Kevin Hale - How to Pitch Your Startup

This is gonna be part two of a talk I gave at the very beginning of Startup School on evaluating startup ideas. The thing to know about both of these talks is we've been talking about them from the point of view of the investor. Basically, it was helpful, I thought, to explain to founders how investors evaluate startup ideas and look at that structure, so that they can better understand their own ideas, opportunities, and then in this presentation present them better to the people that they want to get excited.

So, a quick recap. In the first part, I basically say a startup idea is a hypothesis for why your company is going to grow really quickly. That hypothesis must compose of three different parts: the problem, the solution, and the insight. The basic parts are, your problem should be pretty big, pretty pervasive, have a lot of these characteristics to make it feel like there's a very big market that a lot of people have the problem. The only thing you need to know about the solution is that you should not start with a technology; you should start with a problem. Lastly, you're looking to have something that's going to make your company unique and have some kind of unfair advantage—what we call an insight—that will show why your company will grow faster than other companies.

I talked about five different types of unfair advantages that your company can have and kind of what are the benchmarks for meeting them. Now, the thing to keep in mind about understanding and creating this startup idea is that I don't need you to do all the work to lay all of that out in detail. That's stuff that you'll kind of want to know or keep in mind, but a really good investor will do that on their own. They'll hear what you're talking about and extrapolate, and so what I'm going to cover in this presentation is how do you package up that hypothesis. How do you take all the things that you understand about your company and your startup idea and how I present it to an investor so that they can make a decision that's in your favor?

This is the YC startup application. Basically, this is the application—all the questions that we ask that YC partners will use to evaluate your startup. So down here, when you're filling out the YC application, we actually link to a couple of things, and one of them is how to apply successfully. I can't tell because I read so many applications, but it feels like founders are not reading that essay. It was written by Paul Graham in 2009, and almost everything in there still holds to this day. People still make mistakes from it, so I'm just going to point out some stuff and really punch it in here while I have your attention.

So, here's a quote from that essay: basically, we believe for every company that we will interview at YC, we bet there's probably another company that's just as good as them out there, but they messed up on the application, and we didn't realize it. We didn't invite them, and basically, the reason is because they didn't express their idea clearly. That's it. Like, you might think, "Oh, I didn't show off all that complex stuff about my startup idea, and that's why they didn't pick me," and I want you to know that's not true.

The first thing I want you to keep in mind is I do not need you to sell me as a YC partner. A good investor, an average investor, what they do is they talk to you when you tell them about your idea, and it feels like they're poking holes—all the questions asked about what's all the reasons why this could go wrong. A good investor does it the other way around. They hear what you say, and they imagine, and they use their optimism, and they use knowing that some kind of rare event has to happen for you to become a billion-dollar company, and they try to imagine all those rare events that could possibly happen to you, and then they pitch that path back to you.

We are really good at selling ourselves, so you don't need to do that. The thing is, you guys are kind of bad at selling things in the beginning, right? What I need you to understand is that I'm trying to evaluate these three statements when I'm hearing your idea: Do I understand it? Am I excited by it? Do I like the team, and do I want to work with them? Surprise! In your weekly updates when you do your group sessions, these are the questions that we ask you to ask one another. It's basically the questions that we're trying to figure out for ourselves, and we're hoping that every week when you talk with other companies, you are practicing getting feedback and understanding whether you're able to instill this in other people.

So, your goal is just to be clear. I will do everything else. So back to the application. These are the only two things we're going to focus on today. What do I put in the "What's my company going to make?" How do I describe my company in a very efficient manner? The first way to do this is to be clear. The reason we focus on this is because a clear idea is a foundation for growth. What I mean by that is that the best companies in YC or around the world grow organically—they grow by word of mouth.

What does word of mouth look like? It looks like this: It's basically I talk about your company—what you're doing, making, etc.—and I'm the most interesting person at the dinner table, and I tell it to other people, and those people want to tell other people. That's it. Word of mouth is something where I remember what you do, I talk about it enthusiastically, and it spreads on its own. Marketing and advertising—it's a tax I believe companies pay because they did not make something remarkable.

Now, before anyone can remember at the dinner table what you do, they have to understand. So I have very simple rules for how to make things easy to understand. This will sound familiar if you're familiar with an essay I wrote on how to design a better pitch deck, and I'm going to focus on basically saying that the way I talk about designing a pitch deck actually works for ideas and lots of other things.

The way I make things easy to understand on a pitch deck or a slide is to make it legible, I make it simple, and I make it obvious. In today's presentation, we're just going to focus on making your idea legible, which is going to sound interesting—right? For clarity. Now, in my essay, I talked about how at Demo Day, when our startups are presenting to a room full of a thousand investors, it's kind of an interesting audience.

