Mark Cuban on a Great Pitch

            I recently read an article on TechCrunch about the four broad components of a good venture capital pitch according to Mark Cuban.  It is a good thought exercise for any startup, however, regardless of if or where it is in the process of fundraising because developed thoughts on each point are crucial parts of the nascent company's soul searching process.  These come in the form of answering four questions: what is your core competency? Why are you great? How will you scale? How is your idea protectable?  The first two relate to business and the latter two relate to product.

            The business questions are Sun Tzu repackaged for the 21^st century. “If you know the enemy and know yourself, you need not fear the result of a hundred battles…If you know neither the enemy nor yourself, you will succumb in every battle.”  It is of paramount importance that a company understand itself internally as well as externally as it is oriented in some market space.  The core competency question asks what you’re the best at and the question of “greatness” compares you to your competitors.  How are you better than other players in the space?

            The product questions relate to what comes out of your business.  Once the idea is executed, how difficult will it be to reach 10,000 people, 10 million people, a hundred million, and so on?  Is the product touch-heavy enough that employee-count will have to grow dramatically to accommodate an increased user base (such as insurance) or is it fairly self-service where most of the interaction is done independently by the customer (such as Pinterest)?  In this case, there is not a right or wrong answer since some products require more company involvement by nature than others.  Yet it is still important for a growing company to understand and convey the scaling situation to be adequately prepared ahead of time.  The question of being protectable is straightforward.  Barring instances where the first-mover advantage in highly capital intensive industries seals dominance (utilities, natural resource extraction, etc) there are always copycats out there that will try to capture market share when they identify good ideas.  Since protection is vital, patents are so important.  Beyond that, it is important for a company to be its own biggest competitor.  If a company does not innovate itself, someone else will innovate it to obsolescence.

            In my own experience with researching and writing investment memos, absent answers to any of these questions means it will be sent back for revision.  Yet once they are answered, everyone involved in the investment process will have a clearer idea of what the company in question is about and be able to make an informed decision from there.