The Pitch Canvas

Validating your business idea with one sentence

The 7 components of your business idea

A properly validated pitch requires rigorous preparation beforehand. Variant Work offers guidance to substantiate your position statement using scientific experimentation. We encourage the use of first principles thinking, where the entrepreneur questions all assumptions, opinions, and beliefs about any product, service, thing or system until you are left with the fundamental truths or components. In assessing the business potential of your idea, we must take it apart into the seven (7) components listed below:

- Problem - what is the statement of the need or opportunity?

- Competitors - who is (/are) your primary (/central) competitor(s)?

- Value proposition - what is your statement of primary differentiation (from the competition)?

- Solution - what is the statement of the key benefit gained from your offer?

- Business Model - How is revenue repeatedly covering costs and providing a return on investment?

- Teams - who is on your team and are they sufficiently aligned and capable to build and scale your company?

- Brand - would your product name be appealing in its product category for a given target customer?

The 7 components above overlap into the following four-sentence position statement:

We are [team member 1], [team member 2], [team member 3]... [team member n].

[product name] is a [product category] for [target customer] who [statement of the need or opportunity]. It offers [statement of key benefit – that is, compelling reason to buy].

We are better than our [primary competitor] because we [statement of primary differentiation].

First-principles and testing hypotheses

Attempt to fill out the above four-sentence, position statement accordingly. It would be more challenging than you may think, but it’s important to get you applying this mental model to your business. After you fill in the variables of the position statement, it needs to be substantiated using an evidence-based valuation. If you have gaps in filling out your pitch that’s ok. Go back to the 7 components and validate each one using hypothesis testing derived from first principles thinking. It will lead to a better formulation of hypotheses and allow for more value-aded testing. As long as you finish all 7 components, you would be able to present a substantiated pitch.

The hypotheses must be testable so that your scientific experimentation can collect (numeric) measurable results. Should you require a deeper dive on this, I would recommend starting with the very accessible work of Sylvia Lai (2018) and Andrew Duckworth (2017) as well a more recent academic paper by Schwarz, Gregori, et. al. (2021), which provides a very good overview on sustainable business modelling.

To do this, set up hypotheses to disprove each variable of your business model. Each component (1-7) should be tested in sequence, experimenting up from 1-7; feedback (data) is collected to help make a decision to move to the next component and its hypothesis. At each stage of hypothesis testing, you would have to make one of three decisions: (a) persevere and fine-tune, (b) pivot or (c) perish. If the findings of your tests result in (c) perish, shut down the experiment and appreciate that the company will most likely not see success. Each component builds incrementally and is dependent on the previously tested hypothesis. You only move on to validate the next component should you receive a positive (a) persevere and fine-tune. If you do fall on (b) pivot, then revising your approach and backward engineering can help you get back on track toward validation. If it still fails and you are on (c) perish, then consider shutting down the project.

Altogether, particular metrics to determine the performance of each business aspect of the startup can help inform the development of a pre-money valuation of the company. The more this is done, the more reliable a pre-money valuation of an early-stage startup can be taken to investors. Startups at the seed and pre-seed level should find the exercise very much worth their while.

It is very normal that your findings can change, and indeed, improve your original take on things. The point is to lose your inhibitions, get the ball rolling and know that the perfect way to fill this out may never happen on the first few tries. Executing and ‘moving on’ from a proper application and interpretation of the findings of such tests is crucial for the modern-day entrepreneur.

Incubating your business idea one hypothesis at a time over the 7 components

Problem ([statement of the need or opportunity])

The Career Foundry provides a lovely definition of a problem statement, noting that it “identifies the gap between the current state (i.e. the problem) and the desired state (i.e. the goal) of a process or product.” Thus, the user problem must be empathised with as a human enduring this unmet need. Do some desktop research to size the total addressable market (TAM), which should be sizeable enough for your investors to consider to be worthy. At Variant Work, we recommend pivoting if your market size is less than US$ 10 million. Indeed in very developed innovation spaces, e.g. Silicon Valley, Austin, New York, Loxbridge etc, TAMs that are worth it are many times larger. If you are fine with scaling like a smaller sole proprietorship, or a Micro to Small Enterprise with very small staff sizes (under 50) then market sizes less than US$ 10 million would reduce the scope for the bigger investors. At the end of the day, once you determine the size of the market is worth it, then start the relevant scientific experimentation. Conduct your observations and inquiries to test and measure the pain points of your targeted users. Analyze and synthesize the results of the enquiries/observations about your targeted users.

