What Investors Want To Hear In A Pitch
Content by Brandjectory
Summary:
When an early-stage CPG founder has a chance to pitch a potential investor or investor group, four core ideas must be clearly articulated to give the investor confidence and entice them to know more:
Is the problem being solved a true market need and meaningful opportunity?
Does branding connect with the consumer and create loyal customers?
Can the founder(s) and team get the job done?
Does the founder know the numbers of his/her business?
What Investors Want To Hear In A Pitch
When you have a chance to pitch to an investor or group of investors, in the 5 or 10 minutes you have, you need to share enough of the right information to pique the investor’s interest. While every investor may have a unique angle or lens, there are a few basic items that most investors what to learn in a short pitch:
Is the problem being solved a true market need and meaningful opportunity?
Does branding connect with the consumer and create loyal customers?
Can the founder(s) and team get the job done?
Does the founder know the numbers of his/her business?
Let’s take a look at each of these.
Market Need, Market Size & Product Fit
Determining what distinguishes your product from all of the others, and exactly what the consumer need is for your product, can take research, analysis and keen awareness of the problem you are solving.
Many founders have the misconception that market size determines market need. Most investors are not concerned about Total Available Market size (the ‘universe’ in which your product competes (ie, the natural products industry)). Narrowing down to the category in which your product competes defines the Total Addressable Market (consumers buying a similar product or using an alternative solution today). Ultimately, however, clearly identifying the problem your product solves and the need your product fulfills will help determine the Target Market for your product.
Determining market need begins with understanding consumer needs
Consumers make purchases to solve a certain problem, and/or fulfill specific needs or desires. There are several factors to be considered when determining why consumers give you their money.
Functionality: Does the product serve a purpose for the customer, and with what frequency is the product consumed/needed? What alternatives exist today? Keep in mind too that some products may fulfill a more emotional or more subjective consumer need. In CPG, a healthy alternative to a favorite childhood treat, or a product that fulfills a dietary need state or choice (vegan, gluten free, etc.) may evoke a more emotional response than just a functional need.
Preferences: Consumers have different preferences for taste, convenience, packaging, use or convenience. What preferences does your product serve? Is it a specific flavor, taste or texture? Does the consumer prefer a product ready-to-use or requiring preparation? How and when will the product be used (i.e. what is its use occasion)? Does the consumer need the convenience of shelf-stable? Will the product be consumed all at once (drink/bars) or over time (clusters or bites)?
Price: Does the product meet a price point where consumers find value, perhaps compared to competitive options?
How to determine consumer need
Watch the trends: A great deal of is data available through the media that can help a founder understand in what direction consumer behavior and preferences are trending. (Brandjectory subscribers can find a weekly summary of these insights in their newsfeed posted by Brandy J.) Just remember, consumer fads can often masquerade as trends but can change much more quickly, so cautiously approach data with a good dose of your own common sense to be sure you’re addressing a movement with staying power.
Do an ‘operational’ consumer needs analysis: This is a technical analysis of why, when, where, in which ways, and how often the consumer will use the product. Under what circumstances do they reach for and use your product? A step-by-step analysis will provide details as to the scope of the market and what messaging to which consumers respond.
Review the competition: What consumer needs does the competition fulfill? Where do they fall short? What recent changes have they made to either their product formulation, format, packaging, or delivery in response to what they see changing about their customers’ needs or the trends and movement they perceive in the broader market? What white space from existing options are open for your product to address?
Survey consumers for feedback: Survey your current or potential consumer base. They will always be your best source to determine if your product meets their requirements. Discover where the product falls short or consumers have unmet expectations.
Don’t forget messaging and marketing: Consumers need to know how your product solves their problem. Marketing must clearly identify this through consistent and on-target messaging and imagery.
Understanding the market need leads to determining market size
As you can see, there are a number of steps and a good deal of information required to understand the market need and to perfect product delivery and messaging. Determining exactly what problem a product solves, the need it fulfills, and when and how the consumer uses your product, will provide the detail needed to accurately define the market. For very early-stage companies, data points published in the media may not be an exact match to your addressable market, but they provide a decent starting point to manage expectations for you and potential investors. The more traction and progress your brand makes, the more detail an investor will want to dive into to understand consumer need and behavior that will determine the market potential.
