What makes a Great Company (1/n): Pitching
“The ability to communicate an idea is as important as the idea itself.”
I was recently asked to judge another startup pitch event at Cornell, which inspired this article - the first in a series about “What makes a Great Company”. I’ll explain what I mean by a Great Company at the end.
As a lifelong entrepreneur and founder of a mental health startup, I’ve experienced many challenges of pitching. I’ve pitched to small rooms and big rooms. I’ve literally pitched inside of elevators to venture capitalists. Some highlights:
I won a Wharton Angels pitch competition in San Francisco
I was runner-up in many competitions, such as an innovation challenge hosted by the City of Cincinnati for opioid addiction. The winner got to pilot their technology with local hospital systems, which have been decimated by opioid overdoses.
I was a global finalist for the EPiC (Elevator Pitch Competition), and the Hong Kong government flew me out for the opportunity to win $100,000 by pitching to VCs inside Hong Kong’s tallest elevator, located in the International Finance Center tower. One minute, 100 floors, $100K at stake.
Building an addiction recovery startup was so hard. We had to address risks in clinical science, regulatory policy, and more on top of the technology, business, and market risks. But that baptism by fire taught me what works and what doesn’t.
That experience extends beyond digital health. Because of the unique nature of my work, my founder friends often asked for help with mental health, and by walking with them through their companies, I got a bonus education in many diverse and unrelated industries. Despite individual differences between industries, a market transaction still only happens when a willing buyer meets a willing seller.
My breadth of experiences has helped me be a more effective mentor, and I’ve judged and mentored student startups at Harvard, Cornell, MIT, and (last but not least) the University of Texas at Austin.
Still, investing remains a black box. I often wished for a peek inside investors’ minds, and I want to help founders see around the corner - to have an idea of what to aim at. As such, this series is my contribution for founders hustling to fundraise, especially in this environment.
Financier and statesman Bernard Baruch said, “The ability to communicate an idea is as important as the idea itself.” Thus, my first article in this series aims to help founders build a Great Company by first highlighting common pitfalls in startup pitching, which can discredit an otherwise good idea. I hope you identify a few and thus free yourself of some risk exposure. A little addition by subtraction.
Despite popular opinion, entrepreneurs are not purely risk-takers. Surprisingly, the most effective entrepreneurs systematically de-risk their businesses in order to successfully attract investment and customers. We must be clear-eyed about risk to be credible with sophisticated investors and the public. Furthermore, as my friend and fellow Cornell EIR Rob Gregor points out, there is an inverse correlation between risk and company valuation - de-risking an enterprise actually enhances value and thus attracts investment. (If this topic interests you, I urge you to check out this chapter on the fallacy of risk in The Entrepreneur’s Essentials by my great friend Brett Hurt)
Before we begin, I’ll share with you part of one rubric I love, which is borrowed from the book “Fundamentals of Entrepreneurial Finance” by Marco Da Rin and Thomas Hellmann. Both hold PhDs in Economics from Stanford, and Hellmann also teaches entrepreneurship at the University of Oxford’s Said School of Business (I have my eye on them!). I’ve found that evaluation criteria vary from place to place, so their framework provides a good starting point for understanding the investor’s perspective. I’ll expand on this in a future article.
Key Section: One Core Question
1. Need: What exactly is the customer need?
2. Solution: Does the proposed solution solve the customer’s need?
3. Team: Do the founders have the required skills and experience?
4. Market: How large is the target market?
5. Competition: Who are the current and future competitors?
6. Network: What is the reputation of the founder team?
7. Sales: How does the venture reach its customers?
8. Production: What is the development strategy?
9. Organization: How will the founder team expand and evolve?
Now that we have an idea of what to aim at, let’s jump into the list itself. This article is most helpful to founders who have an upcoming pitch, or for early-stage startups that are figuring out their MVP or initial customers. The points within won’t apply equally for all, but I’ve tried to make them broadly applicable. Individual exceptions abound; anybody telling you “All investors do X” is not to be believed. Let’s go!
MISCONCEPTION #1: Start with story.
