1.07 (V) 1.6 The Art of the Pitch
We've had a number of lectures that talk about what to do in a pitch or an elevator pitch or how to present to venture capitalists. But I wanted to take some time here to talk to you about The Art of the Pitch, about some of the science and art behind what makes a pitch good and some of the science behind persuasion. So I want to talk about three different techniques that successful founders use in order to achieve success with their pitches. Let's start with the first of those, and I want to give you an example to work through here. This is the Terrafugia TF-X, a actual design for a flying car by the company Terrafugia that was actually bought by Volvo very recently. But this is still under design flying, convertible jet car. So let's use this as our example to talk about pitching. One thing to think about as you do a pitch is that you have a tension between being a visionary and being a pragmatist. What does that mean? Well, visionaries are typical entrepreneurs who are changing the world. Visionaries are the ones who have some radical new idea that doesn't look like anything else out there. Why do we want our founders to be visionary? Well, visionary founders have ideas that nobody else has. So that means there's less competition out there. Visionary founders also have ideas that are really exciting. So their position positively relate to all those boring companies out there you might not want to invest in. People like to see visionary founders because they seem distinctive. They stick out from other people out there. So visionaries have all these advantages over other kinds of companies. They're seem to be doing something new and exciting. So you could be visionary anything. You can have a visionary dry cleaning shop, a visionary app, a visionary approach to local food delivery. If that's visionary, you seem really exciting, you seem very different than other things that are out there in the market. On the other hand, there's such a thing as seeming too visionary, and entrepreneurs also need to be pragmatic to the outside world. That means they need to make it sound like there business is pretty normal. It could be easily understood if we put it into place. So that means that the business seems legitimate, it seems understandable, and it seems plausible that this can actually get done. Flying car ideas are very visionary in most cases. It seems very crazy ever flying a car but that's exciting. That means that there's less competition out there. It means that people are interested in this idea and want to invest in it. On the other hand, they might worry that the idea isn't pragmatic enough. Either it can't be done, it can't be accomplished, it's not plausible. So as a flying car entrepreneur, you might want to think about ways of making your ideas seem more pragmatic. On the other hand, if you're running a dry cleaning shop and you're trying to get investment, you might want to point out all the ways that your dry cleaning shop is visionary or changes the game from other sets of people. So if you describe Uber merely as a way of making sure that you could easily summon cabs that you needed, that would seem very, very pragmatic and not very exciting. So if you're talking about it as a way of transforming the way people get to work, that seems visionary. So the challenge for entrepreneurs is to balance this visionary and pragmatic piece. I'm giving you three tools to do that. So the tools you can use are analogy, classification, and authority. Let's go through each of those. So from an analogy perspective, you can make a connection to other kinds of businesses to make your ideas seem more visionary, and more pragmatic. So let's take the example of the flying car. If we wanted to make that seem more visionary, we could say we will do the personal transportation, personal planes, what Apple did to phones. That's giving us the analogy to Apple making our products seem more visionary, more out there, more related to radical innovation. On the other hand, we might worry that our flying car seems too visionary. So let's make it sound more pragmatic. As is the introduction of a serious parachute which is a whole plane parachute that's currently deployed in the world, we expect rapid adoption. So now we're making an analogy to something that's already out there in the world of airplanes and making our ideas seem more pragmatic, more normal. This is something we see all the time in real startups too. On the left, you could see an example of visionary positioning. These are the original slides from LinkedIn when they were launching their startup and they talk about the difference between Internet 1.0 and Internet 2.0. That you originally had classified ads, the Internet allowed you to do things like eBay. You originally had things like Citibank in payment and the Internet allows you to do things like PayPal. Similar to how eBay changed classified ads or PayPal changed payments, so LinkedIn is going to change resumes and getting and finding out about jobs. So that's the idea of making ourselves through analogy to eBay and to PayPal making it seem more visionary. On the other hand, you might have a product that seems very visionary, you want to make it seem more pragmatic. On the right, you could