Number one, the audience is filled with really old people. They tend to not have very good eyesight; as a result, they all can't sit in the front row like you lovely people. Some of them have to sit in the way back and stand up, and that means if you create a legible slide, they have to be ones that even old people in the back row with bad eyesight can read. Now, how does that apply to a legible idea? Well, basically, you are designing a slide that democratizes the idea.

People who are blind or people who are ignorant—you're basically designing something for everyone in the room, not just the ones in the first row. So, a legible idea can be understood by people who know nothing about your business; that will make things very clear to the widest possible audience. Now, this is super important because you will talk about your company more than anything else. It is actually the thing that we are really great at at Y Combinator.

We have our companies constantly practice talking about their startup. The Startup School curriculum is designed around helping you constantly practice talking about your startup, and this is because you are going to need a lot of people if you're going to become a billion-dollar company. So you are trying to find a co-founder; you have to have a way of talking about your company clearly. Whether you're getting users, investors, employees, or shareholders, you have to get really good at this, and you have to be able to do it quickly and efficiently.

Here are things to avoid that make things not clear, that make your idea muddy. The first is ambiguity, right? So that's like obviously the opposite of clear or straightforward—something's a little abstract. Something can be interpreted in two ways, and therefore, it might take a question to understand what you do.

Complexity. So I have a very specific definition of complexity. If you look at the root word, simple and complex come from the same root and have to do with twists or braids. Things that are simple are ones that have one braid, and things that are complex have multiple braids; they're intertwined with one another. A simple idea is one idea that does not fold; a complex idea consists of ideas that are intertwined. So, simplicity means you are not trying to mix a bunch of things in your description.

Mystery. This is an odd one, but what I mean is anything where it's like, "I'm not gonna understand what is going on when you're talking about your company." Jargon is one, obviously—any words that I don't understand. Anything that's fake, like indefinite pronouns—so if you just use "this," etc., and you don't describe what those nouns are—and then things that you just suggest but aren't explicit about.

The last is ignorable. What I mean by that is there is some language that we will just ignore. So in UX design, people will create a sort of blindness to things that they don't want to look at or they don't find to be of important value. So, for example, ad blindness is a big one that people sort of understand.

The thing is when you're talking about ideas, there's a way of using language that is also easily ignorable—things that just won't stick in your head, things like marketing speak. There’s probably lots of stuff that you heard about that MBA speak, we're kind of like puff yourself up talk that doesn't give any extra information, and then buzzwords.

When you say certain types of words that, as an investor, I've heard over and over again, or I will equate with zero information or value, then I will ignore them. The result is parts of your pitch will end up being not even heard by me, and therefore, I will not remember them. What you want to do is be conversational. A great pitch is one where you can tell it to your mom and she gets it; she's proud of you, right? She's not going to shake her head, and that means it's got to be conversational.

And that's really good for word of mouth because we talk in normal conversational speak. We don't talk like an MBA; we don't talk like CEOs all the time, so it's best to talk conversationally. Again, avoid jargon—words that are only you understood or used by your industry. No preamble. We'll have some examples of this, but if you want to be clear, let's go straight to what you want to talk about. Let's not have a winding path to eventually getting there.

The last one—this one's a big one—it's being reproducible. So when I hear your idea, can I imagine it in my mind? Can I see what I would have to build to create your company? If I don't have that, then I have no picture in my head about what your company does, and until I have that picture, I can't ask any of the questions that help me understand if I'm excited about you or understand other nuances of your business.

To make things reproducible, I need to know nouns. I need to have objects that I'm going to imagine in my head, and there's three types of nouns that I should understand from your startup idea: First one is what are you making? I should be really clear what is the problem, and then who is the customer? The two are kind of related to the market, right? But I should have these three nouns in my head.

Now, let's go through some examples. This says, "We are going to transform the relationship between individuals and information." That sucks. The thing is we see this all the time. Number one, all the nouns that you have, see down here, are abstract; they're ideas. I can't reproduce based off of this—it has zero informational value. I still have to ask questions to answer the three nouns that I need to have.

This is a bad description for a company. We will see stuff that starts like this when we ask, "Describe what your company is going to make." I don't even want to read it, but basically, it starts talking about the story of the company, or basically it's like, "In the beginning, there was this problem, and we're gonna go through this issue," right? And then there's these bad guys, and they showed up, but then who's gonna save us? "We're finally here to save!" And you're like, "I have to read another thousand applications." That's not gonna work for me.

This is the description on the actual application that Airbnb put to YC: "Airbnb is the first online marketplace that lets travelers book rooms with locals instead of hotels." It's concise; it's descriptive. I understand what they're building. I have a sense for what they're making, and then I can start thinking about my other two ideas of whether I'm excited about it, and then am I going to like this team?

