Idea Validation Process: The Elevator Pitch

Startups use their elevator pitch to quickly communicate their startup idea and value proposition in one or two sentences.

In our previous idea validation lessons, we focused on the importance of taking your initial idea and defining your problem, particular market, advantages, and customer needs. Now it’s time to refine those learnings into a polished Elevator Pitch and continue our startup idea validation.

The heart of every great Elevator Pitch includes 4 essential components:

ONE Nail The Problem

As we learned, great business ideas start with a well-defined problem and the ability to identify how painful that problem is. Now, we’ll concentrate on how to effectively articulate it in your elevator pitch.

TWO Explain The Solution

You’ve zeroed in on how your solution will fix a super-specific problem. Now, we’ll look at what information to include — and not include — in order to boil it all down to a punchy, value-driven solution statement.

THREE Identify The TAM

Now that you’ve investigated your market, it’s going to be critical to communicate a realistic, quantifiable understanding of the true market potential of your business idea in terms of potential paying customer base.

FOUR Highlight Your Competitive Edge

With a high-level understanding of the other players in your space, we’ll cover simple, effective ways to call attention to their shortcomings while emphasizing your unique advantages when pitching your startup idea.

In its shortest form, if you were pitching your startup idea to a potential investor, they would want to know these critical pieces before they would listen to (or care about) the rest of your business plan.

Simple, right? Well, not so much.

A seasoned Founder may iterate on this elevator speech hundreds of times during the idea validation stage until they get it right. It's not just words, but an understanding of the business itself that comes with lots of cycles and experience. The constant revision until you get an effective elevator pitch is what makes this so hard.

Before you do anything else — like create financial projections or put a funding plan in place -- you need an effective Elevator Pitch.

Step 1: Nail The Problem

Startup Founders often overlook the importance of giving the Problem more weight than the Solution. They get so excited about their Solution that they forget to explain why the Problem is so important. A well-articulated Problem makes the value of your product idea and your entire plan 10x more effective.

Let’s use the example of Netflix, which initially solved the problem people had of having to travel to the video store to rent a movie. Netflix sought to avoid video stores altogether and instead deliver movies in an envelope to your mailbox, allowing you to keep the movie as long as you’d like.

At the time, the Netflix problem statement would probably look like this:

Going to the video store is a pain. People don't like traveling back and forth just to rent a movie and they hate paying late fees even more.

That’s a pretty simple problem statement, and it’s accurate. Notice that it doesn’t include any reference to the solution. We’ll get to that later. A good problem statement focuses entirely on the problem so that the audience can build a powerful case for that problem.

Tell a story.

A great problem statement tells more of a story and provides an emotional connection to the solution. Building a better story takes more effort, but the payoff is real because you can draw your audience into your world and get them excited about your journey.

Focus on the largest, most pressing, painful problem

Pick the Biggest Problem. There’s a good chance that your product solves multiple problems, and that’s wonderful. Right now, however, it’s time to lead your Elevator Pitch with just one of them – the biggest problem you solve.

There are two important reasons for this:

Investors Won’t Remember

Investors don’t have time to remember every detail of your pitch. Can you remember the last time you spent an hour watching a TV show and remembered every line of dialogue? You need to focus on the highlights and save the details for pointed questions later.

One Problem Needs to Succeed

If your biggest problem isn’t compelling, it stands to reason that the second biggest problem you tackle isn’t going to save you. You don’t win on the number of problems you solve, you win on how well you solve a particular problem.

In the example of Netflix, we know that movie delivery solves lots of problems – convenience, movie selection, and cost-effectiveness — among others. Yet, some are more important than others. If Netflix was far cheaper than its rivals but less convenient you could argue that it would fail. Therefore, Netflix needs to be cheaper, but more importantly it must be more convenient. We then realize that “convenience” will be our lead problem.

This doesn’t mean we will ignore the other problems. We can certainly cite those as well, but we want to tighten our focus initially so that we can talk about this problem first, build a story around it, and then dig into related problems to solve after you’ve captured the attention of the person you’re pitching to.

Illustrate the Pain

Pump up the Pain. You don’t have to be addressing a life-threatening problem to make it powerful. In your pitch, you need to focus on the detail of the pain in your problem. Even “convenience” can be presented very differently if it isn’t given enough character.

Compare these two versions of the same problem:

Version 1 - Stating the Obvious

“Going to the video store is a pain.”

Version 2 - Illustrating the Pain

“Going to the video store requires fighting traffic, wandering the aisles, and waiting in long lines just to get a single movie.”

It makes it relatable and memorable.

Both statements have the same intent, but the second one details the pain. You don’t want to hope your audience will remember what fighting traffic was like – you want to tell them. You want to remind them of the nuances that make “going to the video store” such a miserable experience.

