What to say…
As part of my research, I examined more than 80 pitches by entrepreneurs seeking funding from outside resource providers. In examining these pitches, I noticed that external stakeholders pay attention to specific types of signals in the content of an entrepreneur’s pitch. I categorised the signals in the entrepreneurial pitches into five broad categories and discovered that they were strongly related to success in accessing outside resources.
The pitches embedded with rich signals from all five signaling categories were much more likely to garner the interest of outside resource providers compared to the pitches where the entrepreneurs failed to provide content related to one or more of the signaling categories. Therefore these signaling categories provide useful insight into the type of content that should be included when trying to sell a new idea. The types of signals that were important for selling new ideas were: familiarity signals, distinctiveness signals, connectedness signals, credibility signals and viability signals.
Below I will explain each signaling category and describe how signals from that category can be incorporated into a pitch for a new idea. The examples listed below are all actual examples from my research although all names of people and businesses have been changed.
Familiarity signals serve to make an idea recognisable and understandable to an audience. People hate to feel disconnected and unfamiliar with what they are being told; therefore they try to connect new ideas to things that they know. The more that you can help them make these connections; the more likely they are to find favour with what you are saying. Signaling familiarity can come from claiming membership of a familiar category, using a well-known model to describe the idea you are selling, or describing recognisable structures and processes underlying the idea.
Examples of sentences that convey familiarity:
Musk will be a player in the independent music distribution niche within the global music industry. Musk is ebay for independent musicians; it creates a platform for buyers and sellers of independent music. The business will use the well-established ‘freemium’ model to attract users to the site after which they will have the opportunity to buy enhanced, value added services.
Distinctiveness signals serve to highlight the uniqueness of an idea. They differentiate an idea, making it noticeable and competitive. If people develop the perception that an idea is too similar to many other ideas they have seen, they will immediately discount it as just another ‘me too’ concept. One needs to signal that there are dimensions on which the idea is distinctly different from other concepts out there. This can come from describing distinctive resources or competencies attached to the idea, describing the idea as first in a particular market space or claiming that the ideas will create a position of leadership in a particular domain.
Examples of sentences that convey distinctiveness:
Datz has a patented algorithm for searching datasets that enables users to quickly find unique datasets on the platform. This increases speed and ease of use for users looking for data, making it the fastest tool for searching proprietary datasets… the company will be first to market with Java enabled search for large datasets. This will allow users to accurately search large datasets in multiple formats to find variables of interest… the patented search technology and highly qualified Java developers will make the company the leader in the person to person dataset exchange market.
Connectedness signals serve to highlight that the people behind an idea have relationships with other important people and organisations. Because new ideas are uncertain and unproven, the support of well-known individuals and organisations can make a huge difference to the perception that others develop about the idea. One can incorporate connectedness signals by providing testimonials or signals of support from well-known people or organisations.
Examples of sentences that convey connectedness:
We have shared this idea with Dr Howard Genville, the head of R&D at Innovent Labs, and not only did he say that “it’s a practical solution to a massive problem” but he has agreed to serve on our board of advisors and give us access to his team of scientists for free consultations.
Credibility signals serve to make the new business idea and the people behind the idea believable by engendering trustworthiness and expertise. Credibility comes from highlighting success in the track record of the team behind the idea, making specific reference to the education credentials of the people behind the idea, signaling that the people behind the idea have a strong commitment to the idea and highlighting the interest of others in the idea.
Examples of sentences that convey credibility:
The project will break even in month eight and after month 12 the net margins will be 25% to 35% consistently. The designs for the project are completed and approved;
all we need is funding to get this concept going.
Viability signals serve to highlight that the idea is sustainable — showing that it is a worthwhile endeavour providing adequate incentives for those involved. People only buy into an idea that can realistically be implemented; therefore demonstrating the financial and practical viability idea is critical in selling the idea to others.
Examples of sentences that convey viability:
The three people behind the idea collectively have more than 50 years of experience in marketing information management across seven multinational firms, including Coke, Adcock Ingram and Microsoft. Two of the people have an MBA from GIBS, the third has an MSc from Wits. The founders have collectively committed 450 hours and R200 000 to date to get this idea off the ground.