Here's Dropbox: "Synchronizes files across your or your team's computers." The thing about this is it's refreshing, but also, there's no pretense. They aren't playing defense. I see a lot of company descriptions where they're like, "I'm worried about this," or, "I've gotten this kind of feedback," and so they give up clarity to make themselves look bigger and blow themselves up or make themselves try to look more interesting. They're trying to protect themselves against something ahead of time, and the whole problem is usually what it ends up doing is it brings me farther away from you—all that padding that you've put on yourself.

Here's a description from a company in the current batch: "Lumini is building x-ray vision for soldiers and first responders." We don't have to go deep into the details; I don't need to understand how they exactly do this, etc. This creates a foundation for my curiosity. Now I will start from here to try to figure out, "Oh, how do you do this? Is this the right team to do this? How far along are they? Do they have traction? Do they have customers?" I start going down the route of asking all the right questions based off this one description.

This is a good one. Here's another one. So Vahan, in the current batch, is building LinkedIn for the next billion internet users. So it doesn't perfectly connect me to what they're sort of making, but I'm intrigued. I'm excited about someone building into LinkedIn, and I know it's some kind of social network for business people, and so now I'm curious about how. I don't need you to answer how in the description, but I understand what you're doing, and then now I can start making questions in my head about how would I evaluate whether this is working or successful or promising or not. Is this the right team? Do they have a certain amount of traction, etc? It gets me on the right track.

Now, the reason I've used this example is because we have a lot of companies who try to use the "x for y." What I mean by that is like LinkedIn for whatever, or Uber for blank, or Airbnb for blank, and so that "x for y" is super useful because it allows you to shortcut business model and some kind of complex behavior, right, and then attach it to some other vertical or something that you're trying to make work. "x for y" is okay, but most people abuse it or do it incorrectly, so I'm gonna give you some tips.

First, should you use "x for y"? Uh, sorry for your legibility. Number one is "x" a household name? This should be like a billion-dollar company, right? You can't use your uncle's pet shoe store as the "x" for this because people don't know your uncle's pet shoe store, and they don't know if it's successful or not, right? So everyone, as many people should know about this as possible, and for an investor, it should be clear that it's a billion-dollar company opportunity. Everyone has to agree that it is successful.

So you could have a really big "x" that everyone knows about, but it's infamous, right? So, the people don't think it's successful, so be careful of that. Does "y" want "x"? So, is it really clear why the target that you're going after wants this kind of model applied to it? This kind of solution applied to it, whether it's Airbnb for or Uber for, etc.? It should be really clear that that's a segment that's either missing it or it's not being served well by the other one, and also that those people want to have that kind of model.

The third one is "y" should be a huge market. So if you're building "x for y," and the last part doesn't sound like a really big business, that's not going to work well for you, right? Because what we want, because you're essentially saying that you are something but that's a subset, and what we want to make sure is that subset feels like it could be really, really big. If you choose a subset that sounds like it's going to be really, really small, investors won't be as interested. It means that I'm worried that you will not have enough potential headroom to grow to become a billion-dollar company.

Here's an example that doesn't work. We had a company in the batch that started off by describing themselves as "buffer for snapchat." Buffer is a nice company but definitely smaller than Snapchat, so don't want to do that.

Alright, so basic summary for this section: Lead with what, not why or how. You don't need all that other stuff. That stuff gets in the way of your clarity. For the most part, I'll read like a thousand applications every single batch, and it's a really hard thing to do—basically, even though it's my job, it's really, really difficult to have that much focused attention across all these different applications.

So I need some empathy; I need you to help me out. What we want is that when I bring up your application and I'm looking at it, let's make our intimate time really pleasurable, right? Let's make the time that I spend on an idea very efficient. I'll look at it, I'll understand really clearly, I'll move around your application, and be like, "Oh, I'm kind of excited! Maybe there's going to have this," and I'll look at that part, I'm like, "Oh, they do have it! That sounds awesome." Oh, what about this? "Oh, that sounds awesome too!" What we don't want is me to go like, "I don't know what they're talking about." Then I have to go to your website, and I'm like, "I don't know what they're talking about, I don't know how this works." I go back to it, I try to figure something else out, I try to see if some other partner might understand what you're doing, etc. Super inefficient; is there going to be room for me to get excited as a result?

So to be efficient, we need to be concise. Concise. The best way I want to keep this in mind is to use some examples, and so here's some things I need you to keep in mind. Yes, I want you to be concise. Use as few words as possible, and what I want you to understand is that the concision actually gives me secondary information about you as a team.

It lets me know that you have thought deeply about your idea because you thought so deeply about it, and because you've practiced talking about it so much, and you've gotten really good at getting people excited and understanding everything really quickly, you probably have figured out how to do it in a short amount of time. So it lets me know that this is a founder that has thought deeply about the idea.

