There’s One Question Every Entrepreneur Needs to Be Able to Answer for Investors
Learning to structure your pitch around this one question is the key to raising capital.
A founder came to my office looking for advice about fundraising. The first thing he did once he’d sat down was begin telling me about his product. After about five minutes, I interrupted to explain that I understood what his product did (it wasn’t a particularly complex product), and I asked him to tell me what he was doing for customer acquisition. He shrugged and said, “We’ll worry about getting customers once we have funding.”
I shook my head. “You need to worry about that now,” I assured him. “It’s how you’re going to get funding.”
He nodded as though he agreed, and then he went back to telling me about his product. A few more minutes passed, I tried again to get him talking about his customer acquisition strategy, but it didn’t work.
Then there was a third attempt to ask him about customer acquisition, at which point he seemed to be getting annoyed with me. “I know we need customers,” he insisted. “We’ll get them once I’m sure I’ve built the right product and raised some money.”
“What makes you so sure you’ll get customers?” I asked. “And why would an investor give you money for a product before they know people will buy it?”
“Because, at the end of the day, customers want the best value for their money,” he assured me. “And the way we’re going to give them the best value is by having an amazing product. Investors are going to see what we’ve built, and customers are going to see what we’ve built, and they’re going to see how great it is and want it.”
“That’s not true,” I told him.
“How do you know?” he asked.
I shrugged and responded with a smile: “Because I saw it on TikTok.”
The traveling TikToker
I wasn’t simply pandering to my Gen Z audience. Instead, a few minutes before the founder had come to my office, I’d been scrolling TikTok and seen a video that explained exactly the point I was trying to convey. I took out my phone, searched for a few seconds, and found the video I’d just been watching.
The video featured an American woman visiting Spain and posting about her first trip to a Spanish grocery store. Since she was new to the country and everything in the store was in Spanish, she was struggling to figure out what items to buy.
Halfway through the short video, the woman showed herself staring at a wall of yogurts and looking confused. Eventually, she chooses one and, as she puts it in her cart, she explains, “I’m grabbing this one because I recognize the brand.”
It’s a moment that takes 9 words and maybe three seconds to play out; however, In those 9 words and three seconds, this random TikToker inadvertently explained the hardest part of entrepreneurship in a way that was better than anything I could have said to the founder, so that’s why I played it for him.
Familiarity trumps functionality
“What’s so important about that moment in relation to customer acquisition?” I asked as I paused the video.
The founder shrugged. “I don’t know,” he grunted. “Just some random person buying yogurt.”
“It is a random person buying yogurt,” I agreed. “But that’s important because it’s also a real person behaving in a real way. Specifically, what’s so important about how she chose what yogurt to buy?”
“She chose the only recognizable brand in the store,” he said, identifying the important part, but not recognizing the wisdom in his own words. “That’s probably the one I would have grabbed, too. I didn’t know any of the other yogurt brands.”
“Exactly!” I agreed. “The main factor in her purchase decision had nothing to do with features. Her purchase decision was tied to familiarity.”
“But yogurt doesn’t have features,” the founder responded. “It’s just yogurt.”
“Of course it has features,” I argued. “Flavor is a feature. Calorie count. Fat content. Whether or not it has little bits of fruit in it or not. Those are all features. More importantly, they’re all features she almost certainly could have figured out if she’d have bothered to inspect any of the yogurts more closely. But she didn’t. She just reached for the brand she was familiar with. Why is that so important for someone like you?”
The founder’s forehead creased as he thought. After a few moments, his eyes widened as he suddenly seemed to realize the point I was trying to make. “Because it tells me people don’t always spend a lot of time trying to understand products and their features,” he tentatively answered. “It’s like brand recognition almost matters more than product. There could have been 20 yogurts on that wall better than the one she chose, but it didn’t matter.”
“Exactly,” I agreed. “As entrepreneurs creating startups, we like to imagine consumers are going to choose our products if they offer objectively better value. But that’s not how consumers actually behave. Consumer buying decisions aren’t rational. They’re emotional.”
Answering the right question
“So let’s say what you’re telling me is true,” the founder said. “I believe you when you’re telling me people don’t necessarily make rational purchasing decisions. But how does that help me with fundraising? What am I supposed to do?”
“You’re supposed to figure out how to acquire customers,” I told him. “That’s why I kept asking you about your customer acquisition strategy. I don’t doubt your ability to build the product, and most investors won’t either, so stop talking about your product. The question you need to answer — both for yourself and anyone you want to raise capital from — is: How are you going to get customers?”
It’s not just the most important question to answer for him. It’s the most important question for every entrepreneur. Remember that businesses don’t achieve success by building great products. They achieve success by finding repeatable, scalable ways to get people using their products. This means the most important question entrepreneurs need to answer is: “How are you going to get customers?” When your fundraising pitch answers that question, you’ll have a much better chance of successfully raising capital.
