Assuming you have mastered the mechanics, flow, and choreography of your pitch, and you have a business that is fundable, and you know how to deliver the pitch and get through the filters investors apply, what is left to go wrong? Failing to go deep enough into certain essential areas. Shallow skimming in these difficult areas is so common some of the summary expressions entrepreneurs use have become cliches. There's no reason to fall into that trap; we know nobody wants to dive into a shallow pool. So let's go through these all-too-frequently short-changed items one at a time.
Explaining Your Market Moment
To be credible, your pitch must answer the “why you, why now?” questions which provide context for the business. What has changed in the universe that makes this business suddenly not only possible, but a great idea? Why are you the gal or guy to do it?
Detailing Your Go-To-Market
You have to be specific about how you are going to crack your market. Selling is really hard, especially to certain types of customers. You are going to need to convince people that you have a very specific and detailed plan or business model innovation that is going to allow you to acquire your intended customers affordably (relative to their lifetime value).
Assuming Fast Consumer Behavior Change
Making assumptions about how your customers' behavior is magically going to change has been referred to as "delusional economics." After the few early adopters, mainstream customers have incredible inertia. The power of the status quo can be immense. The arrival of the internet/wireless/mobile is not going to suspend the laws of physics and gravity in your industry. It is not safe to assume that if you build a more efficient clearinghouse / marketplace / trading platform / matching service, everyone’s behavior will instantly and automatically change. Convincing customers to buy from you is going to be hard and expensive. You need to explain what secret sauce makes it less hard.
Paying Insufficient Attention to Buying Priorities
Certainly someone will want your product. Unfortunately, your immediate addressable market is limited to the people for whom buying your product is a top priority. How many of them are there? Although a lot of businesses identify a real, legitimate problem for customers, they still fail because other higher priority problems gobble up customer wallet share.
Omitting Marketing Skills
When talking about your go-to-market, you either need to convince investors that you have the marketing experience on the team, OR that you know you don't and you plan to go get it. Everyone thinks they know how to market. Most don't. Identify the marketers who can help you.
Building a Realistic Model
Most entrepreneurs totally underestimate what it will cost to achieve success. Investors have seen and experienced many business models and know it is always harder, takes longer and costs more than anticipated. It is crucial to really think through the necessary people, time and financial resources required, and to come prepared with a realistic plan. Use both a bottom-up and a top-down approach. Then sanity check it against benchmarks. Underestimating costs and showing an improbably fast time to big revenue and profitability doesn't impress people with your model – it impresses them with your naivete.
Assuming It Will Translate
Even if you can paint a credible case for your initial target market, don't assume that the next vertical, next geography or next customer segment will be as easy. Logic dictates that you are starting in the easiest place. By definition, any expansion will be harder and farther out of your comfort zone and experience base. Be realistic about your expansion assumptions. Yes, your brand and momentum will help a little, but no where near as much as you think. (See: Build a Realistic Model).
Engineering a Sustainable Competitive Advantage
Even if you can fight to win a segment, if you cannot make any money at it over the long-haul, you've still lost. Too many entrepreneurs talk as if their market is standing still, when, in fact, any market worth tackling will always be evolving and growing more competitive. It is critical to talk about how you will defend your position, your pricing, and your margins against the inevitable competitive reactions. It might be intellectual property, it might be some kind of tolerable customer lock-in or switching cost, it might be a product roadmap that keeps your value prop more compelling over time. Whatever it is, you need to explain it, and the explanation needs to be believable.
Failing to Think Exit Scenarios Through
Most entrepreneurs don't think through their exit strategy adequately. If you succeed, who buys you? Ultimately this is the bottom-line for investors. Equity from investors is like a loan that the buyer of your company pays back. You need to talk in detail about the different classes of buyers, why they would buy you, what they would value you for, what kinds of multiples they might be expected to pay, and what milestones you need to hit to command those prices.
It is not easy to step back and look at your story objectively enough to spot where it is thin. But there are a few critical big picture elements that you cannot afford to blow past. Covering the above topics adequately is going to be the key to convincing investors that your company and team is one that just might reach exit velocity and escape rather than fall back out of orbit and burn up on the way down.
Christopher Mirabile (@cmirabile) is the Chair of Angel Capital Association and an early stage investor in Boston MA, USA. He is the co-Managing Director of Launchpad Venture Group and the co-Founder of angel portfolio management tool www.Seraf-Investor.com.