Watch: Why Investors Avoid Fads and Always Look Under the Hood
On this week's episode of "Entrepreneur Elevator Pitch," one contestant learns what's going on behind the scenes is more important than the product she's pitching.
On the new streaming show Entrepreneur Elevator Pitch, founders step into the Entrepreneur Elevator and have just 60 seconds to present their idea, product or business to a panel of investors. Whether an entrepreneur gets invited into the boardroom or sent back to the ground floor depends on what our experts think in that first minute. Here, we break down the lessons aspiring business owners can take away from each episode's pitches.
Pitching is an unavoidable part of building and growing a successful business. For many entrepreneurs, talking about the product or service they're offering is easy, since they feel passionate about it and know it inside and out. But, how do they know that their pitch is effective?
For today's entrepreneurs, reality-based pitch shows like Entrepreneur's new streaming series can be a big help. If you haven't seen Elevator Pitch yet, you should check it out now. The show pairs budding business owners with a team of investors who all must agree to invest before helping to build a company's future. To win a chance to pitch in detail, entrepreneurs have 60 seconds in an actual elevator to convince investors to hear more. Episode five introduces us to a fun accessory, a fitness app and a solution that helps make hiring more diverse. Here are three important lessons that professionals can learn from episode five of Elevator Pitch.
Investors will look under the hood, and that's good.
Although the product itself is often the very thing that gets an entrepreneur more time with an investor, Sandy Stein won them over with something else entirely. Her Finders KeyPurse was impressive enough, having already sold 11 million units by the time she appeared on Elevator Pitch. The panel wanted to know why she needed their help for an expansion, which intrigued them to call her up.
Once she was in front of the investors, she revealed her expansion plans involved a Bluetooth app. However, that wasn't what caught the investors' interest. Stein mentioned that her product was so popular, she spent a great deal of time battling copycats, which cost her money in legal fees (and hurt her retirement funds). The investors realized her need for a licensing agent and offered to serve as such. They also offered to serve as ongoing consultants on her business expansion. In exchange, they got 10 percent of the company.
This shows that sometimes the selling point isn't the product itself, but something behind the scenes. When the investors looked under the hood, they found someone who needed specialized help fending off copycats. That created an opportunity for a marriage that could be beneficial to both sides.
Fads are a tough sell.
The Cat Clutch handbag is an accessory with many digitized looks. As founder Al Linke demonstrated, its owner can change the exterior appearance of the purse through an app on a smartphone. Although the pitch made investors smile, they were reluctant to bring Linke into the boardroom because of practicality. Those who could afford the bag, they argued, would likely only buy it if they could monetize it by putting someone's brand on it. Even with that tantalizing possibility, this just wasn't the type of business model two of the investors were looking to fund, so the boardroom passed.
The underlying issue, at least according to the investors, is that this product might end up being a passing fad. As soon as a few affluent people showed it off, it might be replaced with the next big thing. The lesson here for founders is to guard against this type of "flash in the pan" scenario. As you build your product and cultivate your pitch, always keep in mind that many investors want products that stand a strong chance of long-term success.
An investor's portfolio is hugely important to your deal.
One of the most dividing pitches we've seen on the show so far was the final pitch in episode five, which featured Blendoor's Stephanie Lampkin. From the start, two of the investors said her job search matching service wasn't the right fit for their own portfolios. The other two on the panel were very interested, though, so they let her into the boardroom anyway.
Even though Lampkin's pitch was heartfelt and on point, two of the investors still did not feel comfortable buying into the product. It wasn't the right space for them, while it was a better fit for the other two investors.
There are two things to learn here, and they aren't so much about you or your product, but they are still vital to keep in mind. You may have a winning idea, but if the investors don't feel enthusiastic about it as a team, then the deal could be off. Also, if certain investors just aren't passionate about your space, or have invested in it too little or too much already, then you may be leaving the boardroom without a deal. Investors need to need to feel comfortable enough in your company's space to be an asset rather than a liability.
At the end of the day, don't feel bad if your pitch fails. It very possibly has little to do with you. Rather, it's more about the mix of companies an investor is already working with.
As these pitches demonstrate, there is no perfect pitch. Landing an investor or winning a client is often a matter of having the right product (or some intangible) at the right time and pitching it in a way that personally resonates. This means you may have to pitch a hundred or more times before you find success. Stick with it though because it can be well worth it in the end.
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