The first pitch to investors is in many ways the company’s first date. It is the investors first experience with you and your company. The end goal is to receive a second date. Yet, with many top notch pitches coming through it takes more than just a solid proof of concept and innovative idea to gain interest. Read more
This is the sixth of many blogposts in a series that I’m calling the Investor Pitch Deck Series. I am creating a post about each investor pitch slide, why it is important, the common errors, and how to communicate that you have what it takes to achieve your goals for this company.
Posts in this series
(note, this is NOT a suggested order for sides in your deck)
- #1 – The Market Slide
- #2 – Exit Strategy Slide
- #3 – The Team Slide
- #4 – The Summary Slide
- #5 – The Problem Slide
- #6 – The Customer ROI Slide
The Customer ROI Slide
The customer ROI slide is a new take on the old business model slide. By the end of this slide, your audience will feel confident that your user will use your product, and your payer will pay for it.
User: The person or business who uses your product.
Payer: The person or business who pays for your product.
With traditional consumer goods, the user and the payer are the same person. However, with many business models, the user and the payer are totally different entities and you have to acknowledge both for your investor to really GET your business.
Think about your toothpaste at home on your bathroom sinktop. It’s a simple product. It’s pretty basic. Do you buy the same kind every time you run out. Do you switch between brands? Why? Your investors will need to know why potential users will switch from whatever they are currently using (or not using) and start using your product. This value to the new user is called the User’s ROI or Return On Investment. Users are not investing capital; they are investing the energy required to make a change in their habits. Identify the User’s ROI and your venture capital or angel investors will feel much more comfortable with your product.
Now about the Payer’s ROI. It’s graduation season so I’ll use a college analogy about parents who send their kids to college. Parents are paying for the education, but not directly using it. Of course there is a benefit for Mom and Dad. By paying for college, their kid is more likely to get a degree thereby lowering the odds that they will move back into Mom and Dad’s basement bedroom. How do the parents choose which school to send their child to? The Payer’s ROI often a complicated answer when they are not also the User. The Payer wants a good deal financially, but they also want a perceived value for their dollar that has nothing to do with direct use of the product.
Other examples of payers who are not users:
- Insurance Companies
- Companies that pay for advertisements
- Companies that purchase the data collected from free software
- Governments who provide free public services
Cringe Factor #1 – You have a few paying customers and they aren’t increasing in number over time.
Why this makes us cringe: Status quo, apathy, and disuse are the reasons that products die.
How to do it right: Your investors want to be reassured that you are a realist. A realist knows that a new product, no matter how sexy, inexpensive, functional, or perfect, will not become instantly adopted by the world. There are plenty of products out there that consumers are happy to use for free, but will abandon when a financial transaction is required. If you are in revenue, you must show your potential investors a trend of increasing paying customers over time. If you cannot show this positive trend then you must have a good reason for a lack of increasing adoption. Alternatively, you can devise a way that you can monetize your product without the user having to pay.
Cringe Factor #2 – You aren’t clear about WHY people will pay for your product.
Why this makes us cringe: Investors are afraid that no one will be willing to pay for your product.
How to do it right: Make the Payer ROI very clear in your pitch. If your product is faster to install and cheaper to run than the current solution, then you have a great argument. Visually show your audience that a payer can currently expect to pay $2000 a pop for the current solution and would only have to pay $800 for yours. Further, you can install yours in minutes instead of days. We want specifics with the Payer ROI description. Beat us over the head with your Payer ROI. Don’t leave it to the imagination.
Cringe Factor #3 – You aren’t clear about WHO pays for your product.
Why this makes us cringe: Many products are free to users these days. (Thanks, Google!) So, who are you planning to get your revenue from. It’s not always obvious.
How to do it right: Even if you are selling a product directly to users, be explicit about who pays for your product. You can go one step farther and discuss your price point. It’s a lot easier for investors to picture a successful transaction when they understand whether the cost of the product is reasonable.
Example Customer ROI Slide
One of the simplest ways to show customer ROI is to create a graph of potential savings that a customer might experience if they were to switch to your product.
If your user is not going to pay for your product, you will need to describe a non-financial ROI. It’s not enough to have a better product. People need a very compelling reason to change their habits.
Article by Nicole Gravagna, PhD, Director of Operations for the Rockies Venture Club as part of a series on the elements of an investor pitch deck. The next in the series is ….
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