Correctly choosing whether to explain why an idea is important or how it is important is a critically important choice for entrepreneurs pitching a new idea.
New research by Bayes Business School has found that failing to judge your audience correctly could make all the difference in winning investment for a new product. The study found that an entrepreneur who may be searching for funding to start a new venture must tailor their approach depending on whether the audience are investment novices or expert professional venture capitalists.
The researchers found that framing why an idea is valuable increased the probability of novice investors (such as friends, family, or crowd funders) appreciating the idea by 25 per cent, while emphasising how an idea could satisfy specific goals boosted experts’ (such as professional investors or innovation managers) probability of selecting the idea by 44 per cent.
Two samples of novices and experts were recruited via Prolific, an online UK-based platform of high-quality data, for the research. The first sample included 129 investment novices, the second sample included 59 professional investors affiliated with three centres for entrepreneurship located in the United States and Canada.
Professor Simone Ferriani, Professor for Entrepreneurship and Innovation at Bayes, said innovative pitches that have additional emphasis on the why appeal to novices because they can gather a greater understanding of the reason behind an idea as they value its desirability more than other criteria.
Meanwhile, experts are more likely to interact with arguments about how a product will lead to a result because it is likely they will already understand the advantages of the idea.
The authors query whether major companies like Apple and Airbnb, who were among companies to be initially rejected by professional investors, originally used the wrong framing when pitching.
Professor Ferriani said: “Did the likes of Apple and Airbnb get the framing wrong? While we do not know the initial approach, they followed to champion their ideas, we do now know that choosing a ‘why’ or ‘how’ framing may be a highly consequential decision. No matter the quality of a presentation, if there is not a focus on the ‘how’ or ‘why’ when it comes to those in front of them, it could all be for nothing.
“Our findings have innumerable applications. Think of all those situations where the inherent potential of an idea is assessed primarily, if not exclusively, on subjective evaluations of brief oral or written narratives. The proverbial ‘one-minute presentation’ made before professional investors is a perfect case in point, but also consider ‘Hollywood’ pitches of movie projects, video pitches of new products in crowdfunding platforms, marketing taglines in advertising campaigns or story pitches intended to convince an editor to commission the piece.
“This framework explains the value of understanding how to appeal to those whose backing may be necessary to get an idea off the ground. While it needs to be memorable and punchy, reading the room is critical to progressing the idea beyond that first speech.”
‘Start with “Why,” but only if you have to: The strategic framing of novel ideas across different audiences’ by Professor Simone Ferriani, Professor of Entrepreneurship and Innovation at the University of Bologna and Bayes Business School; Professor Gino Cattani, Professor of Strategy and Organization Theory at New York University’s Leonard N. Stern School of Business; and Denise Falchetti, Research Fellow at the University of Bologna, is published in the Strategic Management Journal.
Notes to Editors
- What is the value between differentiating between how and why? This short video explains the new research.