• Yannick Oswald

Thinking in Analogies

Here you are, again! Fundraising, PR, hiring, even friends and family... As a founder, you are always pitching your product, your startup. So, what is an efficient way to explain what you are 'doing'?

An analogy? How about: 'Pitching requires the same kind of dedication as auditioning for an acting role'. As the brilliant actor Michael Caine once said: 'If you only think you're auditioning when you're in the room with the casting director, your missing half of it. You're auditioning when you're checking in with the receptionist, when you're sitting in the waiting area, when you're grabbing a cup of coffee.'

Analogies, of course, are not only a great way of explaining pitching, but also a great way to pitch your product. I use them regularly to develop patterns to analyze startups. But there is a fine line between a good and a bad analogy. Analogies such as the 'Uber for housecleaning', 'the Airbnb for cars', 'the Linkedin for musicians' or 'the Facebook for Green finance' raise more questions than they answer. Here is why. A service marketplace for housecleaning has very different characteristics than Uber. A rental marketplace for cars presents different challenges than a rental marketplaces for short term stays. A professional network for musicians is pretty nichey when compared to a horizontal play such as Linkedin. A Facebook for Green Finance... I mean, what does that even mean? I see where you are coming from, but you are confusing me. So, elevator pitches, aimed to excite people, can have precisely the opposite effect and be an invitation for tough questions… Make sure you compare your business to other valuable companies with similar relevant characteristics.

The best analogies often don't come from the tech world. Let's not forget that disruptive businesses existed before the internet. Wharton professor Eric K. Clemons published a great book on pattern-based thinking: New Patterns of Power and Profit.

For Clemons, using analogies is an ‘old physicist's’ trick. If you’ve seen a problem you've never seen before, you try to analyze it in terms of the closest problem you have seen. You focus on essential elements looking for similarities. If you're predicting the outcome of a car crash, you don't want to focus on the color of the vehicles — you want to focus on their relative weights and speeds.'

His analogy for Uber is brilliant: 'When I was asked to assess Uber for the first time, it looked to me like they had found a way to harness the customer profitability gradient. That is, they had found a way to find the customers they really wanted. They were able to serve customers who were willing to pay for convenience, didn't want to wait to hail a cruising taxi and were cheaper to serve because you could dispatch a vehicle directly towards them. Harnessing the customer profitability gradient is also the business model of the US bank Capital One.' Founded in 1994, the bank grew from 0 to $370B+ AuM. It started as a monoline credit card company. Its strategy was, based on analytics, to target credit card user groups with specific spending habits. They provided customized offers to the most profitable customers, to incentivize them to sign up, while also managing repayment risk. Card issuers maximized profits in return. They stole these consumer groups from major competitors by pricing lower. 'The co-founder of Capital One said, 'We're not a bank, we're an information-based strategy company, and we surf the customer profitability gradient. Similarly, the Chairman of Uber said, 'We're not a transportation company.' He didn't say, 'We surf the customer profitability gradient.' But the two companies have exactly the same business model [emphasis added]....'

The HBR article 'Tapping the Power of Analogy' suggests that choosing the right analogy also informs an entrepreneur’s strategy and decisions. As Reid Hoffman put it: 'In startup land, you’re running across a minefield, so the details matter and you have to be careful with your analogies as you conceive strategy. In fact, when I’m the investor listening to a pitch, one detail I consider is whether the entrepreneur is being too deluded by their analogies.'

An elevator pitch is the core of your startup's identity and drives your strategy. It’s how investors will look at you and introduce you to other investors, how the press will introduce you to readers, and how users will introduce you to other users. Make sure it is memorable, concise, and as informative as possible. If you don’t, your pitch will be like Facebook for Green Finance – and nobody wants or understands that.

So, what is your analogy?

Have a great week!



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