see an example of a startup that was creating medical health records for dogs and cats, and this might seem very visionary. So instead, they make an analogy to very pragmatic idea which is medical health records that are already being used for humans. So by analogy, we can make our ideas seem more radical by creating analogies to radical ideas, more visionary ideas, or more pragmatic by creating analogies to more pragmatic ideas. A second strategy that you can use is classification. So again, let's think about classifying our idea either with other visionary ideas or the pragmatic ideas. There's a lot of research that shows that people think in categories. In fact, we know that from work by Ezra Zuckerman and others, that when a publicly traded company doesn't fit easily into a category, it actually trades at a lower price because people don't know where to put it. So we can use the natural human urge to categorize to make our ideas seem more visionary or more pragmatic. So for our flying car, we can say that our car is categorized with other visionary ideas, with personal transportation company, not an airplane company. Why might we want to be visionary in that way? Well, airplanes are expensive. They take a long time to come to market. Very few people can afford them. If we categorize ourselves as a personal transportation company, then maybe we seem like we get away from the terrible economics of this space in some exciting way. We can also seem more pragmatic. We could say that our approach takes common technologies among military aircraft and applies them in civilian aircrafts. Now we're classifying ourselves in the military to civilian transfer, a well-understood category in the airplane industry, and we seem like a more pragmatic approach. Again, this isn't just about flying cars. On the left, you could see one of my favorite examples of classifying yourself as visionary. This is the stock price for Kodak, the picture company. In the middle of 2017, Kodak decided that they were suddenly a bitcoin company, a cryptocurrency company. What you see is what happens to their stock price after they decided they were a cryptocurrency company. It shot up and later dropped back down. But it's crazy that all this company had to do is recategorize itself as a cryptocurrency company and suddenly their stock was trading at a higher price. That's the example using classification to seem more visionary. You could also use classification to seem more pragmatic. On the right, you could see a Cannabis, a marijuana startup. What they wanted to do with their startup, the website that was selling their cannabis products, was they didn't want to make it look drug-related. They wanted to make it look like Amazon. So they're classifying, mentally, this product is looking more like conventional e-commerce companies and less like a drug startup company. So you can use classification to seem even more visionary like Kodak did or more pragmatic like this cannabis company did. A final strategy you can use is authority. Authority is simply taking in the idea of quotes or other examples from the outside world and using that to categorize yourself properly. So if we want to seem visionary, we can say Richard Branson, the famous entrepreneur and founder of Virgin Airlines says, "This is the most daring and exciting vision for the future of aviation I have ever seen". So that makes it seem more visionary. We have an outside authority telling us that this is a visionary product. Or we can have Richard Branson say something, makes us seem more pragmatic. Richard Branson says, "This is a problem that clearly represents the next big step in aviation". Suddenly that seems more pragmatic, more normal. Again, it doesn't just have to be about flying cars. On the left, you can see this great quote from Steve Jobs, "This product will be as big as the PC." "Maybe bigger than the Internet," said John Doerr, one of the original venture capitalists who invested in Netscape. Anyone guess what this product is? I'll give you a second. So this product that was bigger than a PC, that was bigger than the Internet was the Segway. So this two-wheeler scooter, basically a go-kart missing its last two wheels, suddenly seems like the most exciting thing in the universe and the President of the United States at the time actually wrote on one because of these quotes from authority that made it seem more visionary than it was. You can make an idea seem pragmatics. So here's an example of rapper DJ Jazzy Jeff endorsing a product and saying that this is just like going to the gym, making a connection to a regular easy-to-use kind of product. So you can use these arguments, analogy, classification and the authority, to make yourself seem more visionary and more pragmatic. Successful entrepreneurs think about balancing what parts of their business are visionary and what parts are pragmatic and use these tools to set themselves in the right direction. So that's one set of scientific findings you can use to help make your pitches better. Another example for the pitching research is trying to decide whether you want to be aimed for something that's more passionate or preparedness. Preparedness is about pitches that have substance, thought and flow, that are logical and laid out very