Selling Investors the Problem and the Solution

The most important aspect of writing a business plan or pitching to angels is selling the problem your solution solves. Nobody is going to buy a solution for a problem they don’t have, which obviously means you don’t have a viable business.

The most important thing when writing a business plan or pitching to angels is selling the problem your solution solves. Nobody is going to buy a solution for a problem they don’t have, which obviously means you don’t have a viable business.

I recently saw an entrepreneur pitching for funding, and it had all the right ingredients – a slick pitch, a good PowerPoint presentation and a nice-looking website. All very impressive, except for one thing… Her business solved a problem that didn’t exist. By the end of the evening, I think even she had realised that she was onto a loser.

The pitches that get the investors most excited offer a solution to a problem they have or a problem someone they know has. An avid golfer, for example, will get very excited about a new golfing invention. Or, if an investor is listening to you thinking “My mate Bob was complaining about this last week, and I think this guy’s onto something”, you’ve got them hooked.

The best businesses evolve from an entrepreneur who finds a problem in their life or business and figures out a product or service that fixes this problem for others. However, before you spend your valuable time and money figuring out the solution, you need to find out whether:

1) Other people have the same problem you do;

2) Enough people have the problem to make a successful business.

After selling them the problem, you then need to give a quick and compelling description of the solution. Time is limited and you don’t want to bore the investors, so don’t get bogged down in the technology and technical details behind your solution. Try to keep it as simple and concise as possible and explain what your solution is and what makes it better than the competition. Is it faster, cheaper, more eco-friendly? If the investors want to know more about what makes it is faster and how you can make it cheaper, they’ll ask later.

Your pitch is meant to give an introduction or overview and a pitch – and a short one at that – to capture the attention of a potential investor. If you manage to sell them the problem and then convince them you have a valid solution, you should have them hooked.  Then you’ll have their attention for the rest of your pitch, and hopefully you’ll manage to get some business cards and line up some meetings.

How to make the perfect pitch

One of the most enjoyable parts of my job is appearing at events involving an ‘elevator pitch’ competition, where hopeful entrepreneurs extol the virtues of their business idea.

These events are both joyous and frustrating at the same time; there is nothing more joyous than listening to entrepreneurs explaining how they are going to change the world. What is frustrating is that few people have worked out how to pitch their ideas in a simple form.

Organisers are always at pain to explain that their event is not supposed to be like the television programme Dragon’s Den, a combination of entrepreneur humiliation and the hubris of the panel, ‘as much to do with real entrepreneurship as The X-Factor has to do with the Beatles’ as I said in a previous column.

The events I appear at are all about providing useful input to the people pitching; everybody needs a good ‘elevator pitch’ for themselves and their business, if only to be more interesting at social and business networking events. The first thing I explain is that that the elevator does not get stuck for several hours; you have to keep your pitch short and simple.

The worst culprits are inventors, engineers and technologists who feel that they have to cram as many features as possible into their three minutes. In sales, there is the well-known concept of ‘golden nuggets’, as many as fifty amazing features of your product which have been lovingly crafted into product literature by your marketing team.

The problem is that most customers have very short attention spans and can only remember three things about your product. As soon as you mention the fourth ‘golden nugget’ the first and probably most important one drops out of their active memory. By the time you get to nugget number fifty, all the most compelling ones have long since gone, and the prospective customer has also lost the will to live.

It is important to realise that the objective in delivering an elevator pitch is not to secure an order there and then; the best you can hope for is to stimulate enough interest for them to give you another fifteen minutes and to hand over their business card.

The methodology for a good elevator pitch is very simple, and centres around five Ps: pain, premise, people, proof and purpose.

The most important question for any would-be entrepreneur is “where’s the pain?” What pain or problem do you plan to solve? The larger the pain, the more likely people are to give you money to take it away. Pain can come in many forms, but if your product or service saves time and money that is a very good start.

Next you have to explain in simple terms the premise of your business, exactly what you do. For this, you need to be literal and not descend into sloganeering. “We transform people’s lives” is laudable but impossibly vague. “We are an excellent training company, specialising in communication skills” is much more to the point.

If you feel that this is too obvious, then I suggest you visit a trade show and try and work out what each company does, just from the text on their display stands. The worst culprits are being deliberately vague in the hope your curiosity will be aroused, encouraging you to approach someone on their stand to find out what they do. Unfortunately, the vast majority of people will not bother.

The other ‘Ps’ are very straightforward. You need to talk about your people, as entrepreneurship is a team game. Every investor says they look for a credible team rather than a good idea, and every customer says they buy from people not companies.

Proof is the hardest to provide, why anyone should buy from you and not your competitors. Even if you have the best team and products in the world, customers can still be sceptical, and the best proof is examples of your happy customers, in the form of relevant case studies.

The final P is purpose, and the most important purpose of any business is to make money. Potential investors will be looking for a return on their investment, and prospective customers will want to know that you run a sensible and profitable business, to ensure reliable and consistent delivery of your products and services.