Articulating The Problem Statement.

Even though you know the elements of a good problem statement, it’s still possible to articulate this poorly in your Elevator Pitch. Just assume the first 20 times you pitch this problem (maybe a lot more!) you’re going to refine it. Your first version is likely 8-10% of the way to your perfect elevator pitch.

Here's a horrible way to articulate the problem:

"The video rental industry has a categorically broken distribution model when delivering video-based content to consumers."

Is that true? Yes. Is it relatable? Not at all! Remember that facts alone are not a compelling narrative for your product idea.

The goal of the problem statement is not only to garner the attention of your audience, it also serves to make the solution look amazing.

Key Takeaway

A good problem statement isn’t just correct - it’s compelling. It pulls the audience in and gets them fired up. Startups fail to compel their audience when they simply state the obvious. Don't make the critical mistake of leaving the story behind the product concept in the hands of your audience's imagination.

Step 2: Explain The Solution

Once you've articulated the Problem, your next step is to illustrate how your Solution fixes that Problem beautifully. This requires just as much effort to keep the answer as short and punchy as the Problem Statement.

Founders assume that their audiences already understand why a product is important. They want to rush into their demo. Take a moment to make sure your audience understands the value of your solution before you crack open your laptop and start your demo! Your customers' willingness to pay attention to your idea is directly proportional to WHY this new idea solves a real market need.

First, sell the trick, then perform it!

Connect Directly to the Problem

Your Problem Statement should set the stage for your Solution to shine. In the case of Netflix, we did a nice job of explaining how painfully inconvenient going to a video store is.

We want our solution statement to connect directly to that problem – before we get into any other part of the Solution. In the case of Netflix, our solution involves allowing anyone to watch movies streamed directly to their home or delivered to their mailbox (in case you forgot, Netflix also delivers DVDs!)

Problem

“Going to the video store requires fighting traffic, wandering the aisles, and waiting in long lines just to get a single movie.”

Solution

“Netflix allows anyone to enjoy thousands of titles streamed directly to their home or delivered to their mailbox.”

Voila! In just two sentences we’ve given a potential investor an easy-to-digest Problem/Solution Statement.

What’s equally important here is what we’re not including.

We’re not talking about the cost savings or the ability to get streamed content on multiple devices. We will certainly discuss those benefits as we dig into our pitch, but we want to hook the audience in with our strongest value proposition from the start, not force them into keeping track of a list of features.

Step 3: Identify The Target Market

Solving the Problem beautifully is nice and all, but if you fail to give investors an idea of the Market Size of the Problem in your pitch, you're not likely to get them very excited. If your market research indicates your target audience is hundreds of potential customers vs hundreds of millions of customers, it's likely far less interesting to an investor.

The Market Size explains just how much potential for growth your startup idea has. Investors want to know you're solving a painful problem in a giant market. If you can combine those two factors and properly communicate it in your Elevator Pitch, you'll be sure to generate a lot more interest. Market validation is a key consideration in the diligence process.

Investors want to invest in good companies that can have huge outcomes to make up for all the bad investments they might have made. They’re thinking to themselves, “If this startup isn’t going after a big enough market, it won’t be able to create an exponential outcome for me.”

Warning: This Gets Confusing

The problem starts when people don’t realize they are using different terms interchangeably. Are you being asked how many people could potentially use your product or how many people will use your product? Nearly every person on the planet may have the ability to watch Netflix, but that doesn’t mean the TAM for Netflix is the entire population of Earth!

There are some nerdy things you can skip when it comes to pitching your idea, but unfortunately, this isn’t one of them. You really do need to understand the difference, so let’s dig in.

The Three Pies of Market Size

Your Market Size is broken into three pies from big to small:

Total Addressable Market (TAM).

Addresses the question “How many people could potentially use this product?” It doesn’t mean how many people will use your product. This is the question you’ll get asked the most, and the answers are often the most wrong. We’ll get to that later.

Served Addressable Market (SAM).

Filters the whole TAM by how many of those customers you can actually acquire. Remember you can only serve as many customers as your sales and marketing channels will acquire. You can’t serve customers who have never heard of you!

Target Market.

Determines who are your most likely customers. Imagine you ran a banner ad online and presented it to 100 people. They all watch movies. Which of those 100 is most likely to click and buy? That’s your target market.

Getting This Less Wrong

In a perfect world, you could simply Google “Market Size for the Product I invented 9 seconds ago” and you’d get stats, charts, and graphs that would make the nerdiest MBA swoon. Chances are, you won’t find any of that.

For now, just recognize that having an accurate estimation of your Total Addressable Market will be important. For our purposes, we’re going to build our Elevator Pitch around the largest pie — Total Addressable Market.

