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May102022

Pitching for Results – Traction, Team and Competition

Jeffrey Kovacs, CPA, CGMA

5.10.22 | Industry Insights

Our Pitching for Results series [2.15.22 and 3.16.22] moves ahead as we turn our attention to lessons learned in the areas of traction, team, and competition. Companies seeking investment, advisors helping companies create their pitches, or investors searching for that perfect investment can all benefit from this analysis.

Measuring the Traction of Your Product or Service

Developing a rigorous key metric tracking system is paramount in helping an investor understand whether customers will actually adopt your product or service. Such metrics may include sales per customer, number of users, volume of traffic to a company’s website, app downloads, and other measures of performance. Developing and implementing these tracking mechanisms, processes and tools early in a company’s life cycle will provide critical insight into product/market fit. Providing benchmark data and trend analysis to an investor during the pitch will also demonstrate traction over time and enable them to visualize the path toward growth and scale.

If an investor can’t visualize the path toward growth and scale, they will not be comfortable that the company has gained sufficient market traction. Until an entrepreneur can demonstrate a clear record of traction and customer adoption, it’s unlikely that an investor will provide capital.

In addition, the development of metrics and tracking tools provides management with insights that allow the team to adapt quickly and pivot away from solutions that the market may not accept and move towards a market that provides opportunities for maximum revenue generation.

Management should also carefully choose metrics that only collect and analyze data points that are relevant to understanding the precise level of market engagement. Lengthy data collection processes and poor decision-making can result from gathering too much data or data that does not clearly provide evidence of product/market fit.

Obtaining and analyzing anecdotal customer evidence can also be highly valuable in understanding how customers interact with your products or services. In order to gain insight into customer experiences and provide validation about product/market fit, investors will often interview customers to gather evidence about market traction before deciding to invest. Transparency with investors regarding what is working well, not working well, and the barriers to further adoption are typically critical to a company’s ability to attract investors.

Founders and Key Team Members Make a Difference in Your Pitch

A company may have wonderful products or services, a large addressable market, and a tight fit with the company’s market, but without the depth of talent to drive the company to scale, growth will falter, and valuations will suffer. Founders and key team members are often the difference between companies that thrive and those that fade quickly.

Investors need to be comfortable with the team that is currently in place, their unique ability to bring products to market, and their ability to fully commercialize the company. They also need to understand key unfilled positions and management’s strategies to attract the appropriate talent. Investor comfort is derived from individual technical knowledge and domain expertise, as well as prior entrepreneurial experience and the ability to execute strategically. It’s not always necessary to have all of the talent pieces in place at the time of investment, but there needs to be a cohesive strategy to acquire this talent with the investment.

Competitors Must be Identified and Evaluated

Perhaps the most frustrating comment that we hear from entrepreneurs during a pitch is, “we have no direct competitors.” Investors see this as a complete lack of understanding of what competition truly is. Entrepreneurs need to understand that even the status quo is a form of competition. When consumers choose not to adopt a company’s product or services and keep using existing solutions, it is an indication to an investor that management has badly miscalculated its competition. A company may often have competitors that it has not even considered because the competitor has not been clearly identified and evaluated.

Conducting thorough market research to understand potential sources of competition is fundamental to identifying competitive risk and positioning the company for differentiation. Transparent framing of a company’s competitive strengths and weaknesses during the pitch allows the investor to accurately gauge the level of capital necessary to leap-frog competitors. To gain investor confidence, companies must articulate their competitive advantages to exploit a first mover advantage or create entry barriers for their competitors.

Providing an investor with a deep understanding of the powerful combination of product or service prices, features, and performance indicates an understanding of the competitive advantage necessary to fuel growth and market share. Without this understanding, investors are less likely to view the management team as competent and the company worthy of their investment.

Stay tuned for the next installment of Pitching for Results, where we will discuss risk, intellectual property, and finance.

Questions: Contact Jeff Kovacs at 646-954-9910 | jkovacs@berdonllp.com or reach out to your Berdon Advisor.

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