Ask any successful Venture Capitalist or Angel Investor on what swayed them to invest on a pitch and most probably they would answer, “The startup is addressing a real world problem” or something to that effect. Pitching a startup by stating the problem it addresses runs through the gamut of supply and demand, want versus need, and good versus better.
Before Google, there were a lot of search engines already operating. The problem was that most of these search engines were often flawed because these sites were focusing more on the search terms rather than the context of the terms within the sites. Google offered a better algorithm that brings back sites relevant to the search.
Notice that the first two sentences set up the problem and only one sentence pitched the solution?
Pitching the problem first to sell your idea is not new. Every VC knows and understands this concept. It’s just that entrepreneurs are so caught up with their ideas that they don’t really delve into the problem and just start explaining how cool and profitable their idea is. No self respecting VC will invest in an “If you build it they will come” idea without first knowing why it is being built in the first place.
1. Communicate the problem.
By clearly explaining to the VC the problem the startup is solving, the VC would understand why there is a need for a startup like yours.
Dave McClure said it best, “PITCH THE PROBLEM, NOT THE SOLUTION. That’s it. done! that’s all there is… just tell me the problem FIRST, not the SOLUTION. the reason is, I may not be able to understand what your solution does…”
2. Emotionally connect with the problem but don’t limit to your own point of view.
Martin Tobias, Investor, entrepreneur and former Microsoft IT Developer, said that the secret to startups is, “Find a problem that personally pisses you off and solve it, and you’ll be a good entrepreneur… the day that I wake up and I don’t have a hard problem to solve, I will stop being an entrepreneur.” (Innovation Agents: Martin Tobias, CEO of Tippr by Chikodi Chima)
Try and involve the investor with the problem you are stating. Explain that this isn’t just your problem but it also affects the investor and most everyone else out there. Once the investor has an emotional connection to it, it will be very easy to pitch your solution.
By being enthusiastic about the problem (and solving it), it communicates to the investor that you have the strength and vision to bring the idea to fruition.
3. Identify the need for a solution.
Explain to the investor why this problem has to be solved. There are a lot of unsolved problems out there. By pointing out the need for a solution to a particular problem, you also point out the profitability and public acceptance of your startup.
David Shen in Talk About The Problem Not The Solution says that, “…creating a startup is not just about building the product, it’s about why we’re doing it in the first place” .
Once the problem has been clearly identified and understood by the VC, it is time to present your idea; the solution to the problem. An investor is more attentive to a presentation if the problem the startup is addressing is clearly communicated.
Wayne Greenwood in his comment to Dave McClure sums it up best, “Most startups in the valley start with technology they find exciting, then look around and ask themselves, “Now, what can we do with this?” The answer to that backwards question becomes the “solution”. It’s much less common to find a startup that first identifies a real-world need, performs a rigorous investigation to fully understand the relevant domain & users, then develops the idea and technology that will satisfy the need.”
Jerome Gentolia is Co-Founder of ComeUnite and Tech-Launch Solutions.