Pitch Practice with Paul Buchheit and Sam Altman at Startup School SV 2016

All right, so up next we're going to do pitch practice. This is something that we invented by accident a couple of years ago. One of our speakers had to cancel at the last minute, so we just threw together this idea: let's bring up some startups. This is NYC. We've never done it on stage before, but the idea was, you know, a lot of people they've gone through YC, it's coming up to demo day, and actually they've never had a real experience like pitching an investor—just like cold, someone who doesn't know anything about them.

So we got this idea: hey, let's just try it out. You know, have a Founder come up, give their pitch, and just to warn you, they're usually like pretty rough—that's kind of the point of it. Then we have a partner, in this case, it'll be Sam, come repitch the business and hopefully he does a smoother job. We'll see. A few things to keep in mind: this will be a little bit like the office hours, except not at all helpful and probably maybe a little bit more brutal.

So just to kind of give you some context: as a seed investor, something you have to keep in mind is that the median startup is ultimately worth about zero dollars. Probably 95 percent of startups are a bad investment. So you kind of get in a mode where you're just a default no, right? And it's a very—it’s a little bit cold because you know people are pouring off their hearts and they're preparing all their dreams into it. But, you know, nine times out of a thousand, probably, no— the other way around. Anyway, it's always if you have to say no a lot.

When you see a business, what you're looking for is like, why are you the exception, right? So it's not good enough just to be like, oh, that sounds like a nice business. I have to think like, wow, this is that one business, that one that I've been saying no for months, but today I'm going to say yes. So just to kind of frame it for you, all right?

Uh, first up, let's give a round of applause. Let's see—also, just for context, I don’t know anything. So I'm not actually pretending that I didn’t bother to learn anything. So this is—I'm hearing about the business for the first time.

Okay, yeah, launch in. Okay, introduce yourself.

So, agricultural energy and mining companies hire ships. And just to be clear, I'm not talking about containers—I'm talking about full ships.

Okay, so you do something with ships. I got that part. So this is like if I need to go rent—is this like a rental? Like, I need to go rent?

So you are a commodity trader, you need to shift 50,000 tons of coal from South Africa to Rotterdam, and you come to us to find that ship.

I see. So I took a position on coal in South Africa and then get it someplace else. What would I do today?

Well, I don't know anything about this business, so today you would pick up your phone and your email, and you would call five to ten brokers and say, "Hey, I need to move this stuff."

I see. So this is like a marketplace where right now these brokers—and what do they take, a big cut? And then you're gonna—what's the value proposition for me as a trader?

So think—I think you're speaking to all these different brokers, and it can take you three to 24 hours to get some indications back—it can take you up to two weeks to actually book that ship. With Shipper Max, we use satellite technology and navigation to cover every ship on Earth, and we can tell you which ship can make it in time, fits the specifications, and is open in seconds.

Okay, so is the idea that it's just easier for me, or do I get a better price? Like, what's—what closes the deal?

So there's two things when you think about trading. One, it's like a very binary thing as a commodity trader, and you need to know what your delivered price is to the customer, otherwise someone else can come and get that deal instead of you. Both myself and my co-founder have lost multi-million pound deals for not getting freight fast enough.

And the second proposition is really service. Would you rather speak to five brokers and receive thousands of emails for a per deal, or would you rather say, “This is my—let's go?”

Uh, the latter sounds better. I'm not in that position.

So do you have a lot of traction? I mean, what's your growth rate?

So we launched our beta about seven weeks ago and since then what we were trying to do is talk to these charterers—these traders—and see if they would talk to us and give us requests. To date, we've had about 4.5 million worth of gross, and last week was a great win for us because we signed one of the largest energy trading companies in the world. They shift 150 million tons of products annually.

And what does that deal represent for you? How much revenue are you going to make off of that?

So we're still competing with other brokers right now. The revenue potential was 15 million annually. So we're now receiving those requests to compete on a deal-by-deal basis to be faster and better.

So from their perspective, you're just another broker, is that right?

Yeah, right.

