Chicago Booth Review Podcast How to Craft a Winning Startup Pitch

James Janega: Finding those moments, finding those kinds of stories that you can tell can be used as a lever to create more trust. And it's our responsibility ethically to use this only for good because it works no matter what.

Hal Weitzman: If you've ever watched Shark Tank, you'll know that crafting an effective start-up pitch is hard. Entrepreneurs have a short amount of time to convey the problem they're trying to solve, establish the size of the market, cover their business plan, establish their credentials, and come across as likable and easy to work with. What's the best way to do all that?

Welcome to the Chicago Booth Review Podcast, where we bring you groundbreaking academic research in a clear and straightforward way. I'm Hal Weitzman, and today I'm talking with Chicago Booth's James Janega, a former journalist who now works as managing partner at Growth Innovation Strategy Group and teaches storytelling to MBA students and executives at Booth.

So how important is storytelling in the start-up world? And what are the biggest mistakes to avoid? James Janega, welcome to the Chicago Booth Review Podcast.

James Janega: Hello, Hal Weitzman. Good to be with you.

Hal Weitzman: Great to have you on. So listen, you and I worked back in the day, we were both journalists, you were at the Tribune and you now teach at Booth helping entrepreneurs with their storytelling. Why is that important for entrepreneurs, particularly?

James Janega: As entrepreneurs, as innovators of any kind, whether you're working with a start-up as an entrepreneur, or whether you're working inside of a company as an intrepreneur or change agent, telling a story is still one of the fastest ways to quickly get information across so that it is retained so that people are willing to listen to it. And it's particularly effective in talking with people that might be experiencing something that is technical and difficult to understand for the first time, or that they may be disinclined to believe based on what they think they already know.

Hal Weitzman: Okay. And because there's so much online about storytelling in all different contexts, what do you mean when you say storytelling? Is it a skill? Is it the act of telling or is it the story or is it both?

James Janega: I think it can be both. And I think one of the challenges that I have, and maybe you feel it as well because we both have been workhorses within the field of journalism for many decades before we came to Booth and academia, it is a set of skills. It is a trade the way that I practiced it. The way that I apply it in this circumstance, though, it is a framework for being able to get people to understand a problem, a solution and impact so that you are quickly able to condense what the problem is.

The problem is that we often have to convey massive amounts of information that may be very, very unfamiliar to a customer, an investor, a stakeholder, a partner. The solution is we're able to come up with a story that weaves in the impact of what we are able to do and how we've been able to come up with a solution that other people have not, allows them to orient themselves to what it is that you're trying to get across in a way that saves a lot of time. And you might only get one bite at this apple.

Hal Weitzman: Mm-hmm. Now, you and I both teach here, so I'm going to play devil's advocate and ask you a question I get all the time. Our students at Chicago Booth, we train them to be quantitative, to be data-heavy. Storytelling sounds like the opposite of that. Is it?

James Janega: Not done well. I agree with that. I have the same thing. We were talking earlier about the imposter syndrome and the inferiority complex that I think anybody who's very intelligent has. As you learn, everything you know becomes this vast frontier that's always expanding outwards. And so there's always more that you realize you don't know.

I think I guarded myself the first four or five years while I was an MBA student here and after that, at trying to keep up with that ever-expanding frontier before realizing that, "Oh, I am a storyteller and this is valuable. Other people find this valuable. It's the question they keep asking me." What was the question again? That was such a great story. It was, what's the purpose of-

Hal Weitzman: No, I was asking about data.

James Janega: ... [inaudible 00:04:39] is it-

Hal Weitzman: So it seems like the opposite of data. Many people who are smart quantitative will say, "Well, if I just present the facts, why do I need to weave them into a story? What's the point?"

James Janega: But when you're trying to convince somebody, there are facts. And what Booth research has shown is that there are people who receive facts because they are optimizers or they are satisficers. Most human beings are satisficers in behavioral economics.

Hal Weitzman: Just explain what that means.

James Janega: Sure. It means that they want to know just enough to feel that, "Okay, I've got it," right? And so that they can rely once again on their cognitive biases to know that they're moving in the right direction, would be a shorthand way for me to express that. I'm sure there's a better way to put it. But when you are telling a good story, you need data and evidence, particularly when you're doing something new or particularly when you're trying to change a mind.