Although some of the signals mentioned above may seem obvious, it is amazing how many people who are desperate to sell an idea neglect to cover one or more of these critical areas. Each signaling area works in a different way to help evaluators make sense of an idea and to enable them to become excited about an idea. Therefore as you try selling an idea, use this as a checklist to ensure you are doing everything to make your idea appealing.
The research behind these insights entailed the following:
- Recording 80 pitch presentations by entrepreneurs to early stage venture investors.
- Assessing the content (what was said) and the approach (how it was said) of each presentation and then linking aspects of content and approach to the outcome of the presentation.
- A successful outcome in this context was a follow-up meeting between the entrepreneur and one or more of the investors; an unsuccessful outcome was no further interest from the investors in the entrepreneur’s venture.
- Of the 80 entrepreneurs who presented, just over half (42) got follow-up meetings.
- A combination of the ideas in this article were the best predictors of a follow-up meeting.
At the content level a combination of signals from each category of familiarity, distinctiveness, credibility, connectedness and viability predicted success. In terms of the approach used by the entrepreneur in pitching the idea, incorporation of stories, simple visuals, use of metaphors and finishing well within the time limit were all predictors of a follow-up meeting with an investor.
How to say it…
While the content of a presentation is important in selling a new idea, how that presentation is delivered is just as important in getting the buy-in of others. The content and approach of a presentation work synergistically to win over others. In analysing the pitches of entrepreneurs presenting their ideas to early stage investors, some revealing and interesting insights emerged about what kinds of approaches are associated with winning pitches. On the whole, winning pitches incorporated stories, visuals and metaphors, and the winning pitches were significantly shorter than the pitches that failed to generate interest. I will now discuss each of these aspects in more detail.
Stories emerged as a powerful tool for conveying a new idea. Of the ventures that attracted interest, 44% opened with a story and another 40% incorporated a story into the presentation. Of the ventures that did not get interest, only 21% opened with a story and another 27% incorporated a story into the pitch. Stories were therefore the tool of winners. Why do stories help so much in selling an idea? Stories place random concepts in context and create connections between concepts that help us interpret and understand what has been said. They are probably the most powerful communication tool of all time. Jesus Christ, William Shakespeare , Winston Churchill and Martin Luther King all used stories to sell ideas and get people to connect emotionally with their cause.
As the old saying goes, a picture is worth a thousand words. On the whole, the winning presentations had less text and more pictures on their PowerPoint slides. On further examination it was evident that those with lots of text on their slides spent more time reading the slides and therefore failed to engage with the audience effectively. If you want to sell ideas you need to be engaged with the audience, you need to look into their eyes and let them see your passion. You cannot do this if you (and they) are reading the slides. Drop as much text as possible from your slides and use pictures to spark your thoughts and help you tell a story.
At the end of a presentation an audience remembers very little about what was said. One thing they are more likely to remember is a meaningful metaphor. A metaphor is a figure of speech that constructs an analogy between two things or ideas. Because new ideas are foreign, people find it meaningful to connect them with what is familiar; a metaphor can help others do this effectively. So terms like ‘on-demand art’, ‘reference based dating’ or ‘a mortgage marketplace’ can make an idea more meaningful and memorable, encouraging the others to follow up on or share the idea with others.
Shorter is better. When selling new ideas many people fall into the trap of wanting to cover every last detail of the idea, causing their presentation to be long and drawn out. Mistake! When selling an idea it is better to give enough information about the idea to the audience to get them intrigued and then let them ask the questions. In the presentations that I examined, those who spent less time on one-way presenting and more time on two-way engagement were significantly more likely to get interest from resource providers. An important lesson in selling ideas is don’t say too much, rather keep it short and then spend time engaging around the questions that arise. This means that if you get ten minutes to present the idea, speak for eight minutes and use the extra time to address questions from the audience, if you get half an hour to present, speak for 20 minutes and allow the audience to interact with you for the rest.
