence. When you speak to an investor and the investor doesn’t get it then so be it. Something needs to give you that confidence. Either your market research, the great team you have, the innovative technology you’re bringing to the market, or the revenue you’re making. It could be anyone those things that give you that confidence. If you have that, you won’t have to oversell. There will be no need to oversell. You’re not trying to win people by overselling. You’re just telling them the truth and you’re just hoping that those that get it, get it, and get on board. That’s why it is very important you know the facts because if you don’t, you would generally try to oversell, not deliberately but unconsciously. Using the canopy analogy, if you come to me and say that there are a million people in Abuja that you can sell this product to, there are a million people in Abuja that have cars, but you can’t sell to a million people. So, unconsciously you have oversold because you haven’t done the analysis. because the real analysis is: how many people in Abuja don’t have garages? how many people in Abuja don’t have garages and can afford a hundred thousand? That’s your real market and those are the people you can sell this canopy to. So, that’s very different from saying you can sell to one million people in Abuja. No, you can’t, and when you say that people would just smile and say this guy hasn’t spent time to do his research. Either he doesn’t know, which is not good. Or he knows and he is lying which is much worse.
#10: Give investors something to look forward to
Do you know when I said that road map journey? At every point in that road map, you should be able to tell the investors what they get. So, for example, this is May 2022. I am asking an investor for a hundred thousand dollars. I should be able to estimate, it doesn’t have to be exact figures but always work with something you’re working towards. I should be able to tell investors “These hundred thousand dollars you’re giving me, by the end of May it should be worth this. Also, this is why I say it would be worth this because XYZ would have happened. By the end of 2023, XYZ would have happened therefore your hundred thousand would be worth this, up until 2025. What’s even great Mr. investor is that at the end of 2025 I am planning to sell the company and when I sell the company I will hand back to you five hundred thousand dollars or at the end of 2025 I plan to sell shares in the company, not the whole company but when I sell the shares I will hand you a check of five thousand dollars or at the end of 2025 I will sell back the shares because I want to own the whole company and when I do that I will give you five hundred thousand dollars.” As clearly as I have said this, be clear. I will say 90% of the decks I see do not have that. I think it’s quite a shame when people don’t do that. Now, that information does two things, it gives the investors something to look forward to. All they would be checking now is, is this real? Can this really happen? They are checking to know if XYZ can happen or if you can make it happen, at least they have something to work with. That’s the first thing, something to look forward to. That’s your pitch, the real pitch. The second thing it does is, it shows the investors that you have thought ahead of time and you’re very clear on what you need to happen. With all these things, you give a caveat and make it clear that it’s not guaranteed because nothing is guaranteed. So, make it clear and say “I cannot guarantee you any of this because we know we can’t make any guarantees. But I can reassure you if our plan is well executed and if everything goes as planned you can get this amount of money.” What you are doing or trying to do is demonstrate that if everything goes according to plan then this is what I can do for you. This is what this business can do for you. This is the return you can make as an investor. I think that’s probably the most important slide that gets missing from the pitches that I see, and I think all the other nine are very useful things to learn on that journey of writing the right pitch.
In summary, pitching is a skill set that is learned and pitches change obviously. Someone that is just starting his pitch and is trying to raise one million dollars will have a very different pitch from someone who is raising ten billion dollars. If Ulesson were going to raise money tomorrow, their pitch will be very different, these principles will still be there, but it will be focused more on numbers, and performance. What have you been doing? How many customers do you have? What is the customer retention rate? Which new markets are you going into? So, it’s always going to be a very different pitch depending on where you are as a startup. You’re always pitching. I can guarantee you; that Dangote in the last year has pitched to investors to build his refinery. It might not necessarily be him going through a PowerPoint slide, it could be over dinner. He could be having dinner with somebody from the World Bank and say Africa has a huge problem with refining oil, it’s about time we start doing this and that. We can make billions of dollars if we get this refinery right. It’s going to cost us ten billion, for example, but I am confident that in the next five years we will be making around thirty billion per annum. It’s a great opportunity if your bank is interested and wants to come on board. I can get my people to speak to your people and we can work something out. That’s a pitch. It’s not a slide deck but that’s a pitch. Throughout your life as an entrepreneur, you will be pitching. The way and shape in which your pitch works will be different, but I think the foundations which I consider these ten principles would always be underlying any pitch no matter what you do, wherever you pitch, and however it looks. These ten principles will have to be there to help you deliver a better pitch.
Back to the earlier story, the young teenager made a detailed list of things that she needs to buy regularly which I found very commendable. She also mentioned the fact that she wants to be able to go out with friends and buy herself little treats.
After listening to her defend the new budget, her parents helped her understand the difference between her “needs” and “wants”, negotiated the increment, and met her halfway.
The better prepared you are, the better the chances of you getting what you ask for or at least something close.