But there are three elements to telling a story that really matter. This is something that William Blundell, the longtime feature editor of The Wall Street Journal, that delightful story in the bottom third of the page. It ends up being the best story that you read in the front page of The Wall Street Journal. You're looking to tell a story that is unusual, but you want to support it with a framework. And the three elements in that are you want to have an actor who's living it, an expert who can explain what's on, and data and statistics that support the observation that you've just shared.

And I think it's the same way when you're telling a really strong story as a startup founder, as an entrepreneur when you're inside of a company.

Hal Weitzman: Okay. So the data comes as part of the story. Does that mean a story without data is useless? And when you say data, I mean, I think of data as being-

James Janega: Quantitative?

Hal Weitzman: ... reams of information.

James Janega: Qualitative?

Hal Weitzman: Can a customer story, an experience that I had with the customer, can that be data?

James Janega: It can be, and it can be actually very compelling. There's actually research on that. Maybe we can talk a little bit about later in forming an emotional connection and getting somebody past the proof point.

You can tell a story without data. It's stronger when you have it. Data is sometimes necessary, but it almost never is sufficient. Likewise, you may have any of the other elements, a story about an actor or an expert providing advice, and then it becomes merely interesting, but it's not convincing. A story weaving all of those elements together becomes interesting and convincing and it becomes something that's actionable. And studies have shown that that's true also.

Hal Weitzman: Okay. So you work with these entrepreneurs, people who are often very smart, have brilliant ideas, and they're pitching them to investors who are also smart, but in a different way. What kind of stories work well in that context where somebody's pitching an idea and they're looking for funding?

James Janega: Stories that are convincing in a pitch area do a good job of very quickly setting the narrative scene in a problem space where there's a real problem, there are customers feeling this, actors and experts acknowledging that there is a problem. And then setting that internal hook, that internal cliffhanger to make people think, "Okay, well what did you do about it?" And then to say, "Here's how we began solving that problem."

And then you can tell a little bit of your founder's journey and how you solve the problem. So long as you always understand that the hero of the story to an investor is a customer, and ideally a customer representing an enormous and growing market segment.

Hal Weitzman: That's so interesting you say that because if you get your knowledge of entrepreneurship as I do from Shark Tank and similar program, Dragon's Den and these kinds of things, it's all about the founder and what happened to them and how they came to this. And really, nobody in real life cares about that, do they?

James Janega: No, not really. And I think talking to startups, we work at the Duality Quantum Accelerator together, and we work with those startups here at the university or in Chicago. I work with startup founders that are also in deep tech at the University of Illinois at EnterpriseWorks. And I think it does them an enormous disservice. It would do any founder an enormous disservice to think that investors want to show up with a checkbook to hear about your personal story.

The hero of the story is always a buyer, it is a consumer. And at best, the founder is the best supporting actor in this story. And it's your job to tell a story where the hero of that story is a person with a problem. And you, as best supporting actor, have discovered a path to the solution, but you're rounding up a group of other people to help you solve it.

Hal Weitzman: And that's why I was asking earlier about stories versus storytelling, which is sort of an art. If I think, "Well, I've got this problem and I know one of my customers who's had the problem," and to what extent do you have to put texture on that story? Or can you just... In other words, not everyone is a good storyteller. We know that. It's like not everyone has a good sense of humor even though they think they do, or not everyone is good at telling a joke, even if they think they've got a good sense of humor.

James Janega: My wife tells me that.

Hal Weitzman: So the telling of it is important. And I'm just wondering if you have a customer example, you're not great at the storytelling part, does it matter? I've got a customer example. I can show you the data. There is a demand for this product or service. What storytelling, the active, the verb part do I need to do and why is it important?

James Janega: I think the answer, to be brief, is structure and not wordplay. As writers, we get caught up in the wordplay. And the older we get as writers and become editors, we realize, "Oh, it's the structure that really conveys an idea and makes it stick in the head." But I'll tell you one story about Uri Hasson at Princeton University who was trying to answer that very question with research.