REALITY: Nobody cares about your story (except for people who have a professional interest in doing so). They care about whether you can solve a customer problem that the market values. Story is only relevant insofar as it imparts credibility that you can solve a customer’s problem. I see this a lot with earlier-stage startups, and it’s okay to be early. In the beginning, you’re trading on confidence about your background; later, your business performance tells a story of numbers. Absent business metrics, a far more compelling story is of efforts to date: product maturity, customer discovery interviews, metrics from product testing, key team member additions (including advisors), letters of interest or intent, patents filed or awarded.
MISCONCEPTION #2: If you build it, they will come. (I call this the Field of Dreams fallacy)
REALITY: If you build it, you will certainly also need a Go To Market strategy, because they certainly will not come. I see this a lot with founders with engineering or academic backgrounds, and my hunch here is that their field rewards objective superiority. But that is not enough in the wider business world - consider Liquid Death, which is not objectively superior to water competitors but beat all expectations through savvy marketing. (I really like this teardown by The Hustle on Liquid Death’s business)
MISCONCEPTION #3: If we are first to market, that’s enough for us to build a sustainable first-mover advantage. (This is the First Mover Advantage fallacy, the evil step-misconception of the Field of Dreams fallacy)
REALITY: Claiming to be first to market isn’t necessarily saying what you think it is. Also, consider the surprising benefits of last-mover advantage.
MISCONCEPTION #4: If we define our business or market positioning in this convoluted way, we can claim to be first to market and thus a better opportunity.
REALITY: Most investors can see straight through this, and I’m personally evaluating how your definitions are relevant to your market’s need, not whether you’re first to market. Usually, profits are competed away anyway.
MISCONCEPTION #5: “We do X thing Y% better for ZZ% less than the established competition” is a good enough marketing claim.
REALITY: Many founders with technical backgrounds fall into this trap. The problem is that even if the founder’s claims are true, investors are looking to multiply their investment by 3-10X, so a marginal improvement doesn’t fit their narrative of “outsized return on investment.” A product with marginally better features does not a company make; investors want to hear about how you plan to go to market, sustain healthy unit economics, and operate with capital efficiency. Also, marginal improvements may not last in the market or at scale, and if your target market segment is worth going after, there is a real risk that better-resourced competitors will copy and outcompete you.
MISCONCEPTION #6: We need VC investment to be successful.
REALITY: Academic literature indicates that venture-backed startups do have appreciably lower failure rates (from 2-4X). However, vanishingly few startups genuinely need venture capital investment, and relatively few founders are truly prepared for the pressures that come with accepting that investment. Furthermore, venture funding has become even more competitive with rising interest rates affecting cost of capital and expectations of Return on Investment, not to mention the ongoing fallout from Silicon Valley Bank’s failure. Much ink has already been spilled elsewhere on this topic, such as this article on “Bootstrap or VC?” by Brett Hurt.
MISCONCEPTION #7: If we just capture 1% of this market….
REALITY: Stop. Just stop.
MISCONCEPTION #8: If we set our fundraising goal lower, it’ll be easier to raise what we want.
REALITY: Most sophisticated investors won’t take you seriously. Instead, they may wonder why you’re not able to raise a small amount on your own, if you’re inexperienced, and how long it will be until you need to raise another round. (In a zero-rate environment, this was typically 18-24 months of runway)
MISCONCEPTION #9: If we zero-cost our efforts, we can claim to have low operating expenses and higher capital efficiency.
REALITY: Most investors see hundreds if not thousands of pitches, and when something doesn’t fit the pattern, like the cost of doing business, it sparks skepticism. Early-stage startup teams frequently must wear multiple hats, but I suggest at least doing the exercise of calculating real operating expenses by outsourcing most functions that aren’t your core competency. Also, get a good lawyer and business insurance.
MISCONCEPTION #10: Our product has to be technological somehow.
REALITY: I’m evaluating if your value proposition even needs a crazy tech stack. If it clearly doesn’t, I’ll wonder where else your judgment is questionable. Also, even if you succeeded, look at what happened to the most successful non-tech company that draped itself in the garb of questionable tech investments in order to justify inflated tech valuations - WeWork.