In the end, a massive part of business is selling ideas. The sooner we become aware of this, the more effort we can make to become better at it. Becoming better at selling ideas is likely to have a significant effect on any person’s career, whether they are an entrepreneur, corporate manager, social worker or government official. Now is your time, go out and make it happen. n
Often, people use PowerPoint in selling new ideas. Over many years of using PowerPoint I have developed three core principles for making slide presentations more effective:
- Consistency. Keep the look and feel of a deck of slides similar. A slide deck with a consistent theme (look, feel, colours and picture types) signals professionalism and care.
- Contrast. Slides work best when the colour schemes contrast with one another. Dark backgrounds with light letters or light backgrounds with dark letters.
- Simplicity. Keep slides simple. I estimate that over 80% of slides are over-engineered with too much text and too many diagrams. Simple slides force you to be clear on the message of the slide and allow you the flexibility to say as much or as little as you wish to about the slide.
Alternative Idea Selling Tools
Not all ideas need to be sold with a PowerPoint presentation. Many times it might be more powerful and meaningful to get away from PowerPoint. Here are some ideas for breaking away from PowerPoint:
- Demonstration. Using a model or other physical artifacts to demonstrate the essence of your idea.
- Whiteboard. Talking through your ideas and drawing on a whiteboard (or flip chart) as you do to illustrate your point.
- Tour. Taking people to a location where they can see your idea (or the potential for your idea) in action.
- Discussion. Sometimes it is better to sell ideas to people one-on-one in a less formal environment. Some people are prone to listen in such a context and one can address their specific concerns directly.
3 Components Of The Perfect Elevator Pitch
Can you clearly demonstrate value when faced with a time crunch?
After filming two seasons of Entrepreneur Elevator Pitch, I’ve come to realise that there are three key elements to delivering the perfect pitch.
Our show is unique when it comes to pitching: Potential entrepreneurs have just one minute to pitch their idea, service or product. Those 60 seconds have added pressure because the contestants are being filmed, and they are talking to a camera (instead of people) while riding up to the penthouse suite in an elevator.
In real life, with a different set of distractions, it’s essential to know how to deliver a convincing elevator pitch. Whether you are pitching a product, a service or yourself, here are the three essential components in a pitch:
- Stimulate interest
- Transition that interest
- Share a vision.
Can you stimulate interest?
The first step, stimulating interest, is the most important. In fact, an “elevator pitch” is usually determined by the limited amount of time you have, and circumstances may only give you the opportunity to stimulate interest. If you do a good job of stimulating interest, this can yield a second opportunity, where you transition that interest and share a vision with those you are pitching to.
Keep in mind that people generally buy based on emotion, using logical reasons as their impetus for action. So, make a point to connect with them emotionally in order to stimulate their interest. Don’t be afraid to show your feelings; demonstrate high energy and excitement for your idea, business or service. Your passion and belief need to come through in your pitch!
Use the 100/20 Rule to your advantage: Have the energy that you are providing R100 worth of value and only asking for R20 in return. This attitude will generate enough attention, giving you the opportunity to transition the interest that you’ve garnered.
Make the transition
But people don’t buy exclusively on emotion. There needs to be some logic in the decision to make a purchase. Therefore, you must address some sort of pain, fear or guilt in your pitch, that those without your product or service may experience. And if you can illustrate how you (efficiently) solve a big problem, you’ll have more statistical success in your elevator pitch.
Making a genuine connection can help you transition interest. Learn to make yourself equal, then make yourself different.
Simply having connections to the same people or a point of similarity in your backgrounds will help bridge the gap with those you are pitching. Then you can emotionally connect, following that up with the logic portion of your pitch.
Transition the interest you’ve generated with a clear explanation of what differentiates you. Build credibility by discussing your sales, distribution, revenue, awards and/or successes. All of these different ways to “attract” allow you to segue from emotion to the logical reasons to buy.
Of course, it is of the utmost importance to be honest when you are pitching. The truth always comes out, so ensure that you aren’t over-promising with your pitch. Don’t create a void that you are unable to fill.
What’s your vision?
Finally, in order to excel when sharing a vision, you need to have a value proposition that backs the 100/20 Rule. Make the value that you bring to the table as clear as possible. The value you’re asking for in return also needs to be clear. If you don’t display confidence in what you’re asking for, you won’t instill confidence in those you ask.
