Whether you’re selling to customers or an investor, knowing how to talk about your business concisely is the key to being heard.
In a triple-feature lecture for Y Combinator President Sam Altman’s series on How to Start a Startup at Stanford University, the following four founders spoke from their own startup experiences about how to pitch your company:
- Tyler Bosmeny: Cofounder of Clever
- Michael Seibel: Partner at Y Combinator
- Qasar Younis: Partner at Y Combinator
- Dalton Caldwell: Partner at Y Combinator
(For more startup advice, check out How to Start a Startup: The Book. It’s the ultimate reference guide to creating a successful tech startup.)
Tyler Bosmeny has discovered in his life of sales that it’s important to search out the innovators. Sure, this is the smallest market — 2.5% — but it’s the most pivotal and is most likely to take your calls as an early company.
If you start there, he said, you’ll start to realize that sales is a numbers game. At Clever, Bosmeny’s initial call list was 400 companies made up of personal connections, friends of friends, and cold emails. But of course the people who you know personally are always going to be your strongest sources.
It can be hard to meet new people when you’re heads down building a company, but Bosmeny said one of the best ways to meet potential new clients and connections is at conferences — and not the big ones. The smaller, less glamorous conferences can give you more opportunities to make lasting, one-on-one connections with people.
Making the Sale
As you’re going through your call list of 400 people, Bosmeny said the most important thing to remember during your conversations is to shut up. He said, “The best sales people in the world … don’t talk a lot. They ask a lot of questions to then fully understand the person’s problem.”
After that initial conversation, it’s all about the follow-up. Persistent follow-up.
Bosmeny showed the above timeline of what his follow-up can look like on a good day. Emails and calls go unanswered, and you’ll run into people who are just difficult to keep tabs on. But that doesn’t always mean no.
What you do want to avoid is being dragged along on a “maybe.” He said, “Your goal should be to get people to a yes or no as quickly as you can.” Maybes can be a huge time suck.
Another word that may cause you some grief is “if.” Some people will only want to use your product if you add a new feature. Bosmeny has two solutions for these predicaments that will help you to avoid creating a one-off feature (which is never a good idea):
1. Sign a sales agreement with the customer, which includes that you’ll add that feature.
2. Better yet, say that you’ll wait to get validation from other customers that this is a need for them as well.
Another thing he said to avoid is free trials. Ultimately, in these early phases, you’re of course looking for money in sales, but it’s more than that. Bosmeny said, “Your goal is to sign some deals, get some reference customers, get some validation, and get some revenue.” In the case of free trials, you’re not getting any of these things.
Bosmeny usually responds to these clients with something like: “We don’t do free trials. We do annual agreements and what we’ll do is for the first 30 or 60 days, if for any reason you’re not happy, you can opt out.”
Taking a lesson from Christopher Janz’s blog post, “Five ways to build a $100 million business,” Bosmeny said to always keep in mind whether you’re a company that needs a few big sales or a lot of small ones. This will be fundamental in prioritizing your time and attention in the areas where it matters most.
Know Your Pitch
Michael Seibel is a YC partner and previously cofounded and served as CEO of Justin.tv and Socialcam. In his time at these startups, he learned a lot about pitching, and the most important thing to remember is to always keep it short. He said that you really only need a 30-second pitch and a 2-minute pitch.
This is how you talk about your company to people who are interested, if maybe not financially. You’re not asking anything of them, but instead you’re just explaining what your company does in three simple sentences.
1. What does your company do?
Seibel said, “You have to be able to do [this] in a way that is simple and straightforward … You have to assume I know nothing. Literally nothing about anything.” A good way to do this is to pretend like you’re talking to your mom or grandpa, and if they can’t understand in one sentence what your company does (no matter how techy), you need to simplify it more.
Seibel gave the example of Airbnb, saying that their sentence couldn’t be “We’re Airbnb and we’re a marketplace for space.” That means nothing. In contrast, most anyone should be able to understand this approach: “We’re Airbnb and we allow you to rent out the extra room in your house.”
2. How big is your market?
Find out what general industry you’re in and how much it’s worth. It’s no mystery that people understand money, especially investors.
3. How much traction do you have?
This is where you talk about your growth rate and give some stats. Seibel said an example of this might be, “We launched in January and we’re growing 30 percent month over month. We have this number of sales. This amount of revenue. This number of users.”
Even if you’re just getting started, it’s important to emphasize how fast you’re going. Whether you’ve been working for a few months or a year, this sentence needs to convince potential users of your momentum.