They don't even know that you're like a tech company. They're just like, "Oh, new broker."

Yeah, is that good or bad for you?

So we're kind of edging. The way I've started this conversation is saying like, "Hey, our goal is to make this much, much faster; help us get there," and so they're giving us a go. They want smarter intelligence, and the smaller companies want better access to the market.

So today we're just saying, yeah, it's not all perfect out of the box right now, but give us a go—we're not worse than the other brokers.

Have they used you yet, or do they just say, "We'll think about you"?

No, yeah, they’re giving us requests too.

So how many ships have you shipped?

We haven't shipped any. Right now we've basically been getting those requests, which was our first test to see will they give them to us. That's actually quite a big deal because they're telling you market information.

And does that mean that they're sending you the request, but then they're going with a different broker?

Right now, basically what our problem has been is that we need a bit more funding to get more men on the ground to help fulfill these requests. Because right now some of the larger brokers have better intelligence, and so we're starting kind of from zero. Each time we're kind of getting closer and closer to actually booking that deal and beating the brokers.

So you haven't actually won any deals yet?

No, yeah.

How soon will you win a deal?

I think next week.

All right, well, talk next week.

So how much will that deal be worth then, assuming you do get this deal next week?

That should be worth ten thousand dollars.

And what will be your costs behind? Is that like pure profit for you?

Uh, that's like pure profit. Our cost is just like the men—the people.

Now, why is this going to be like a 100 billion dollar company?

So it's a huge market. Today, the amount that these traders spend on brokerage fees is about three billion dollars, at least at current market low rates. The largest company today is a company called Clarkson’s, who make 240 million GBP per annum.

I mean, to me that also means like you have some really formidable competitors. Like, are they really just gonna roll over and let you take their business?

Well, no, I don't think they're going to roll over. But, um, so I think what's kind of interesting that’s happening is that the problem with these big guys is like they are superior to the small brokers, right? They have more intelligence and they can serve bigger clients better, but who they can't serve is the little guys.

And they can't serve them because it’s so manual with all their processes.

So basically, you're thinking you're gonna come in at the bottom of the market where they're just totally neglected. Is that who you're going after right now? Is that who this first customer is at the bottom of the market?

No, we've been starting at the bottom market, but actually a lot of the big just want to talk to us too because of the superior intelligence that we can actually leverage free data.

But, I mean, if there is this bottom of the market that's totally neglected, why not just go find some of these guys who are super neglected?

No, we're all working with those as well.

So it seems like I see a lot of startups where they're basically—the high-level pitch is there's these brokers that make a lot of money and we're going to cut them out with technology and take all the money.

But I mean, just as a general form, like the most obvious for me and familiar to most of us is like the real estate market, right? Like Redfin or someone was going to come in and just blow away the brokers, but so far it seems like—I don't know if I've seen any of that. Those markets, it seems like the brokers are very good at holding on to their position.

So the key thing in this market—I mean, there's one thing to say that we still have brokers, and so we're not a pure technology play. We're enabling our brokers to be much smarter than anyone else.

The cool thing about this market is that intelligence is the main driver. Traders reward their brokers with deals based on intelligence because you need that intelligence to keep getting good rates.

So if you can build a platform that is the only thing that can aggregate and digest this explosion of information at scale and you're the only person that can speak to these small companies and the big companies and mine all that data to serve people more effectively than anyone else...

Okay, so supposing I do believe all of that and that there is going to be this one tech company that just manages to displace all of the brokers—why should I believe it's you?

So our team combines like a few things: startup experience and actually growing the businesses, and two very experienced brokers on the team, as well as people who have been on the trading side of this market and deep technical talent.

I think you need all those things and it's very difficult. People in this industry generally don't know anything about technology, and it's a very old industry. People who understand technology generally don't understand like the niche things that you need to care about when shipping 50,000 tons worth of commodities.

Have you shipped a lot of commodities?

A few.

How much?

So it was more my co-founder than me on the quantities, and he was shipping—I don't know—thousands, tens of thousands of tons of fertilizer.