Competitors ([primary competitor])

There are two types of competitors: direct and indirect. The direct competitors are those companies offering the same type of product/service as you wish to provide to your targeted users (e.g. Burgers from Burger King vs McDonald’s). Utilize desk research on your direct competitors that are especially closer to your value proposition. You need to determine if you have the capacity to compete with them. Is their operational capacity to supply the market stronger than yours? Would they have a better cost differential to compete even as you scale? Can you be better at promoting your product? What sticks out about their strategy? Would your product/service be considered unique enough from your direct competitors? Michael Porter’s generic strategies still offers a good guide for this desk research.

Indirect competitors are the companies that offer workarounds for your target users “to get the job done,” instead of going with the type of product/service that you and your direct competitors can provide. One of the ways one can unveil your user's take on the direct and indirect competition would be by carrying out Ulwick’s jobs-to-be-done (JTBD) interviews. Look back at the data gathered from your interviews and your desktop research. At this stage, you may have a better idea of the real problem in the market in relation to your proffered solution. Repeat the same line of questioning on the companies or activities your targeted users seek out to meet their needs. Should you corroborate your findings of your direct and indirect competitors and see that the product/service you will offer will take up market share accordingly, then proceed to step 3.

Value Proposition - ([statement of primary differentiation])

Going through these steps takes you a step closer to appreciating your value proposition. Your value proposition highlights the most impactful factor (in terms of gains and pains) motivating your customer to buy your product or service. Initial customer feedback and those who refused the product must be considered in the shaping of a unique value proposition. Furthermore, in distinguishing your value proposition from the competition, try to understand how your product or service gives your early adopters different results to existing alternatives. This would help you clarify the central innovation in your solution. Early-stage startups should expect to find this in their “unique value proposition” after some traction, which places the company in a stronger position for another round of funding. The key marker of success is that you have provided the market with a value proposition that has its place in the market; this is tested by having the majority of your sample being motivated enough to use your product/service to treat their unmet needs(/problem).

Solution ([statement of key benefit])

Once you have followed the process of clearly defining your problem to be solved, you have given yourself a solid foundation to ideate testable solutions for your consumers to use and provide feedback. This is a deliverable of your product development phase. At this stage of your venture, we would not recommend building out the most costly tests such as a prototype, pilot or a Minimum Value Product (MVP), which can particularly be the case if it seems to be a capital intensive project (Formlabs, 2022). Instead, at Variant Work, we would recommend building out a proof of concept (POC) for testing. The POC is not only the least costly and most time-efficient testing option of the others mentioned before but it is enough to (in)validate the idea of the product, fine-tune, or similarly (in)validate its iterations that may follow a pivot. You can also develop multiple POC versions to be similarly tested. The test must measure the means of the POC to remove the pain points from targeted users in tandem with providing gain creators. Validating that a satisfactory percentage of your target user sample size will pay to have their problem solved with (the POC version of) your product, will help determine if the feasibility of the project can meet the desirability of the product should it hit the market. Several aspects here need to be determined, thereafter. What will this cost to build? Can the team afford to build the product? Once it is built, are customers willing to pay the minimum chargeable price/rate? This information will help inform the means to bootstrap the development of the company or when the entrepreneur may have to turn to investors.