MISCONCEPTION #11: We have an undifferentiated product and our business has no strategic moat to protect against competitors or copycats. But buzzwords like “branding”, “network effects”, or “word of mouth” will fix all that.
REALITY: It won’t. Dig deeper.
MISCONCEPTION #12: Pretty fonts and matching color palettes will make our pitch more credible.
REALITY: Aesthetics will not hide glaring flaws from investors you want to do business with; if anything, it’s more likely to make them wonder if you were working harder on branding or the business. I often suggest that founders focus on substance to the exclusion of style early on in deck-building, by deliberately making all their presentation content ugly-looking and text-only. This way, they can focus on making sure their message flows and is clear.
MISCONCEPTION #13: We will convince all the doubters and haters.
REALITY: You do not have enough time, energy, or resources for that nonsense. Early-stage startups should focus on collecting true believers, not converting skeptics.
MISCONCEPTION#14: We need a completely original innovation to show how unique and compelling our business is.
REALITY: It’s very hard to achieve a completely original breakthrough innovation and build a leading company, without the innovation changing or competitors competing away your lead. Also, many companies lead in other ways besides being first-to-market with an innovation. For example, Apple is known not for innovating software, but instead perfecting user experiences and product engineering with emerging tech for the mass-market. Airbnb didn’t invent staying in strangers’ homes; couchsurfing existed long before them. Stripe wasn’t the first electronic payments company. Slack was originally a gaming company and was far from the first workplace messaging app. Focus instead on how you solve your target customer’s problem better than anyone else.
MISCONCEPTION #15: If we show them how our product works in-depth, our product superiority will win them over.
REALITY: I see this thinking most frequently with technical founders, researchers, inventors, and former product managers. It runs the risk of overcommitting pitch time to product, at the expense of business fundamentals. The most compelling pitches I’ve seen are by founders with technical sophistication who built a superior product, but they barely explain product mechanics and instead highlight the biggest customer benefits and market advantages. The less mental labor investors have to do to translate what you said, the better off you’ll be.
MISCONCEPTION #16: We have so much material to cover. We need to use small fonts and cram all this knowledge into the slide.
REALITY: I see many founders with academic backgrounds try the “research symposium” approach and end up making themselves look like a stage prop for their pitches, instead of the other way around. Take the Guy Kawasaki approach to fonts: fewer words, bigger fonts, big minimum font size, loud and clear takeaways.
MISCONCEPTION #17: We have so much material to cover. Speaking quickly will fix that.
REALITY: Speaking too quickly is one of the easiest ways to lose credibility - you risk coming across as lacking confidence, inexperienced, or fearful. Speaking quickly also often disconnects me as an audience member - even doctors lose points on bedside manner when they don’t make enough eye contact with patients (to be fair, charting is distracting). I like to ask founders a focusing question before they pitch me, “What simple message do you want me to remember from your pitch?”
MISCONCEPTION #18: We can patent this.
REALITY: You can’t patent everything (especially most software), patents take significant time and money to file and defend, and a patent is not necessarily the market’s stamp of approval about business value, but rather a signal that the US PTO approved your patent.
MISCONCEPTION #19: We have a patent.
REALITY: Okay. How is the market responding to your product?
MISCONCEPTION #20: I had this problem, so this huge market does too. But I’ve done little to no customer discovery or market research. Boom, billion-dollar business.
REALITY: Many “scratch my own itch” narratives fall into this trap. You need to convince investors that your business solves a market problem that customers value, is positioned to lead a defined market segment, and can expand into adjacent growing market segments. A favorite question I often ask is, “How do you know that?”, to which my favorite reply is, “We talk with our customers.” To this point, one positive trend I’ve observed from student startups is clearly stating how many customer discovery interviews they’ve done and their most relevant takeaways. No doubt this is a result of programs like National Science Foundation’s Innovation-Corps (“I-Corps”), which is all about customer discovery - no selling! This customer discovery-led approach lays at the core of Cornell entrepreneurship as well.
MISCONCEPTION #21: If we talk with excitement and passion, channel Steve Jobs, appeal to a minority label, or wear something gimmicky like a banana-print jacket, then investors will be convinced.