clearly. Well a passionate pitch is one that's energetic, that's in exciting, that's highly interactive. So some people might aim more for having this sort of substance-based a pitch. Others might end up going for passion over preparedness. It's often hard for people who aren't good at doing passionate speaking to do passion. I have good news for them which is that our evidence is that professional investors don't seem to care very much about passion. We have experiments where people do high-passion and low-passion pitches in front of venture capitalists. It doesn't seem to matter to venture capitalists how passionate you are. All they care about is preparedness. On the other hand, amateur investors and angel investors seem to care a lot more about passion because they're making less professional judgments. So when you think about this is better being pragmatic, and passionate, it's better to be prepared and passionate. But if you can only do one of these and you're talking to professional investors, it's much better to have a well-prepared, well-laid out pitch than to have a highly-passionate one. Our third category of science that successful founders engage in is what's called Symbolic Action. Founders will manipulate symbols in a way that makes them seem to be what people expect from a founder. How does that work? Well, one way people do manipulate things is through personal symbols. So there you can see Mark Zuckerberg in front of Congress versus Mark Zuckerberg in front of his crowd of employees where he wears his famous hoodie versus a suit in front of Congress. That's an example of market using symbols of personal style. That hoodie is a sign that I'm a successful founder. While the suit is I'm a successful business person in front of Congress. Founders will actually manipulate symbols in that kind of way and show personally that they look the way founders might be expected to look in different circumstances. Another example, there is example from a pitch deck. You can see this person is showing in that pitch deck the symbols of the organizations they work for including their time at Wharton. That's a symbol of the fact that you might have a certificate from Wharton. It's a symbol of competence that also allows you to gauge a person's symbolic action. The Top Ramen is there because another very common form of symbolic action the founders engage in is giving up a lot of salary and a lot of money to join a startup company. So even well-funded startups, founders seem to take less money than they would if they were running a more normal organization. Are they doing it to save money for the company? In some cases, yes. But in other cases where a founder has already raised a lot of capital, the amount of money that they would get a salary wouldn't make a material impact on the success of their company. But they still give up a lot of salary. That's a form of symbolic action to indicate to your investors that you care so much about this company that you are willing to give salary even though that may not actually be serving useful purpose. That's symbolic action. Another thing that successful entrepreneurs do symbolically is they make sure they have spaces that look the way that entrepreneurs are expected to have when their investors come and visit them. So that might be a we-work building that might be sitting on those giant inflatable balls that you see there. What are the expectations of a space in your area? If you're running a lab and you have investors coming by, you might end up wanting to make that lab look more labby if you're doing a medical device startup, for example, and have everyone coming in white lab coats and use pipettes all day long when normally, your lab space looks disorganized and people are eating food everywhere. So the idea that spaces meet expectation is another form of symbolic action that entrepreneurs engage in. Entrepreneurs also think about achievement symbolically. So getting on that Forbes 30 Under 30 list showing prototypes, showing awards, those are all the kinds of things that entrepreneurs engage in to show that they are symbolically heading in the right direction. Finally, successful entrepreneurs will show ties to procedure stakeholders in a somewhat negative example. That list on the lower-right are the stakeholders who are involved in Theranos which was a startup that was accused of massive fraud, as of the time this is being created, and had a blood test that never actually worked. Now you'll notice that all of those stakeholders hadn't almost nothing to do with the medical industry. They were all very prominent people. But the fact they were prominent people, like former secretaries of state or secretaries of the defense, was actually considered an indication this was a successful product. Symbolic action rather than showing real results. So successful entrepreneurs think about symbolism and use that successfully in their pitches. So in the art of the pitch you want to use a science and art behind pitching. You want to balance the visionary and the pragmatist, you want to think about managing style and substance, think about passion and preparedness, biased towards preparedness. You want to use symbolic action to convince people you're the entrepreneur people think you should be.