Business Model

A business model may be defined as a systematic framework that delivers maximum value to the user. While the work of Osterwalder & Pignuer (2010) is pivotal to business model generation, the later work of Ash Maurya (2013) has fine-tuned it, especially for earlier stage startups. Here you establish how the company gets paid, growth opportunities, and the capabilities and capacities to scale beyond your existing scope. The business model can demonstrate the interrelationships between creating, delivering and capturing market value, which can be invented to define a new venture.

The previous parts 1-4 should establish the means of your team to supply the product (feasibility) and to a sample of a market that may demand it (desirability). In the previous stage, if your POC tested positively, you should have also tested what would be the minimum price your targeted users may pay. This is essentially a price threshold measure, to determine how easily some margin can be earned on the product. However, the next side of the desirability test would be to determine the maximum price you can charge for your product that would maximise your margin. Should you have a very comfortable margin with a gross profit figure that can very manageably clear overheads you can then reasonably forecast viability over the day-to-day operations.

Thus, the business model must bring together the following three aspects:

The feasibility of the team to deliver the product;

The desirability of the targeted users toward the product;

The viability of the business so that the revenues sustainably exceed the costs that would attract investors.

Teams ([team member 1], [team member 2], [team member 3]... [team member n])

Team building is one of the most important factors that early-stage founders will have to get right to secure investment. Peter Drucker reminds us that “Management is about human beings. Its task is to make people capable of joint performance” (Drucker, 1988). Not having the right founding team, properly aligned capable of giving that joint performance per se is one of the most widely cited reasons for the failure of startups (Wasserman, 2012). Much research remains ongoing on how you should validate your team. For instance, Mastrogiacomo & Osterwalder, (2020) contend that the right alignment across the four pillars of (1) joint objectives, (2) joint commitments, (3) joint resources, and (4) joint risks. At Variant Work, we have settled on three quantifiable metrics for measurable ease. They are:

Team alignment: a psychoanalytic personality test that is designed to validate your team alignment

Longevity: a simple questionnaire that is designed tested to validate your team's propensity to stay together until the growth stage

Team Strength: a simple questionnaire that is designed tested to validate your team's likelihood to execute key business activities

At this early stage, establishing the right team to get the company to the growth stage is the main deliverable to be achieved to allow this process to move forward. Building and scaling the company from a post-Angel Investor stage to get to a Series A or B can require different skillsets.

Brand ([product name) ] is a [product category] for [target customer])

Testing your brand is a test of design simplicity. A simple design indicates that your value proposition is clear and there is “stickiness.” Consumers who can easily gather trustworthy information about your product and confidently and efficiently weigh their purchase options is indicative that they have purchased a strong brand. Feature creeps complicate the purchase decision of your product and should be avoided. The Mom Test (2013) by Rob Fitzpatrick is a classic read demonstrating how startups can similarly test their design simplicity as a reflection of brand strength.

The product or service on offer must be twinned with a targeted user in mind. But first, let’s take the product or service. When you name your product/service you would need to test its desirability with the target audience in mind using various experiments with potential customers. It is important you do not nudge or bias the audience toward liking the product you “pre-judge” is best for them. You also need to establish if your team has the in-house capability to feasibly supply this product or service at scale. Having done this, your targeted users should have a sample size of a market that is obtainable and worth going for.

Conclusion

It should take about 8-12 weeks of validating your business using the steps provided above. At this point a solid pitch canvas or position statement can be completed. Bringing this structured approach into a condensed 30-second expression shows a savvy entrepreneur who understands their business. It shows the investor that the entrepreneurs have mitigated their biases in substantiating market signals. These entrepreneurs will avert path dependence through learning, which increases the potential for a more successful pivot, if a pivot is required.

However, as a word of caution, after you have validated all seven components, before you start pitching to investors – you might want to get a pitch deck ready to send on email or WhatsApp. This would be much easier to do after you’ve done the work above. Guy Kawasaki famously advises following the 10/20/30 rule of pitch decks. It should not be:

more than ten slides, longer than 20 minutes, and use fonts smaller than 30 point size.

And Good luck!

In the end, if you are stuck feel free to reach out to us at Variant Work.