Founders I talk to are always looking for the edge, the hack, the “one thing” that will help them get through to investors. Warm intros, video pitches, they’re willing to try it all. Yet I’m amazed that almost all founders overlook the sure bet that never fails: talking the love language of investors.
Investors look for two things in your startup: an attractive market opportunity, and a deal that makes financial sense. Founders spend 99% of their effort on the former and almost none on the latter.
Some pieces of designing a financially attractive deal, like valuation and deal terms, might require professional assistance. But there’s one part anyone can learn: talking the language of financial acumen.
The Hallmarks of the Financially Astute Founder
Though financially astute founders speak the same language as everyone else, the DNA of what they say is different in fundamental ways:
They Think and Talk Value
In the financial world, value translates to the price someone pays for something, like what an acquirer might pay for your startup, for example. But it doesn’t always have to translate to a future financial outcome. It’s showing that your thinking aligns to an objective “true north” outcome with measurable commercial value.
For example, instead of saying: “Our new composite material will revolutionize the transportation industry”, the value-aligned founder says: ‘Our composite material is about a third lighter and 50% stronger than materials used today. So truckers will be able to reduce their fuel costs by 15-20%, improving profitability by 30-35%.”
They’re Fact-Based and Data-Driven
Expertise and passion matter, but investors invest on proof. Astute founders weave credible facts effortlessly into their narrative, so the story sells itself. This doesn’t mean you litter your conversation with numbers or facts. It does mean that you selectively pick numbers and facts that have the heaviest weight in supporting your story and giving it credibility.
The best facts are tested, independently proven, and validated by established authorities that are foundational to your story. Even a conjecture is fine, as long as you have solid facts and clear rationale to back it up. Facts don’t always have to be numbers either.
For example, say a founder has developed a new diagnostic tool for cancer detection. She should not say “Our new diagnostic tool will revolutionize early cancer detection,”. Rather, she should let the facts speak: “We ran clinical trials with 5,000 patients in ten states and successfully detected cancer biomarkers with 95% accuracy at Stage 1.” Which version makes you want to invest?
They’re Comfortable Communicating Numbers
Financially astute founders are fluent in the language of numbers. Rather than treating numbers like hot objects that should be touched very briefly, if at all, they use numbers like Lego bricks – they think with them, play with them, and truly understand the shape and contours of each measure and why it matters to the success of their business.
For example, instead of saying “Our medical device will be sold through a nationwide network of hospital distributors”, the astute founder says: “Our surgical tool will be sold through a network of 1,600 hospital distributors. We are planning to cover this market with a 4-person sales team. Each salesperson can sell to 80 distributors a year, allowing us to reach 320 distributors, or 20% of the market.”
How to Learn Investors’ Love Language
Before you break out in a rash, let me assure you that this isn’t an all-or-nothing endeavor. It’s a natural outcome of thinking in terms of value and being fact-based and data-driven. To make it easy, I’ve identified three core building blocks that will help you get there.
Goal Driven Thinking
Stephen Covey famously said “Begin with the end in mind.” Astute founders not only have a vision but also know the signposts at the goal. I knew a founder who wanted to enter and achieve a leadership position in three different markets simultaneously. However, she wasn’t able to easily articulate what that would look like. When we approached the problem from a quantifiable goal, she picked revenue as the bellwether metric. This helped her focus on a more achievable goal that also showed her which markets to concentrate on and which to let go. She could then begin planning the key actions needed to achieve her goals.
There’s a second aspect to this skill: understanding relationship dynamics and levers. What factors are in your control to move the needle? Which ones give you the most bang for your buck, relative to your goal? This founder played around with multiple possibilities and realized that a distribution partnership would be her best bet, better than tinkering with pricing or offering more products.
Estimation Edge
Google used to be known for throwing curveball questions in their hiring interviews: “How many manhole covers are there in Manhattan?”. To be a credible founder, you don’t need to master quirky problems like this. But you do need to have basic practice estimating important numbers and also an intuition for whether numbers make sense.
Here are three simple approaches you can try:
- Neighboring numbers: Are there other related units that can easily be estimated or quantified? For example, if you have two cars, there are usually eight tires involved.
- Haircut numbers: If something is a subset of a subset, to estimate an unknown number you can always start from a known number and take multiple “haircuts” to approximate the number that you are looking for. For example, you might estimate how many people might buy a wearable sleep monitor by a few haircuts from the total US population to the number of adults, driving down to adults between 18 and 65, finally to the share of adults between 18 and 65 who buy health gadgets.
- Building block numbers: You can always try breaking down a complex unit into its subcomponents. For example, a market size number is made up of the number of units and price per unit. Given you already know the approximate price of the product, you’ve already removed half the uncertainty within the calculation. You can then reduce the remaining uncertainty by using one of the other methods to hone in on the number of units.
Financial Fluency
Most presentations on financials put you to sleep by starting with the three financial statements. But that’s not the only way to go. Here’s a simpler approach: Rather than trying to become a CPA, start with three sets of numbers that will be important to how you make and keep money in your business:
- Levels: Absolute numbers that matter, for example, how much you make in sales
- Ratios: Relationships between two different elements, for example costs to revenues
- Rates: How quickly or slowly things grow or deteriorate over time, for example, churn rates or sales growth rate
If you get a solid grasp on these three types of important numbers, you’ll be well on your way to covering the essentials when talking to investors.
Simple Steps to Get a Head Start
Perhaps all this sounds overwhelming when you’re already tackling difficult challenges with your product, getting customers, and finding and managing your team. But you can start where you are. It boils down to three essential Qs:
- Question: For every critical aspect of your startup story ask: Why? How? How much? When? Then articulate your answer in terms that are value-oriented and fact-based.
- Quantify: Quantify every foundational building block that is integral to the goals you’re aiming for. If the metrics feel rough around the edges, they’ll get better over time as you sharpen your understanding and intuition about what’s right. Sometimes it’s better to be precisely wrong than approximately right.
- Qualify: Make sure you can back up every foundational pillar with rock solid facts, proof, “receipts”.
As you develop the skill of talking to yourself in these terms, any conversation with outsiders becomes a natural extension of the conversation you’re already having with yourself about your startup.
The attention and credibility you get will just be a nice bonus!