Customer Loyalty and Product Connection
Customer loyalty is a competitive advantage that comes from the consistent delivery of a brand's message and product value. In other words, your brand and products are the first choice of the consumer, because it is consistently meeting their quality and value expectations. A loyal customer will not seek other competitive products or be easily swayed by a competitor’s promotion or your availability. What are the characteristics of Customer Loyalty? Loyal customers…
Do not readily look for or seek out other products.
Are not willing to consider promotions from other vendors.
Are not influenced by promotional sales of competing products.
Refer and promote your product to friends and family through word of mouth and social media.
Are willing to try and purchase new products from your brand.
Readily provide feedback to you on current and future products.
Tend to be understanding of problem situations (out-of-stocks, product quality, etc.) and trust these problems will be quickly fixed.
There are many ways to build and maintain customer loyalty. The most important way is to prioritize customer care. This includes quick responses to problems, issues and concerns, and acknowledgment of positive emails or social media comments. Find ways to reward these loyal customers with coupons, discount or referral programs, or other rewards. Also, include customers in event invitations or other activities, whether on-line or in person. Seek feedback through email or social media and act upon and acknowledge good feedback. When and where possible, offer warm, personalized reach-outs, such as birthday and holiday greetings.
Why investors take notice of Customer Loyalty
Having a loyal customer base is a competitive advantage. Investors look for this, as it not only tells them that what you have accomplished to date is working well, but that the same success can be repeated.
Your Key Performance Indicators (metrics) actually can demonstrate to investors the loyalty your brand has achieved. It is easy to track these metrics for the eCommerce portion of your business. Increases in repeat and retained customers (% Repeat) and average order size (AOV) demonstrate a loyal, returning customer base. Lifetime value (LTV) of the customer will also give the investor an idea of customer loyalty. New customers based on referrals is indicative of customer loyalty, too.
For retail business, a faster reorder frequency & increases in order size are indicators of a loyal base of customers (and new customers). Using loyalty card data, some retailers may be able to provide data on the number of customers purchasing your product, the unit volume per purchase, and % of repeat customers.
Finally, social media interactions and email response activity, as well as coupon usage and redemption, are all measures that can give the investor an idea of how well you are connected to your customer base.
The Founder and Team
Investors want to know that the founder(s) & executive team can grow the company and produce results. When describing your credentials, convey credibility via relevant experience, expertise and specific contribution to your business and growth. Past titles are not important - background and experience is. The team is not just the founder(s) - include important partners, especially advisors, outsourced providers, and exclusive or proprietary business relationships that give you an advantage. Founders who don’t have relevant experience in key areas to lead and grow a new endeavor will need to complement their strengths by surrounding him/herself with experienced team members, advisors, consultants, and/or service providers. We all have our distinct strengths – adding others to the mix who compliment our strengths is ideal.
Investors also expect early-stage founders to have hustle, tenacity, creativity, emotional intelligence, trustworthiness, and coachability, among other personal and professional characteristics indicative of a good steward of their capital.
Know Your Numbers
Investors will defer a deep dive into your financials for a follow-up conversation, rather than an introductory pitch. That said, no matter how big or small your company is, you need to be totally versed in your numbers, your assumptions behind those numbers, the drivers of those numbers, and your key performance indicators. This includes basics such as revenue, gross margin, unit pricing, customer acquisition costs, and customer lifetime value, along with the composition/drivers of those numbers. Further, this also includes revenue breakouts by retail vs eComm, by channel, by region, or by retailer, etc. It is also important to explain how revenue targets are going to be met, how COGS/unit pricing can be improved, how customer acquisition costs can be lowered, what drives sales differently in different channels, etc. This is a lot to prepare for, but by holding regular cash flow meetings and meetings with your advisors, you can be well prepared and well-practiced for these conversations.
Want to know more? Visit www.BrandjectoryNow.com, or schedule time with the Brandjectory founders during their office hours using this link.