Facts versus assumptions
9 different perspectives that can make your pitch more credible.
Mentoring startups at Startmate, Founder Institute and many a time directly have brought me close to a number of smartest and coolest startups. When I hear their stories, to raise funds, in their pitch they are invariably sharing facts and/or assumptions. Though we hear a number of stories where assumptions were presented as facts that became true ( as in the case of Airbnb on market size) but it is helpful for founders to know the interplay of both so that the pitch turns out to be credible to create the desired impact.
The easiest way to lose the attention of potential investors is through an ill-researched presentation that is unable to convey the full potential. Research suggests that 97.35% of all statistics presented can sound convincing but is highly inaccurate ( statements like this can look convincing on the face value, but has been an extremely risky proposition for many.
As a safeguard, there are a number of things you can do, however, in this article I am focusing your attention to differentiate between facts and assumptions so that you can make your story more honest, transparent, verifiable and credible and help you get over the BS test. There is nothing more disappointing than listening to a pitch from an ill-informed and ill-prepared entrepreneur.
There are 9 different ways in which fact and assumptions can interplay, perhaps the following diagram can help you understand it succinctly.
(Reader Beware: we are focussing on number and quality of assumptions and facts)
Assumptions vs Facts © Sameer Babbar
- Low assumptions and low facts: Perhaps wantrepreneurs dominate this area. They have low assumptions and low facts in their pitch at times they do not even know the difference. Every discussion with them becomes an incoherent waffle. No disrespect, some of them have great ideas, they are just not able to give them a form. Many times if you have a conversation with them six months down the road they are still at the same juncture. The key reason is they do not know the difference between assumption and facts so they do not know what to prioritise or work on. They need to get focused on facts.
- Low assumptions and modest facts. They lack credibility. A low level of assumptions simply reflects that you have not given enough thought to what is happing in the technology, business or markets. Usually struggle with one or the other fit. When combined with modest facts it just makes you think, shall I believe what you are saying or go ahead and do my own research. Investors do not always have time to go and do their own research unless they think that the upside may be higher than what founders are envisaging. Usually thrown in the “maybe” category not in the “is”.
- Low assumptions and solid facts: Expert comments usually fall in this area. I was talking to someone who was explaining NDVI in satellite imagery. It is a niche area and not everyone knows it. I knew the topic inside out as I used this expertise for commercial applications. That said, the one presenting did not know and they carried on confidently stacking the misinformation. It continued on till I called their bluff. Less do people in this category know they compensate with confidence ( you should also read my blog on Dunning Kruger effect https://www.sameerbabbar.com/blog/2019/10/28/ignorance-is-bliss ). Experts are good as long as it is in a narrow niche and they are subject matter experts. As soon as the comments jump across the domain and facts do not cross verify they fall in the #1 category of wafflers. Perhaps politicians may quickly lose favour if they speak of something when the audience knows otherwise. Jack Ma very quickly confesses if he lacks expertise in an area or if they fall outside his domain of expertise. Businesses for this very reason aim to get experts in the same room with other experts to do the talking and close the deals because they can understand each other.
- Low facts and moderate assumptions: It can instantly give rise to uncertainty in forming an opinion of the perceived future. We don’t know what we know or what we are leaving out. That said it is easier to work with this scenario than #1.
- Some facts some assumptions: Though this is good to have a conversation that we do on a daily basis it may give rise to another conversation but less likely to lead to any positive or negative outcome. Negative outcomes are good too as they allow you to move on. This as a defensive strategy, can be a good option when you want to have a discussion without disclosing much about your venture or you are in the due diligence process or sizing up a likely investor.
- High facts and modest assumptions can give rise to increased certainty about the outcome. Yes, you may leave some assumptions out of the equation. Unless you are in a high-risk situation or launching a rocket in space you which does not give you the latitude to pivot or change assumptions mid-course you have to play with all the possible scenarios to rule out the assumptions. If you are taking this course you will need to be agile and pivot regularly.
- High in assumption and low on facts: Perhaps this is where you create a hypothesis to test it out. It can be a good position to take up a risky endeavour that has uncertainty. You need to be a good storyteller to sell your hypothesis but sometimes you can lead others down the rabbit hole. Theranos is a name that comes up where lines got blurry that led to the aftermath that occurred. Assumptions were being sold as facts.
- High in assumptions and modest in facts: This is where the discovery is needed to zero into those assumptions and turn them into facts. Most scientific projects start here. In a startup market research is something that can help narrow down the assumptions. ( If you want to be secretive you can use proxy data for the discovery process ) Customer interviews will help you validate your assumptions.
- High in assumptions and High on facts: Think of this as a never-ending saga having an infinity mindset (. The confident experts we find in #3 will become less and less confident here. The more you know the less you think you know. It is about specialisation. It is about honing down a narrow niche and working way through it. This is where fundamental research happens and this is where new categories and true monopolies are created. You have to become an expert in an area and leverage that to extend. Elon musk’s mission to mars may fall in this category.
Though between #3 to #6 is where a successful pitch usually lies. However, that may not always be ideal. If you know the difference between assumptions and facts you can navigate the discussion in a direction where the outcomes are more useful for you and your investor but awareness of such a direction is the key.
© Sameer Babbar
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