People are signaling to me. Does that mean it's time?

Okay, all right, I think that's time. Thank you very much.

Thank you.

All right, so I have—this is—that was the first time I met Jenna and heard about the business. So I'm going to try to re-pitch it, but I will probably get all the numbers and secret plans for the future wrong.

Hopefully, it will still be illustrative and helpful. I'm gonna treat this like I would treat a meeting with an angel investor that I was trying to get to write me a check.

So, hey Paul, I'm Sam from Shipment Max.

Hi, so I'd like to tell you about what we do, and maybe I can just start with kind of who we are.

So we are building a marketplace for shipping. Shipping is still nine percent of world GDP. It's one of the biggest markets people don't think about, and it hasn't moved forward much with technology.

So it's still, if you need to ship something, you call around. You call a broker who then knows a bunch of ships—they try to find one somewhere in the world that can take what you need, and then you pay them, and they ship it for you. Everyone thinks that the market has become really efficient because they read the box, and they know about containers, and they think they're like, "This is a solved problem."

But still, more than half of all cargo doesn't get shipped that way, and there's been no winner that's emerged for an Uber-like shipping experience where basically you click a button, you say, "I need to ship from here to here," you get a rate, you get a boat, and it goes.

So that's what we're building. The standard broker fees are like 15%. So we think this is a really large market.

I'd be happy to tell you about more details of our approach, but is this something that at a high level seems interesting to you?

Yeah, if you're gonna make a lot of money, it is interesting to me.

So, well, I'd love to tell you why we're going to make a lot of money. Not only is this a giant market—you know, shipping at broker fees on cargo shipping is a 150 billion dollar a year market—but there is a natural monopoly in that like any other marketplace, the people that have cargo want to go where they can get the cheapest rate and the most options, and the people that have boats want to go where the most people that need something shipped are.

So even though no one has brought software to this industry yet and it's been the sort of network of people calling, you know, brokers calling around to ships they know, why haven't one of these existing brokers just eaten up the market?

Well, why does any industry not adopt software? I think there's a great quote I heard recently that it's harder for existing companies to get good technology people than it is for good technology people to learn about other industries. This is why startups have an opportunity.

This is why is that the only way that you can eat the industry then is that—I mean, it's just naturally fragmented if you don't have software—is that your theory?

Well, yeah, I think it's like any other industry. It's like Airbnb couldn't have worked without software—you just had people call around and find vacation homes that happen to be free, or you had to call taxi companies before Uber and find a cab that was free.

The magic of software is just that any of these industries can become centralized on one platform that gives everybody a central experience, and in these large markets, these platforms tend to be winner-take-all or win most and create super valuable companies.

So my fear with these kinds of businesses is always just that, you know, anytime tech people go in and they say, "Oh, we're going to change everything," but then they show up and the customer says, "I've been doing it this way for the last 30 years. I'm going to do it till I'm dead."

How do I know they're actually going to adopt your new approach?

One of the secrets that we've learned as we've been working on this business—and we're very new, we're only seven weeks old—we still have a lot of things left to figure out. But one of the things that we've learned is most people are either all humans or all software, and that that approach doesn't work.

What you need is the combination—you need humans aided by software. This is just like how PayPal dealt with fraud, and this is what customers want.

So we're actually going to have a bunch of brokers that customers can talk to on the phone, like they're used to, but we'll give them software that makes them 100 times or a thousand times more efficient.

But you're totally right—and the reason other people have failed doing this is they don't understand this, and they just have a pure software platform. It really is the combination of humans and software together that makes this still work with customers that have been doing it for a long time, but have the advantages of a software company in scale.

So is this working right now? Do you have a lot of customers?

So we're super early. We haven't been able to raise any money yet. We're only seven weeks old. In those seven weeks, we've been able to get 50 people that have sent us jobs. We don't yet have enough infrastructure in place to fulfill those, but we expect to actually book three boats next week, and we'll make our first ten thousand dollars of revenue.