Tell others exactly what you want, why you want it and what you’re willing to give in return. You should have already proved your valuation when transitioning interest, then reiterated that valuation as you progressed in the pitch.
Take the people you are pitching through the reasons why you can be of value to them, the impact that you can have on their life or organisation and the capabilities you (or your product/service) possess that makes working together beneficial for all involved.
Practice your pitch, then get rich
After following each of these three steps, close with one simple question to gauge whether you are aligned or not: “Can you see any reason you wouldn’t want to move forward?”
If you utilise your pitch to stimulate interest in your product/service/self, transition that interest, then share a vision with those you are pitching to, the answer is almost always a resounding “no.”
And if you get objections or rejections, so what? Address whatever objections there are and if you still can’t get aligned, that’s OK. Take the perspective that the universe has a set number of rejections you need to get to before you find the right partner.
Related: How To Pitch
Be grateful for an opportunity to prove others wrong, and believe that if you keep working on your pitch, product, service or self, everything will come to you in the right way at the perfect time.
This article was originally posted here on Entrepreneur.com.
Alan Knott-Craig Answers Your Questions On Finding a Funder To Managing Your Staff
What you really need to know to land an investor.
Focus on one customer at a time. Make that customer happy. Move to next customer. Aim for ‘1 000 true fans’, then keep them happy.
The rest will come.
1. How do I find an investor?
You have 4 options:
Applicable if you only have an idea, and you need cash to make your idea a reality. Usually between R500 000 and R1 million. You need to milk your network: Parents, friends of parents, colleagues, parents’ friends, friends. If you have no network, you need to build a network or use your savings. There is no math to these investments. You get money because they believe in you, not because they seriously expect a return.
2. Early-stage VC
Applicable if you already have a working product with traction, ie: users and/growth, and you need cash to build out. Usually between R1 million and R2,5 million. There are a number of early-stage VC’s in South Africa, just ask around. Knife Capital are amongst the best. Ideally you want an introduction from a trusted party. Failing that, just email them directly. Give a simple pitch. They’re looking for 15X return on investment.
3. Late-stage VC
Applicable if you have a critical mass of users and meaningful revenue, ie: R10 million a year, and you need cash to grow. The late-stage VC’s are the likes of 4Di, hard to get access without an introduction from a trusted third party, usually one of your existing investors. They are looking for a 5X return on investment.
4. Private equity
Applicable if you have a cash-generative business that requires capital to either exit a shareholder, or to grow profits exponentially. Looking for 25% IRR.
There are also state-sponsored sources of capital for entrepreneurs from previously disadvantaged backgrounds, for example the Technology Innovation Agency. This is ‘soft’ money, requiring no equity or personal surety. If you can get it, take it.
Investors are looking for return on capital. If I invest R100 in an early stage company, I want to get R1 500 (15x) back within a reasonable period of time, ie. no longer than five years.
The key metric is Total Addressable Market (TAM). The size of the market you’re targeting determines the potential size of your business.
Assume you target a market with a TAM of R100 million (profit), and you assume you can get 10% of that market by 2020. That means your business will have R10 million of profits in 2020.
A private company is valued at a maximum of 7x profit, so your company will be worth R70 million in 2020. If you ask me to invest R1 million today, I need 21% of your company in order to realise a 15x return (R15 million) by 2020.
Start with TAM, work from there. Remember, every assumption you make will be questioned. Minimise your assumptions. Maximise the evidence for your assumptions.
2. If you are a start-up, what’s the most important thing you can do to grow?
Focus on one customer at a time. Make that customer happy. Move to next customer. Aim for ‘1 000 true fans’, then keep them happy.
The rest will come.
For consumer products, always make it easy for your customers to share. Friction-free sharing is the easiest marketing tool you can have.
Feature-creep is a big risk and can be a big distraction. You need one single value proposition that is enough to get customers. Having fifteen cool features will never compensate for the lack of one killer use case.
3. Our staff is growing, more than 20 now. Any tips on management?
Having four or five staff is not hard. You don’t need to be a good manager or leader. You can muddle along. It’s when your team starts growing past the twenty number that management becomes a skill rather than a word.