REALITY: Any investors worth their salt can see through poseurs. Investors will be excited by a real, investible business that has a clear value exchange, market viability, and articulated path to profitability.
YELLOW FLAG #1: When healthtech startups don’t disclose how they plan to integrate with existing clinical workflows or play nicely with administrators, coding specialists, or providers.
TIP: Talk to secondary stakeholders. It helps to start with a mindset I often see with engineers: Assume the chain will fail somewhere, and work your way up from points of likeliest failure.
YELLOW FLAG #2: When healthtech startups say, “This will make clinician lives better and they will love it!” (this comes from my friend Matt Sakumoto, a terrific medical physician and advisor to healthcare startups in Silicon Valley)
REALITY: 1) The clinician is never the buyer. 2) You won’t make something that will delight the majority of clinicians. We are cranky and particular, and the chance of capturing a large majority is exceedingly low.
YELLOW FLAG #3: No clear use of funds, or poorly aligned objective for use of funds.
TIP: The best thing you can tell investors you’re going to do with their money is that you’re going to make more money - not develop your product, do “more testing”, or “just hire a programmer”. But simply stating it will not make it true.
YELLOW FLAG #4: Unclear definition of value exchange, business model, and revenue model.
TIP: I strongly recommend founders read the books Business Model Generation, Sell More Faster, and/or Value Proposition Design. I also like Steve Blank and the Job To Be Done (JBTD) framework.
YELLOW FLAG #5: No articulated or apparent exit strategy.
TIP: It’s okay if you’re tracked to be an acquisition target at best. Not every company is meant to IPO. But just be honest about your expectations.
RED FLAG #1: If we just capture 1% of this market….
TIP: Stop. Just stop.
RED FLAG #2: The nth iteration of an undifferentiated business idea with no strategic moat, like student apartment exchanges or another craft backpack.
TIP: This is a philosophical point, but consider that the work of building a startup is very hard, and as such, it’s worth asking what other outputs are possible with your units of input. Do you really want to rub together two hundred-dollar bills to produce 25 cents of profit? Or do you dare to dream bigger?
RED FLAG #3: Enterprise B2B or complex sales model, but no enterprise sales skills on the team.
TIP: Outsource and hire a sales rep with industry-specific sales experience.
RED FLAG #4: When founders botch the Q&A portion… usually by not answering the question as asked, by saying “As I mentioned” then repeating themselves verbatim in response to being asked about a point they explained poorly, or by saying what they said poorly… but louder.
TIP: Use Otter.ai to observe and dissect how you respond.
RED FLAG #5: Not telling the audience what your product actually does or who the team/speaker is until halfway through the pitch. OR We’re on your second or third slide and I have no idea what your company is or what it does.
TIP: Principles of copywriting teach that the first line is meant to get the reader to read the first paragraph, and then the next. In the first 10-30 seconds of your presentation, I should understand 1) Who you are 2) What you do, and 3) Why your customer cares. Another template I like follows, “For (target customer segments), dissatisfied with (existing solution), due to (key unmet needs), (VENTURE NAME) offers a (product category).
This is the first article in a series called “What Makes a Great Company”. Building a Great Company is one of my life’s dreams, and I hope you share that dream. The term comes from how I typically bucket startups, based on my predicted track and outcome. I define five main buckets: Dead Man Walking, lifestyle business, investible company, good company, Great Company. (Yes, some would say that is harsh, but don’t shoot the messenger)
Great Companies produce outsized benefits to the world above and beyond shareholder value.
They can change how we think about problems, move society forward, create new business categories, and even spawn more startups by virtue of their culture.
They often inspire copycats, which I encourage you to recognize and disqualify.
They are usually innovative, but more importantly, they sustain operational, managerial, and financial excellence.
NOTE: Notice I didn’t say BIG company - Craigslist is probably the most successful classified ads website, with $660 million annual revenue and only 50 employees.
In the following articles in this series, I’ll discuss other crucial elements of a Great Company, and share frameworks, principles, go-to-resources, analysis, and spicy takes.
For now, I’m curious: What other tips do you have for pitching? What are your favorite Great Companies and why?