We think we have a path from that—just over the next few months on our existing contacts and what we know coming, what we know is coming in our pipeline to get to a hundred thousand dollars in revenue. That's not GMV or anything like that, that's actual profit that we're going to keep—we have nearly 100% margin on that.

And then what are your expenses?

Well, as I said, I think one of the key insights here is that we're going to be humans and software together—we're going to be brokers and a platform. So our biggest expense by far will be paying the brokers' salaries and commissions.

But again, I wasn't joking when I said I think we can make them 100 times more efficient with software. You would not believe how broken the industry is today; it would pain you to watch how one of these brokers works. So we think there's still substantial economics for us there.

So how big does this get ultimately? Where do you see the business in like five and ten years?

Well, the charter market alone—the broker market alone—is about 150 billion dollars.

And is that gross?

No, that's net in the market.

The shipping market—that's their markup?

Yeah, the shipping market is in the trillions. Again, it's one of the largest drivers of worldwide GDP.

But you know, we're pretty ambitious. We think this is a big market and that there is a natural monopoly. It could get pretty big. We're very early.

But why—why should I, I mean, assuming I do believe that story—like why do I believe it's you and not some other people with software?

So we ourselves used to have to do this a lot, and we understand a lot of the things that most people don’t. We're commodities traders. We've shipped huge amounts of goods, and we've learned these non-obvious things—like the most important thing for a commodity trader is not the price but the speed and the certainty.

So it's really important to know if you're going to trade on a razor thin margin that you can have a ship on a particular day at a particular cost before you buy the coal or whatever. And that's just one example I could give you of many.

But we've been doing this our whole lives. We really know about this, and we're software people.

That's great. Well, we're out of time, but so really quickly, I'd love to have you as an investor. I don't want to rush your process, but what are the next steps? How do you think about this?

You know, I usually like to just kind of turn on it for a little while. I may come up with some extra questions, so just drop me an email and include whatever other info that would be helpful.

Okay, I'll send you an email now. Can I follow up with you in a week or two and see if you need anything else?

Sure, yeah, just feel free to ping me.

All right, thank you, Paul.

Great, thanks. Should we talk about it a little bit?

Yeah, if there's anything quick—quick recap. I mean, so this is one where it's a business that I don't know anything about, so there has to be like a pretty strong educational component to start with.

And so it definitely, you helped—especially that you're able to give like some high-level overview—and especially trying to understand just like the fundamentals of what drives the business.

Because for me, my default assumption about the world is that 99% of people will want to just keep doing the same thing that they do day after day unless they have no choice.

And so change happens when people are pushed. The commodities trader with the margins where it's like he's going to lose money if he doesn't get the right ship or whatever—that makes sense, right? Because it actually becomes like a competitive thing where the people who adapt the technology will defeat those who don't.

Right. One thing at the end—don't leave a meeting without some plan for a follow-up. It's like really good to just say like, can I email you? Should we meet again? What are your thoughts?

I always have an ask, and you shouldn't just say like can I have a check after a first meeting. That really annoys me. I think it annoys people even more when people do that to us. But it is always good to ask for a follow-up.

You were really good, by the way.

Yeah, yeah, good job. It's tough to pitch up here.

All right, we would normally talk about this for longer, but we're running a little bit over, so we'll move on to the next one. Thank you very much.

You have Mike?

Never mind.

Hello, hello! Good to see you. How's everybody?

So hi, hi! My name is Kelly Thomas Drake, and I am the President and founder of My Purple Folder. My Purple Folder is a HIPAA-compliant global healthcare app that provides consumers easy access—a one-stop shop—leveraging and connecting existing patient data, while also delivering hospitals and physicians decreased administrative costs associated with patient care and an improved patient experience.

So is this like an EMR thing? Is this my health record?

It's actually all of them combined in one.

I'm having trouble wrapping my head around. So is this something that I, as a patient, want, or is it something for doctors? Who's the customer?

The caregiver, which is their family member. And it's called My Purple Folder because I kept everything in a purple accordion folder when I was going through this with my grandmother.