Seibel said that a 10-minute pitch is a waste of time and you should be able to get it all done in two minutes, even when talking to investors.
“One thing I like to tell founders is the more you talk, the more you have an opportunity to say something that people don’t like. Talk less and it will probably be better.”
So, for your 2-minute pitch, start with the 30-second pitch and then add the following points, ideally covering each in a single sentence:
1. What is your unique insight?
What are you bringing to the table that your competition isn’t? What is your “secret sauce”?
Whatever you call it, this is the part where you want to tell the investor something you know about your industry and business that they don’t know. Their ideal expression should be kind of an ah-ha face. This one can be two sentences.
2. How do you make money?
Seibel said that founders can be weird about this point, especially if the answer is advertising. But it’s best not to beat around the bush or sugarcoat it because then it just seems like you have no idea how you’re going to make money.
He said don’t run away from this sentence. Speak simply and directly about how you plan to make money and then move on.
3. Who’s on your team?
To investors, the best achievements of the people on your team are going to be the ones that made investors money, seeing as they’re also investors who want to make money. Even if you don’t have that on your founding team’s résumé, do not resort to listing PhDs.
The investor wants to know how many founders you have — Seibel said, preferably between two and four. They also want to know: how many are technical and how many are business-oriented? And, how long have you known each other and how did you meet?
4. The “Big Ask”
Up until now, you’ve gone easy on the jargon, keeping things super simple and clear. But this is the part where that jargon comes in handy, because it’s important to talk about money in a way that’s clear you understand it.
Seibel said that some of the things you should know are if you’re raising on a safe or a convertible note, how much money you’re raising and what is the minimum check size. And if you don’t understand these terms, make Google your new best friend.
When to Fundraise
Timing is critical when talking to investors. Seibel said that you want to raise at a time when you’re strong.
How do you know for sure that you’re strong? He said, “If investors are asking to give you money, you’re strong.” If they aren’t, you should be working more to get the word out about your brand.
Another way to show your strength is to build such that you don’t need their money to grow. The more self-sustaining your model is, the more you can show self-reliance and initiative, making investors even more certain that you’ll handle their money efficiently.
Seibel said to give them the impression that this thing is moving with or without them. He also said that if you do need money really early on, plan on needing less money and show in traction and speed what you lack in age (of your company).
Scheduling Investor Meetings
As with talking to the press, it’s always best to get introduced to potential investors through shared contacts. This helps your inquiry get to the top of the stack as it’s already endorsed by someone they trust.
Keep in mind, though, that the credibility of the middle man (or woman) is super important. For example, if that person is an investor who’s already passed on your company, Seibel said it’s best not to use them as a connection.
When it comes to scheduling the meetings, Seibel said this is no time to drag along. “It’s a sprint,” he explained. “Not a marathon.”
If possible, you want to schedule all of your investor meetings in the same week. If this sounds overwhelming, don’t worry. Seibel has a nifty strategy.
To get all of your meetings on the same week, Seibel likes to use a script like this: “Hey, we would love to set up a meeting but we’re building like crazy for the next two weeks. So can we set it in that third week?”
This is far out enough that investors have room in their schedules, and you’re able to get everyone in on the same week with enough time to prepare before then. It also gives the impression that you’re not completely desperate for their money. Seibel said, “It’s signaling all of the right things.” It’s also best to have one person handling all of the investor scheduling as it can be really time consuming.
YC partners Qasar Younis and Dalton Caldwell finished off the lecture by sitting for a mock investor meeting, going over some final dos and don’ts of pitching your company and asking for money.
- Explain exactly what your startup does. (See 30-second pitch above.)
- Teach the investor something, giving them unique insight about your industry and your business.
- Move the conversation forward with confidence and clarity, which comes from knowing your facts.
- Ask for money. After all, that’s why you’re there.
- Make the meeting feel like a one-sided interview or an interrogation. It should feel more like a collaboration/conversation.
- Meet with bad investors. Do research on who you’re meeting with and if they’re a good fit for your company.
- Let the conversation end with the meeting. Make sure you send follow-up correspondence.
- Take meetings until you’re blue in the face. Fundraising is not the goal or a measure of success. It’s what you do with the money that’s important, so stop when you have what you need.
You can watch this lecture and read a full transcript here.
Also, if you enjoyed this post, be sure to check out How to Start a Startup: The Book. It’s the ultimate reference guide to creating a successful tech startup.
Featured image was taken from the video of this lecture at Stanford University.