He was doing neuroscience. The experiment was done with functional magnetic resonance imaging, and he was looking at a storyteller and a recipient of a story and looking at what parts of their brain lit up, not the neurochemicals and not measuring the effects of this, but just literally in the moment, what parts of the brain lit up and would they be the same?

And what he found was that they were. That as the person is telling the story, the recipient's brain is lighting up in all the same areas, meaning that that person was experiencing the story in the same way as the storyteller was experiencing it. And what was fascinating was that the areas of the brain were not some easily foolable lizard brain part at the base of the skull, it was our frontal cortices. It is our higher brain areas that were doing this. And here's the fascinating punchline to that whole thing. In finding all of that, what he realized as the study spread out was that the language that the person told the story in didn't matter. So it's not wordplay, what mattered was structure.

Hal Weitzman: Have you ever wondered what goes on inside a black hole or why time only moves in one direction? Or what is really so weird about quantum mechanics? You should listen to Why This Universe? On this podcast, you'll hear about the strangest and most interesting ideas in physics broken down by physicists Dan Hooper and Shalma Wegsman. If you want to learn about our universe from the quantum to the cosmic, you won't want to miss Why This Universe?, part of the University of Chicago podcast network.

So James, you talked before the break about this research about your brain and the fact that I guess what you would call narrative transport is the same for the person telling the story, if they tell it effectively, as the person who listens to the story, which is fascinating. And that suggests, I mean, another explanation that I would personally have on that is it proves that ESP works.

But anyway, that's another podcast. There's an emotional connection there, right? There's a connection between the person who's telling the story and the person who's hearing the story. And they kind of feel, I guess, like they've experienced something together, which is the connection part.

But again, I come back to this idea, it's about emotion, it's about connection, which is not necessarily a rational thing, right? So is it something less or non-rational that's going on there, that's building a connection? If so, does that suggest that investors shouldn't really invest on the basis of hearing stories because they should invest on the base of reason?

James Janega: Oh, I think as thinkers, we should always be cautious when we hear a story, and we should always put it through our framework of decision making of screening for cognitive biases. When I talk with my clients about strategic decision making, essentially we're asking all of our customers, our clients to be investors in a business decision and a strategic business decision to invest time, money, and energy. And because of that, you need to make a rational decision there. Storytelling offers this tool that can be used for good or for ill, for practicality or overemphasized.

It is a tool that has been well studied and is very effective. In the story before the break, we talked about Uri Hasson at Princeton University and that neuroscience study looking at which areas of the brain lit up. That's now telling us what emotional content was happening. And in fact, that brain was lighting up in areas of the mind that may be associated with emotions, but it was not an emotional reaction that was happening, it was a judgmental reaction.

In terms of studies of emotional connection and behavioral change, stories are enormously effective at creating behavioral change when told well. Claremont Graduate University did a study in about 2013, and Paul Zak was the researcher on that. There's a YouTube episode that if you're ready to feel... You're a parent, right?

Hal Weitzman: Yeah, right.

James Janega: So am I. If you're ready to feel terrible feelings, but be impressed with the power of storytelling, then search this out. Paul Zak, Z-A-K, and the story of Ben who had brain cancer. He tells this story. It's a very sad story. So Ben's father is watching his two- and-a-half-year-old Ben playing, and Ben is having a great time playing. And Ben's father does not want to play, cannot commit himself to going and playing with his son, Ben, because Ben's father knows something that Ben doesn't know. Ben is going to die. Ben has brain cancer. It will not be cured, but Ben doesn't know that. And so Ben is playing with his toys and playing in the moment.

So Ben's father forces himself to play more often with his child, recognizing that there won't be another opportunity to make that memory or to be a part of his son's life. And realizes in that as he's doing that, that he begins to enjoy the play that he was dreading before he committed to the act. As that story is told, two things happen in the brain chemistry now, not the part of the brain that's lighting up, but the chemicals that are created, very likely two chemicals happened in your mind, has happened in mine because even retelling it's a really powerful story.

There are two feelings that were observed. This is qualitative data. There was distress and there was empathy and generosity. So the ask after this story is that you can give to this charity which fights brain cancer and other families can have more time with their children, and people were more likely to give after hearing that story than before. The chemicals that make that happen are cortisol, which causes distress, and oxytocin, which results in that feeling of empathy and generosity. And that emotional engagement leads to higher trust and empathy.