Okay, so this is a place that I keep all of my medical records essentially.

So essentially if you're from the Bay Area and you have a Clipper pass, and you can go from ferry to BART to Muni to all these different transportation systems with one pass—that's what My Purple Folder is.

So I guess that's too abstract for me. I mean, I've been to hospitals and things—what is the problem that it solves for me? Is the problem that I have to move my medical records around? I'm still trying to figure out—is this for my medical records, or is this something other than medical records?

So I'd like to tell you a story, basically. So as of 2011, a federal piece of legislation was passed called meaningful use, which made an already antiquated system more disjointed. So my mother, as of late, was diagnosed with breast cancer. She is better now; she's in remission. However, she went from having one patient portal on one hospital campus to seven because of hospital healthcare systems being so federally compliant that they forgot about you and me—the patient, the caregiver, the human.

So this is a go-between, no matter what patient portal, no matter what hospital healthcare system, no matter what city, state, or country. This is global access coordinated all at the top of my app—My Purple Folder—the patient care easy button.

So it's my medical records, is that right? I'm—is it like just yes or no? Is it my medical records?

Yes, in addition to some.

Okay, what else is it?

So it's my medical records—it's your medical records, it's your healthcare legal records. It's your pursuit—so like my—what do you call it? Like if I had a DNR or something, it would be in there. Is that—so I keep my will in there? Or like advanced medical directives?

Just advanced directives, medical power of attorney, durable power of attorney. We have a universal HIPAA agreement because I also feel that when you're caught like a deer in the headlights and thrust a clipboard, you shouldn't have to answer legal questions—then you should have it figured out already.

I see. So I've got all that in advance. So once I have this, I walk into the doctor's office, and I say, "Hey, good news! I've got my purple folder here," and then the doctor says, "That's awesome!" Or like, does it work if the hospital or medical facility I go to does not yet have your software, or do they have to be a—like do you need to sell all the medical offices before it works for me as a patient?

Absolutely not. As we—the environment is right for doing the digitized version of what I did for my grandmother and what I've learned as of late and what we've developed. So we leverage and connect existing patient data—we connect to the back-end EMR systems so that you, the new care provider, say, "Oh, well, I don't have that yet." We send it through geolocation technology, you receive a double-07 encrypted link, and you input it in your system as you like.

Okay, great! Well, we're all out of time, but thank you very much!

Thank you!

All right, thanks! Before I start, we have a little surprise! We found PB's kids, Thomas and Camilla, backstage. They wanted to say hello to all of you. You can give them a round of applause. YC Winter 2024, we're excited. Thanks for coming.

All right, um, so we'll do the same thing again. I know very little about this business. All the numbers will be as close to my memory as I can remember or think of from what I read earlier, but they'll be made up.

All right, all right.

Hey Paul, I'm from My Purple Folder.

Hi!

So, um, healthcare in the U.S. is horrible. We spend 19.5% of our GDP on it, and we have the lowest satisfaction of any developed nation. And you might wonder why that is—do you have any idea?

Yeah, I have lots of ideas.

Well, I would actually love to hear, before we jump in—what do you think is the single biggest driver?

I mean, I think there's like no underlying economic model other than driving the cost higher fundamentally, right?

Right. Make more money by driving costs up.

So we think the same thing. You know, you have this runaway growth because there’s just no incentive to do anything but charge more, do more tests, do more procedures, and the patients are out of control.

Our whole goal is to put healthcare back in the hands of the patient so they have a sense of what's going on and see everything in one place. As we've had this explosion, patients have data on six or seven different systems—they have prescriptions, they have appointments, they have communication with doctors. Most people can't use all the systems or one, and so we've just tried to make one consumer portal for all your medical records and any other medical data you have.

If you have this, you can actually understand your care or family member's care and actually have a much better experience, and hopefully over time drive the cost way down. In the process, we become one central repository for all patient health data that actually works.