The other thing about being concise is it shows me that you are efficient, and if you are efficient with your words, then you're probably efficient with your thoughts. That means you're probably also efficient with your actions, and what that means is that I will start to believe that you understand what is most important about your business. You understand how to communicate it clearly, and you might actually know how to always figure out the most important part of what to do about your company to make it grow, to make it work, etc.

So there's a minimum stuff that we want to have, even though we're trying to be as concise as possible. Again, I want to understand the nouns, so if we're so concise that I can't understand these, then your concision is too much. The other is I want to get to this point when I read the concision or this short version of whatever it is you're talking about because again, I know there's like a hundred thousand reasons why your company is great.

But when I'm reading your application, I'm only going to maybe remember two to three of them, and so we have to try to make sure those most important ones come up to the top. This is a real Startup School company description: "It's an online e-commerce store." I can picture what it is, but again, it's not a description that helps me get excited about it. It doesn't help me lead to all the other things I have to do.

Now, more work to understand why this is fast-growing and his potential. I also don't know based on this some nouns. I don't know exactly who the customer is: Is it people that they're selling stuff to, or are they making an e-commerce store for other shop owners? Just ambiguity.

Security services: This is most of the descriptions that we see on Startup School. It makes it really hard for us to understand—"A meritocratic decision support system." The thing is I want to know for what? For whom? I don't even understand what the problem is that they're solving based off of this. And so is it for—is it because a lot of people have non-merit? Basically, I have to ask so many questions in my head to figure out why did they get to this sort of description.

"Learn and sharing knowledge about data science and artificial intelligence." Sounds more like a mission. I can't tell what the product is and how they're going to go about it. Like, I couldn't reproduce this if I had ten companies build based off this description; you'd have ten very different products.

The other thing that's odd about company descriptions is you guys tend to capitalize and make proper nouns very weird words and phrases. You should not do that. It's not like a magazine title, and it makes me think sometimes you're emphasizing the wrong things, like you're thinking the data science and artificial intelligence is the thing that's going to make me excited. And the thing is like those are the buzzwords; those are the solutions, and it makes me worried that you haven't started with a problem.

Let's give an example of how to adjust a description. So here's a much longer one: "Our company will make low-cost and low-power consumption medical devices based on artificial intelligence and IoT suitable for sub-Saharan communities."

Now, relatively clear, I can understand it reading it, but it's not the most concise form of this, and I feel like there's a lot of things that get in the way. So when I work with companies to help shrink and reduce and improve their descriptions so that I will get the most out of it, I want to talk through the process. The first thing I want to do is just figure out what are the nouns in the description. Here we go: "Our company—medical devices for sub-Saharan communities." Oh, we're almost done, right? Everything else that gets added on here—whatever verb, adjectives, or average—you want to be really careful.

You want to know: Is it giving maximum punch for this? Right? And so really the verb is going to be usually just you're making something, etc. But usually, it's going to be whatever the product like the verb is: like the thing that we're making, if we're thinking about this in an active voice structure—the subject, the verb, and then the object, the customer, the market, the people we're going after. Everything else, if we add anything back to this, I really want to be really careful about why we're going to add back to it.

Is that going to be the stuff that makes me excited? So the artificial intelligence and IoT suitable stuff—that's like how they're gathering the technology, and I'm more worried that they're wanting to use buzzwords to describe it, right? Hopefully, that's like a secret weapon that you have, but I bet it's not the defining characteristic of whether this company is successful or not.

Up here, I see two modifiers for medical devices: low cost, low power consumption. So low cost, I can definitely see that's super interesting. If you make a low-cost device in sub-Saharan community, then I'm like, "Oh, that's interesting! That's really interesting because that's like—it's hard just to make something for developing countries, but to make it so it's actually affordable for them—that'd be interesting."

The low power consumption, I can give or take. There, I'd have to know more about the company to know whether that's actually crucial to understanding whether this company has an unfair advantage or not. So if I was to redo this, we come out to, "We create affordable medical devices for sub-Saharan Africa."

Some people are going to be very squeamish about this. A lot of founders are worried it's like, "You're putting me in a box, man! It's too reductive. My business is complex; I do a lot of things, and a lot of things make me great. I want to tell you all of them!" The thing is, like, you don't have time, and I know it as an investor. There's no investor that thinks any business is like simple and easy. I just don't think that from the default, so you shouldn't be worried that I'm going to think something small of it.

And again, you want to be careful of the defense on here. Once I get to this, then I'll start asking the other questions. It creates that foundation for curiosity.

Alright, we're pretty much here at the end. The best way to help me—and I would love for you to help me—is to be clear and concise. Thank you very much.