Making Market Size Matter

Once you’ve figured out how to build a reasonable TAM you can then get back to the business of constructing your Elevator Pitch using this new key ingredient.

How you apply this key ingredient makes all the difference in the world. Watch what happens when we reduce the size of Netflix's TAM by just modifying the Problem statement to make it a waaaay too specific:

"For fans of Fletch, going to the video store requires fighting traffic, wandering the aisles and waiting in long lines just to get see Fletch."

We haven't even explained the Solution yet and already you're probably thinking "How big of a business could you build on helping people rent Fletch? I mean hey, it's a good movie, and probably a seminal work by Chevy Chase, but c'mon!"

You’d be right. Unless we want to build a company around a single movie, we haven’t applied the problem to a big enough market. If we want to make the market size matter, we have to point the problem to where the biggest addressable audience is.

Now let's try that again, only this time we'll use a much larger Market Size:

For over 90 million Americans, going to the video store requires fighting traffic, wandering the aisles, and waiting in long lines just to get a single movie.

Notice how with just a small modification you get a real good indication of how big this Problem really is. 90 million Americans represent a lot of dollars spent. Even if you don't entirely understand the problem, you can certainly understand that 90 million people probably add up to a pretty big market opportunity.

You don't need to have the world's largest market, but be mindful of going after a market that is obviously too small (like the people renting Fletch) for fear of turning people away before they even have the opportunity to hear you out.

Step 4: Highlight Your Competitive Edge

In the Research Plan lesson, you conducted a Competitive Analysis to get a sense of exactly where you stand among your fiercest competitors and to pinpoint ways you can outmaneuver them.

Armed with that information, let’s look at a few different ways to strategically weave your unique competitive advantage into your Elevator Pitch and give investors a clear-cut idea of your advantages and how they translate to value for your customers.

Your Value Proposition

Explain Why Your Customers Will Love You.

Talk about what aspects of your product are the best in class and why your customers will fall in love. Companies win based on their ability to win over customers.

You don’t eat at Wendy’s because it’s less terrible than McDonald’s. You eat there because you like their food a lot more. You also eat there because the Baconator cheeseburger is sooo good!

Talk about why customers love your Baconator. Talk about what you offer that just blows people's minds. Be descriptive and dig into how those strengths really stand out. Don’t assume for a moment that because you understand the strengths that anyone else does.

A great way to present your Competitive Edge statement in your Elevator Pitch is by offsetting it against an implied limitation that exists in your competitor’s approach.

Let’s see a few examples:

A Unique Business Model

Customers choose Netflix over traditional brick and mortar rental stores because they enjoy the convenience and freedom of watching their favorite movies and TV shows without ever having to leave the comfort of home.

A better User Experience

“Our customers use Tinder over traditional dating sites because they get immediate responses from potential matches and the interface is so simple it’s fun.”

CONVENIENCE is King

Compared to traditional retailers, Amazon offers consumers nearly every possible purchase option all from one place.

Focus on the key points.

While you may have several advantages over your competitors, when developing your Competitive Edge statement for the purposes of your Elevator Pitch, keep in mind that you’ll want to stay laser-focused on your single greatest differentiator not a laundry list of your core features.

Putting It All Together

Here’s our complete Elevator Pitch for Netflix that incorporates each of the core elements we’ve discussed throughout this lesson:

"For over 90 million Americans, going to the video store requires fighting traffic, wandering the aisles, and waiting in long lines just to get a single movie. Netflix allows anyone to enjoy thousands of titles streamed directly to their home or delivered to their mailbox. Customers choose Netflix over traditional brick-and-mortar rental stores because they enjoy the convenience and freedom of watching their favorite movies and TV shows without ever having to leave the comfort of home.”

Legend: TAM > Problem > Solution > Competitive Edge

Re-Re-Re-Remix!

Over time, you’ll find that you’ll iterate more and more. Maybe after talking to enough people, we notice they don’t react to the part about standing in line, so we nixed that. Or perhaps they ask about how much it costs, so we modify our pitch to include the pricing. Iteration is key.

Summary

Being able to rattle off a concise, compelling, value-driven description of your idea at a moment’s notice is almost always the result of countless hours of refining, gathering input, and refining some more.

Now that we have a clear understanding of how to synthesize our problem, solution, TAM, and competitive edge, we can wield it to maximum effect should fate, luck or hard work place us in the fortuitous position of pitching potential investors.

Doesn't this feel validating?

Give yourself a hand! We’ve officially wrapped our deep dive on early-stage Idea Validation! But before we cue “Pomp and Circumstance” we still have a ton of other great resources for every step of the startup journey -- including comprehensive courses covering everything you could possibly need to know about topics like Funding and Customer Acquisition, and building your Minimum Viable Product.