So as an entrepreneur, as a business storyteller, finding those moments, finding those kinds of stories that you can tell can be used as a lever to create more trust. And it's our responsibility ethically to use this only for good because it works no matter what.

Hal Weitzman: And the example you say obviously is being used for good, no one would disagree with that. That's a worthwhile cause. And we see that a lot, right? I mean, there's a lot of... We've had work in Chicago Booth Review about charitable donations that people respond to individual stories. They won't give as much money to helping a village get water as to an individual child get water or whatever.

So I'm familiar with the kind of thing you're talking about. I'm just wondering, as a strategic investor, it feels a little manipulative.

James Janega: As a strategic investor, this becomes a story. We're talking about act... William Blundell's triad of actor expert statistics. This is a story about an actor, experts talking about the extent of this problem and how many Bens there are out there would be an expert. And statistics showing the impact of what an investment here can do to transform something, looking at proof points becomes a third part that as an investor you could look for and begin to feel more trust in.

But as with anything, you want to be able to make a decision using a variety of different tools. As an entrepreneur who's doing that pitch, you may only get one short moment to sit down and get the attention of an investor. That's the part of Shark Tank that's true, right? And so you need to have a compelling case there to be memorable because there may be four or five other companies with a very similar kind of solution. But if you can lock in how you access that solution and how you can make your solution memorable, as an investor, that may even indicate that this person will be better at sales as well and maybe a better investment. It can be a tiebreaker.

Hal Weitzman: That's fair. So tell me, you work with a lot of startups. What are the common mistakes that you see among startup pitches?

James Janega: Oh, there are a lot. And you have to understand, being a startup is an enormously difficult job. You are identifying a solution for a problem that people may not realize that they have. You may have a, in the case of our deep tech clients at Duality and at EnterpriseWorks, at University of Illinois, you may have new ways of doing things that are better than old ways of doing things, but people are invested in doing it the old way. So you have to be able to convince people to make some kind of a change.

So the common mistake that people make is to get too technical is to say, "First of all, look how hard this was to tell that founder's journey from a scientist's point of view. First we did this with this level of chemical. First we did this with this. We used this different testing system," right? And nobody cares because nobody understands. Nobody understands.

I mean, we've both coached quantum communication companies. And until you can get down a really credible analogy for what's happening and then tell people why that matters, most people can't even dial into this. They hear the word quantum and they think as they're sort of swimming backwards away from you, "Oh, that's really cool. How neat." And they can't wait to out of there because it's going to be taxing, right?

But if you can make that easy, that's different. Now you feel like you were on the inside, you feel like a smart person on the smart person team, and then you can present that solution and there's that feeling of closeness and trust that can build out. So when it's done well, you can take that adversity and make it into an advantage.

Other mistakes that people make are telling the wrong story to the wrong crowd. If you tell a sales story to an investor, you won't lose them. If you tell an investment story to a customer, the customer doesn't see themselves as the hero of that story, and you'll lose. Them if you're too technical, you-

Hal Weitzman: Just to go back for a second.

James Janega: Mm-hmm.

Hal Weitzman: What's a sales story? Give us an example of that. A sales story you would tell an investor that wouldn't be right?

James Janega: Yeah, a sales story-

Hal Weitzman: You mean selling the product or service?

James Janega: Right. This is the story. This same basic facts of the story are the same, right? Here's a problem, here's a solution. This is the impact of the solution. And you can tell that story a couple of ways, right? You need to iron out those common elements of that story. When you're telling that story to an investor, it will be, "Here's a problem that a significant growing population has, and I can identify them. Here is the solution that is better 10 x than any other solution. Here is evidence that we have gained traction and can sell to more people."

And what you're doing is you're giving an investor confidence that you can identify your target market, solve their problem for them, and serve the delivery of that solution to them in a scalable way, right? That's what the investor is looking to know.

If you are a customer of that service, I don't care how many other James's you can serve, what I care is can you solve this problem that I have and make it go away today? Because if that's the case, then perhaps I'm buying.

