Why Pitching Your Startup Idea With Pessimism Will Be More Effective

Why Pitching Your Startup Idea With Pessimism Will Be More Effective

Going Into An Investor Meeting with Only The Rainbows And Puppies Of Your Business Means That You Are Setting Yourself Up For Failure

Once you’ve come up with the idea for your newest venture, vetted it among like-minded leaders in the industry, and created a prototype, it’s time to pitch your idea to investors. Some companies are able to bootstrap, but many others will need to approach investors to really get their idea off the ground. The way you approach this pitch will make or break your success.

It all boils down to psychology, once you have a unique business idea (that is also viable). I just finished Adam Grant’s Originals, which I highly recommend. It brings an interesting and counterintuitive idea to light: productive pessimism has a place and, in fact, can improve your pitch.

There are countless articles on what your pitch should include and how long it should take. You may have even taken a few pointers from the hours and hours of Shark Tank you can’t help watching. But the best examples you can learn from are the ones that successful entrepreneurs prove have worked for them.

In Originals, Grant cites the “Sarick Effect” (this is a part of the secret sauce of the book and I, unfortunately, can’t give it away) and the best way to get to the heart of how it helps entrepreneurs improve their pitches is with an example of exactly how it accomplished that.

To set up the story, let’s first contemplate a hypothetical situation. An entrepreneur has jumped through all the hoops set before them to establish their idea, showed that there is a market with a need for their product, and proved that their solution truly solves the problem at hand.

Going into an investor meeting with only the rainbows and puppies of your business (i.e., how much revenue you’ve generated, the number of downloads you’ve gained in a short amount of time), means that you are setting yourself up for failure.

This seems like it is going against all the advice you’ve ever gotten from mentors and peers who have successfully raised rounds and sold their businesses. But the investors that will be at the table with you are trained to poke as many holes in your business as possible. They don’t want to sign on, invest their money thinking that what is in front of them is destined to be the next big thing, and watch you flop months later. Avoiding false positives is the name of their game.

Instead, Grant suggests leading with your failures. Of course, include all of the positives about your business, but why wait for investors to list all of their objections at the end of your presentation? Beat investors to the punch and weave any negatives about your business directly into your pitch.

Why is this effective? Well, the investors will be taken aback for one. They are most likely used to prideful entrepreneurs who package their business ideas up perfectly—complete with a bow. Not only will your product be innovative, but your approach to the pitch will also be. Investors won’t have to sit through your presentation trying to find the flaws. They’ll be able to listen fully and trust you because all of the downsides are already out of the way. It takes time and effort to come up with industry-altering (or creating) ideas, but doing so with a realistic outlook will wow investors even more. They will trust your abilities and your company more when they are presented with the full picture.

The One Slide that Improved This Entrepreneur’s Pitch

Back to the real-life example. In Originals, Grant discusses the parenting website called Babble. Both when the creators were looking for initial funding and when they were later pitching to Disney to sell the entity, they included a slide on why the decision makers at the table shouldn’t invest or buy. While this seems a bit backward, it is right in line with the psychology of decision making.

Instead of encouraging investors to try to figure out what is wrong with the supposed unicorn that is being presented to them, put any downsides out in the open. This automatically takes down walls of skepticism and makes the entire conversation more open and honest. Selling investors a gold-plated dream when you know the backend is in shambles will be a waste of everyone’s time.

But what if the backend actually is broken? The Sarick Effect only works for truly innovative ideas. If an entrepreneur went to investors with a product that is unoriginal, not viable, or simply a bad idea, showing the shortcomings from the beginning will act as the final nail in the coffin for it.

Instead, the Sarick Effect works wonders for great product ideas that are created by humans, and therefore inherently imperfect. Even the most well-oiled machine may have a few broken parts. Showing that you as an entrepreneur are aware and working on correcting any flaws within your business with show investors that you have both the awareness and work ethic to address these current (and any future) challenges.

When you’ve worked out all the possible objections, your pitch will be more like a walk in a park than scaling a mountain.

Of course, investors want to see entrepreneurs who are passionate about their ideas and equally invested in the execution. But can too much optimism be a problem? Business is more than meeting projections and delighting investors that sign on. Putting any downfalls of a company front and center shows that the entrepreneur is realistic and knows what they’ve gotten themselves into.

Rufus Griscom, the entrepreneur and co-creator of Babble, is who Grant spoke with about his unconventional sales pitch. He self-identifies as a very optimistic person. Therefore, leading with the negatives about his company balanced his pitch out nicely. It showed investors that he was a well-rounded leader. Instead of seeing another starry eyed innovator, they saw a serial entrepreneur that knew things can and will go wrong when running a business.

Are you wondering what the outcome of these two pitches was? Well, the first time around, Babble successfully raised $3.3 million in one year. The second time around, Disney agreed to buy the site for $40 million. Pessimism may have a solid place in improving your pitch after all.

Other Ways To Improve Your Pitch

The best pitches are concise. Your product may be complex, but challenge yourself to get your pitch as short as you can. Investors likely have many entrepreneurs to hear from on the day of your meeting, so making sure that you are mindful of their time is key. A rambling pitch will zap investor interest and energy, so practice your pitch as much as you can.

Just as you get advice on your product once you have a functioning prototype, ask for feedback from your peers on your pitch. Ask what wasn’t clear and what you can highlight more effectively. Do they gain a full understanding of what your product is, why it matters, who will use it, and how you will find users? You could even go as far as giving your pitch guinea pigs a short survey to fill out afterword to see if they picked up on the main points you wanted to convey. But still leave room for unstructured feedback, as those listening to the beginning stages of your pitch may bring up suggestions and constructive criticism you may not have considered.

The sky’s the limit once you lock down the perfect pitch.

How to Use Your Pitch As Lift-Off?

Your investor meeting is your time to shine, and this short meeting can make or break the future of your company. Getting the right investors to back you up with funding and (just as importantly) their experience and guidance will put you on the right path.

Stepping outside the mold is certainly on the traits of an entrepreneur that gets applauded the most. After all, it is much harder to make an impact (and a name for yourself) when you are simply following a formula and not adding anything original to your industry.

Your pitch is just one step of many in the process to creating a sustainable business. Getting into the mindset of seeing your business from all perspectives, both the positive and negative sides will set you up for success.


This post first appeared on Proto.io blog and has been reproduced with permission.

Author

Angelica is the Content Editor at Proto.io. She is an Oakland native who loves adventuring and participating in music, food, and cultural events in the Bay Area and beyond.
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