The Tip You Wish You Had Before You Pitched to Investors

You smile and shake his hand. Then it hits you that this person could be THE someone in the future who could write you THE check to get your startup to lift off. This is an opportunity.There’s a chance you could get his attention so you can start the conversation about your company. You look him in the eyes, hesitating between waiting for him to say something and saying something to him first. You open your mouth, but then you notice a bystander hovers nearby and suddenly you’re self-conscious. To be honest, you wouldn’t even know where to start if you did want to ask him to give you money. Before you know it, he lets go of your hand because one of his friends comes up to talk to him. You missed your opportunity and he moves on without you ever getting the chance to pitch to him.

Investors don’t hang out in elevators waiting for people to pitch to them. You need to have a core understanding of the problem you’re solving, how you’re solving it, and who you’re solving it for. You need to know how to communicate this to whoever you’re talking with at a moment’s notice, especially investors.

Here is the number one tip you wish you had before you pitch to investors.

Know your market

What do you think investors are more concerned with? Technology risk or market risk? Go ahead, make your decision right now. Think about what it is. Your answer has to be one or the other, because there’s no third option.

Ready, set, go.

If you said market risk, you are correct. Investors are very concerned about your understanding of your target market. They are ten times more concerned about your market than your technology.

There’s a fundamental misunderstanding between entrepreneurs and investors. Entrepreneurs don’t realize how important the market is for the success of their business, and how major of a concern it is for investors.

The market is a major part of the success of any startup, and too often entrepreneurs target too large of a market for what they’re doing and where they are starting. The days when you could obtain a small percentage of a large market for your customer base are over. The market is so segmented on so many levels nowadays that you must know your specific target market for your early adopters to validate the product.

Now, let’s dive a little deeper into the market.

What’s the difference between a target market and a market potential? Think about it for a moment and think about what comes to mind. 

On the one hand, a target market is what it sounds like: a very targeted market of people. On the other hand, a market potential is the larger number of individuals over a larger area that can also benefit from your product. When starting a business, it’s best to focus on the target market first.

Let’s talk about the target market. There are two ways in which you can reach your target market: filtering and building. The first is more cumbersome and labor-intensive than the latter. Both reach the same end result: your customer.

Filtering is the more labor-intensive way to come up with your target market. To create filters that separate down from the entire world by the qualities of who is NOT your target market. The problem with this approach is that you have to apply filters upon filters upon filters in order to fully assess your ideal starting market, consuming both valuable time and energy.

Building is the more efficient way to identify your target market. Through building up the characteristics of your ideal clients based on who is interested in your product, or who has bought early editions, the definition of your target market surfaces on its own without as much effort.

Whether you use filtering or building to establish your target market, both tactics should end up at the same conclusions.

The better your grasp on the initial clients who will buy your product or use your service, the quicker you can get your product or service into people’s hands, receive feedback, build a fanbase, and ultimately move toward success.

To give you a better idea of how this plays out in real life, take this example.

I was at the Santa Monica pier. It was a Thursday evening, and it was the second to last day of Tech Week. I was introduced to somebody who supposedly had an idea worth hearing.

I listened intently and was doing my best to follow his pitch about his business that was the next BIG IDEA.

“So, who is your market?” I asked.

“Everyone, and that is what’s so great about it,” he replied.

“Is this for someone in North Korea?” I countered.

“Well, no.”

“Is this something for a 3-year-old?”

“No.”

“Then it is not for everyone. Who is your market?” I asked again.

Remember that a bigger market is not always better. If you have a small target market, but you are able to acquire them as customers, you are far better off than someone with a large market that is spread out over larger areas.

“How many customers could you service right now if you were at full capacity, as in you had the funding you needed to grow, and you’re just rocking and rolling? ” I continued to interrogate.

“About one thousand,” he responded.

“So, you said everyone was your client but you could only serve a thousand right now?”

“Yes.”

“Do you know what one thousand over 7 billion is? There are a lot of zeros after the decimal point.”

Sometimes, we think that investors want to hear larger numbers, but this is not always the case. If your market is far far far far far off from what you could even service, it’s a major red flag. Be realistic with yourself: look at your production potential and growth opportunity in the near future. Focus on getting a larger percentage of a smaller market first. And define this initial market with pin-point accuracy.

It is so important for you to be able to explain your market, and even more important for you to be able to do so in one sentence. You need to have a clear idea of your target market and have that be the initial focus. As you get into further conversation with people as they grow interested to learn how you solve the problem that you are solving, then you can get into more specific and granular conversations about it.

Can you state your market in one sentence?