Hal Weitzman: Right. Okay. So you said one of the most common mistakes is being too technical. Another one is picking the wrong stories. What else?

James Janega: Wrong focus, too technical, not confident. Well, how do I want to put this? You can be over-prepared. Imagine you or and I were sitting at a pub and I were telling you a story versus imagine if you and I were in a pitch circumstance and I were trying to pitch you a story and I had this PowerPoint deck to show you this story. I guarantee you one of those stories would be more fun for you to hear unless I was very good at both, right?

The challenge that you have when you anchor yourself to a PowerPoint deck is that it becomes a one-size-fits-all storytelling solution that removes the emotional intelligence and observation that you need to be doing as a storyteller to see whether the story is hitting, right? And so when you anchor yourself too much to telling the same story over and over again, first of all, it might not be the right story. Second of all, it might not be the right format. Third of all, it might not be the right way to tell that story right now.

And I've seen some of the best, most impactful presentations from entrepreneurs made in a pitch situation where the deck got messed up, they've turned it off, stepped closer to the judges or investors and said, "I beg your pardon, we'll get you the correct deck. Let me tell you what we're doing here," right? And began telling it as a story that sounded more like a story at the pub, right? And then of course, the investors want to see the data because they need to see all that other evidence, which they'll then sort themselves. But that becomes a much more compelling way to tell a story.

And so not anchoring yourself to a particular story or a way to tell it, not over rehearsing it, that becomes a way out of that final trap that entrepreneurs have, which is they don't feel comfortable storytelling, so they lock themselves into a format and just practice it and repeat the same thing.

Hal Weitzman: James, so you've outlined the three challenges, the people who are technically very into it, but not able to convey it perhaps to their audience. People who picked the wrong story for their audience, and people who have this kind of fixed way of doing it, "I just do my pitch or I just have my deck and that's what I do," and that's not right because the audience has changed, presumably. So what are your kind of quick tips for people who feel like that might sound like them right now?

James Janega: If you have to do a technical pitch, can you explain it to your five-year-old kid? Are you able to come up with an analogy that a typical person, even a smart person can understand? Everybody is smart somehow, but that doesn't mean they're an expert in this topic area. So picking that right analogy is right on.

Second fix would be for picking the right audience. Never start a story that you don't know who you're telling it to. Always know who is this audience intended to? What do they need out of this? Is this an investor who needs to trust that this is an investable opportunity in a large and growing market with evidence showing that we can reach that customer base and deliver the solution at scale? Or is this a customer who's just looking to solve their own problem?

Understanding that difference is vital, and you'd be surprised how many pitch decks are the same for sales presentation in a B2B setting, as for essentially a pitch deck for an investor only with a different ask on the final slide.

Hal Weitzman: And what about the wrong story? How do you encourage people to learn about their audience or to think about them?

James Janega: Read ahead. It always helps to know who your audience is. I listen to a couple of episodes of this podcast on my drive in, for instance, just to remind myself of who your audience is and what it sounds like, what this show sounds like. Knowing who your audience is, is vital. As a salesperson, you wouldn't walk into a sales call without knowing who the buyer was, what their situation was and what's going on.

As a person seeking investment, you have to know who your investor is, what size companies and scale of companies they normally invest in, so you can make the case that you're investable for them and show them how you can be successful together. There's an empathy and a trust level that's involved in both of those. And unless you do your work to close that difference, that distance, to build that trust and empathy, the other person will not close the entire gap for you.

Hal Weitzman: Okay. Well, James, it's been such fun. We could talk for hours about this. We'll have to have you back.

James Janega: We should do it at a pub.

Hal Weitzman: Now you're talking. James, thanks very much for coming on the Chicago Booth Review Podcast.

James Janega: A pleasure, Hal. Thank you.

Hal Weitzman: That's it for this episode of the Chicago Booth Review Podcast, part of the University of Chicago Podcast Network. For more research, analysis, and insights, visit our website at chicagobooth.edu/review. When you're there, sign up for our weekly newsletter so you never miss the latest in business-focused academic research.

This episode was produced by Josh Stunkel. If you enjoyed it, please subscribe, and please do leave us a five-star review. Until next time, I'm Hal Weitzman. Thanks for listening.