There are hundreds are articles written on the art of management, but Jack Welch (former GE CEO) broke it down to this:
- People want to know who they report to.
- People want to know how they’re being measured.
- People what want to know how they’re doing.
- That’s it.
- One boss. Clear KPIs. Regular feedback sessions.
Alan Knott-Craig’s latest book, 13 Rules for being an Entrepreneur is now available.
What it’s about
It’s easy to be an entrepreneur. It’s also easy to fail. What’s hard is being a successful entrepreneur.
For an entrepreneur, there is only one important metric of success: Money. But life is not only about making money. It’s about being happy.
This book is a collection of tips and wisdom that will help you make money without forgoing happiness.
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Do you have a burning start-up question?
XPRS Capital Africa Bridges Funding Gap Faced By South African SMEs
XPRS Capital Africa answers local SMEs call for funding.
Small and medium enterprises (SMEs) are a vital component of the South African economy. However, there is a substantial portion of the country’s estimated 650,000 SMEs that have no access to funding to assist in their continued growth
In response to an increase in demand for reliable and easily accessible capital for businesses like these, XPRS Capital Africa opened its doors in South Africa. The specialist business funding provider is geared towards rapidly vetting and approving short-term business funding ranging from R50,000 to R500,000. In addition, XPRS Capital Africa specialises in extending funding to SMEs that may not qualify for funding from traditional lenders.
Simon Leps, CEO of XPRS Capital Africa explains that XPRS Capital has its roots in the US, having been founded in 2013. “The company is a renowned and established alternative online business-to-business lender. Together with a team of data scientists and using thousands of data points, XPRS Capital has developed a proprietary credit vetting algorithm and packaged product set.”
“The technology and approval processes developed by XPRS Capital has a massively successful track record overseas and the experience that our company has gained over the years will help many more SMEs in South Africa to reach their potential,” says Leps.
“The XPRS Capital platform has processed over $1b worth of loans and has a proven track record of funding thousands of businesses across hundreds of industries,” he continues.
Leps adds that the company’s sophisticated algorithm allows XPRS Capital Africa to provide funding to many South African SMEs that are usually denied loans on the basis that their owners have less than ideal credit records. “Traditional lenders are often reluctant to lend capital to SME owners whose credit histories place them in higher risk categories. This has created a massive challenge for many promising SMEs. At XPRS Capital Africa, we focus on the health of the SME, and use state-of-the-art technology to provide businesses the cash flow they need to grow and flourish.”
Using the unique algorithm that we have optimised for the South African market, we are able to accurately assess any SME that has been in business for over a year, to rapidly provide a 3 to 12-month funding solution, notes Leps. “The online application takes less than 10 minutes, allowing SME owners to spend less time filling in forms for funding, and more time on their business.”
XPRS Capital Africa provides funding directly, working closely with SMEs to offer the fastest approvals, best possible repayment terms and most accurate risk profiles for any business.
“Cash flow is the lifeblood of every single business. Our mission is to provide this quickly, affordably and reliably,” Leps adds.
He notes that, given the high number of businesses that have trouble accessing financing, SME owners should also know how to maintain their own positive credit records. Thereby they can ensure that their businesses have access to as many options as possible.
“Ensure that all areas of your company are looked after to the same degree as most funding providers want to see that all aspects of a business are well managed. Up to date, audited financial statements and management accounts, well managed bank accounts, and good budgeting and forecasting show that the owners are attentive. Owners also need to know their businesses inside and out and be able to answer questions about their cash flow and deal pipeline.”
Related: The Investor Sourcing Guide
In addition to this, Leps says that the customer’s experience when dealing with the business could also have a measurable impact. “Any touchpoints that are available to your customers will be looked at by potential funders, so all customer facing assets should look professional and be kept up to date. This goes for websites, online portals and social media accounts.”
“The ability to access additional funds when your company needs it is the key to long-term survival. That’s why it is paramount to maintain the best possible credit record. However, it is also important to remember that, whatever the financial state of your business, business owners are never completely out of options,” Leps concludes.
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