So basically, as a patient, I just—this just has all of my medical records in there? Is that kind of—yeah, so we make that work magically. We connect with every system. We don’t have to do any deal with them; we just use the APIs that they all have to have or secure email, whatever they have. But we make it work so that as a patient you just say, you know, I need to connect to these few systems, or your doctor can send you invites, and then you can view everything in one app.

I see. Now, is this something you sell to the patients or to the doctors? Who's the customer?

Here today, we're going to sell to patients. It's really hard, as you may know, to try to sell things to doctors and hospitals. But we have customers with you know, their hair on fire—this burning problem of not being able to manage their healthcare.

What is the thing that actually drives someone? Like, what is the moment where like, “My hair is on fire?”

Well, one particular scary story from a friend of mine was a missed message about a potential cancer screen. But it's usually something like that—it's someone gets really sick or something bad happens because of a lack of information in communication.

And so the pitch to me as a consumer is that this brings together all of my information just so that I can like peruse my medical records—what am I doing with it?

Well, it's so that you can get better care. Like, the issue many people have taken care of a sick parent or grandparent have run into the issue where they don't know what to do. You know, the patient doesn’t remember something, or the family member doesn’t remember something, and the idea is like these are complicated things; you’d really like to have a single set of information that says, “Here’s when you need to take these medications. Here are these test results. You have to go in to get this test. This doctor said this thing wants you to tell this other doctor.”

It really is just about better care, and people are willing to pay an unlimited amount of money if they can get that actually to be good.

Are they paying you an unlimited amount of money right now?

So we've just started charging. Unlike most healthcare companies, we don't want to drive the cost of healthcare up and up and up. We kind of hate it when people say, “Oh, I make this medical device for, you know, seven dollars and charge 22,000 because insurance will pay me.” That’s not who we want to be.

So we’re only going to charge 99 dollars a year per patient, although over time we'll become such a powerful...

How many customers do you have at that price?

This is made up—we have 150 so far, and we're growing at 12 per week.

That's great!

All right, well, I'm all out of time, but thank you. Do you want to invest? Do you want to learn more? How do you think about it?

Yeah, you know, it's definitely an area that I'm interested in, but I think I need to learn more about the product. So maybe you can send me financials and go from there.

Okay, great!

All right, thanks!

Thanks! I probably butchered that.

Sorry, you did.

All right, I'll have Sam Altman saying my business to everybody.

All right, so this is a tricky one because like we spent a lot of time with me just trying to wrap my head around what it is, and to be totally honest, I'm still not entirely sure. I think it's basically a thing that brings together all of my medical records, right?

But—and this is a really common thing where startup founders say, "No, no, it's that and like a thousand other things," but it's really important, especially at an early stage, that you'll be able to be focused.

So, you know, if you can say yes, it's that, but here's the part that's really exciting as it grows bigger—but I need to be able to wrap my head around it; otherwise, it's almost like it's like a Christmas tree, right? You want to like hang the ornaments off, but without the tree, like it's just ornaments smashing on the floor.

So like I need to have that concrete framework in my head first. So like the first thing I ran into is just like unsure what the product is.

Me too. It's always so tempting to try to tell this sort of grandiose and exciting story, but if you can't—if the person you're pitching can't understand what you actually do today in the first like 30 seconds, the pitch is unlikely to get better from there.

And so just like saying it in plain language—just what the product actually does, what a user can do, who your customer is, what they pay you for, and what your product does is super important.

Yeah. And in fact, this is the once you're in YC, this is the first thing that we work on. And so it's not easy, like, it takes the companies in YC usually about a month to get it right.

So every time we meet with them in regular office hours or a special 8, we have a thing called group office hours, the very first thing that each company has to do is give me their one line description, and usually at the start of the batch, it's all incomprehensible.

And so it's something that you know, it's normal that you have that because almost every company we fund comes—normal that I have that sounds like a disease.

Yes, it's learning how to easily curable though.

Yeah, learning how to really reduce things to their Essentials is super important, but not always easy. That is the number one skill of pitching, though—practice.

All right, I think we're way out of time.

Yep.

Thank you all!

All right, thanks John! Thank you.