Ralph Kramden was always pitching BIG.
There must be a dozen episodes in which he dreams up a new way to make a financial killing. And when he pitches those ideas to his pal Norton, or as in the picture, to his boss Mr. Marshall, he’s pitching them big. He never seemed to struggle with the presentation issue that many founders face when putting their investment story together: Should you pitch big or pitch small?
Many early founders show up in my office pitching big. That is, their presentation spends a disproportionate amount of time trying to convince me of all the markets in which their technology is going to dominate. They tell me about all the different people from all over the industrial universe that think their invention is so much better than solutions currently available. These presentations usually include most or all of the following claims: “My brother introduced us to Dr. So-and-so and she was excited about including us in a grant she’s writing next year”; “John Doe from the XYZ Corporation is ready to sign a licensing agreement as soon as our prototype is ready”; “If only half of the conversations we’re having happen, we’ll have $80 million in revenue next year…and we’re being conservative.” And, my favorite, “Co-founder Mary had a conversation with a VP from GiantCo and they asked us how much it would cost to buy our company before we even launch!”
These are probably all lies. Even if there is a kernel of truth in them, the founder who would utter these kinds of things out loud and dedicate space to them in a powerpoint may be suffering from what I’ll call here FIDOS…Founder’s Irrationally Delusional Optimism Syndrome. It’s a dangerous condition for founders because it indicates a clinical inability to sift out legitimate opportunities from real opportunities. Presentations of this type reveal that the founder is more dreamer than do-er. They seem to believe that the only things that matters to most early stage investors are big, big promises when, in fact, it’s the little promises that matter most.
I’m not suggesting that you don’t tell me about the overall market opportunity. I need to know and understand what you think your total addressable market is, but described in a bottom-up, rationally segmented manner. And I want to understand how fast that market is growing. But more important than that is what have you already done, specifically, to validate that market? Evidence of potential customer interactions, like those above, may be great, but I’m going to want to understand the steps that have been taken to this point to elicit those responses. If all you have is “we’ve had one conversation” then it is way too early to include this kind of information in your powerpoint. More important to me is to understand what you are going to do in the next 12 months to move those opportunities forward. How are you going to execute on the small stuff like…getting the prototype done, generating cash to keep the company alive, finding great team members, generating awareness and an early growing pipeline for your product. Pitching small to me means demonstrating you have an eye for the boring details of daily execution over the upcoming short period of time. Pitching small means you have an appreciation and fear of the many pockets of risk that exist in your startup. Investors need to believe there is a big opportunity out there, but I don’t think most of them are investing based on it. They’re investing based on you and your execution plan.
The Ralph Kramden character in the Honeymooners was a bus driver. Daily, his roads were well mapped out for him. The details of getting to the next stop were mostly figured out for him and so his FIDOS condition was pretty understandable. As a founder, however, you’ll need to make dozens of decisions each day and each little decision has some level of impact on your ability to reach the big destination. In your investment pitch, you need to have a vision and be able to articulate it quickly. But early potential investors know that the road to achieving your dream will encounter countless forks, none of which are marked with signs pointing the way to that dream. Your “pitching small” presentation needs to prove to me not that you already have all the answers, but that you are a great navigator, capable of drawing your own map to get to each stop on the way.