Unwrapping Episode 1: How Not to Pitch a Billionaire


In this episode, Alex explains the origin of his idea for a company to produce and distribute podcasts. If you have never listened to a podcast, it is like a radio show on demand. Typically, podcasts come out on a regular schedule, have a host and have a special focus. People listen them to them on their computers and/or mobile devices and if one subscribes, the episodes are automatically downloaded. Some of the most popular ones are created by National Public Radio, including This American Life and Planet Money, (Alex Blumberg has been a producer on both.) Just this past year, a podcast show called Serial, which was told in a very compelling investigative reporter style, became a national phenomenon and brought a spotlight to the medium of podcasting.

Where will you listen to the podcast?

Click on “Listen to Episode 1” above.


Listen to Startup Podcast – Episode 1. How Not to Pitch a Billionaire


While listening to this podcast, and prepare to discuss the following questions:
1. Does Alex have a good idea?
2. Why is Alex’s pitch weaker than Chris’ pitch?

Click on “Unwrapping the Episode” above.

Unwrapping the Episode

Is the Podcast Platform a Good Idea?

I love podcasts. I love making them. I love listening to them. But there’s all kinds of podcasts out there, from a couple people talking around a mike to the kind that I make and that I have a particular soft spot for which focus on storytelling and journalism. Those podcasts, they take way more money and resources and time than the other ones. And probably because of this, there aren’t that many of them. To me it seems like there aren’t enough of them. It seemed like someone should come up with money to invest in making new shows like these and come up with a theory about how those shows could be profitable.Is the Podcast Platform idea a good one? Alex Blumberg, Episode 1 of Startup podcast.

How do we tell if the podcast idea is good? Let’s start by applying a few key principles. Two opinions matter when it comes to judging business ideas: 1. The customers. For Alex, this includes both his listeners (who don’t pay to listen) and his sponsors (who do pay to have little documentary-style stories interspersed in the podcast). 2. The providers of startup funding. In Alex’s case, this means the person he is pitching to: Chris Sacco, from Lowercase Capital. Good ideas have to be simple to explain, and Alex had a little trouble with that. When pitching to a potential investor, even he admitted that he was blowing it. By the end of the podcast, we come to understand that his business idea is to create a platform that makes it easy to create and broadcast story-based and journalism-based podcasts, supported by commercial sponsorships. In his words, “I figured I’d do these sponsorships almost documentary style.”The problem is that Alex, like many startup entrepreneurs, is starting with a hypothesis based on his own tastes and preferences. He assumes that:
1. The quality of the storytelling is a strong value proposition for the Listener, who will be willing to subscribe.
2. The ad format will hold the attention of Listeners and will therefore have a value proposition for Sponsors, who will increase sales and brand name recognition based on the Listener engagement. We do not know yet if either of these is true. For now, they are just Alex’s beliefs. According to the Lean Startup principles laid out by Eric Reis, we need to conduct some customer experiments to either validate or disprove his hypotheses. When I tried it out with a few potential listeners, I got two opposing opinions: Listener 1 response: “I was annoyed that there were 3 commercial/sponsor interruptions in the flow…which included as much background on the sponsor companies as Alex was providing on his own company,” Listener 2 response: “I loved the fact that the ads felt like little mini-stories. It made me actually listen to the ads.”

How would you characterize your experience with podcasts?

What did you think of the style of the ads in the Startup Podcast?

Which view will predominate? The best way is to try the podcasts and ads on many customers. Answering the question “is this a good idea?” requires extensive testing on these hypotheses, while not spending too much cash. Accordingly, the Lean Startup approach urges entrepreneurs to:

1. Identify the Market Segments.
2. Formalize 1-2 Hypotheses about each segment.
3. Create a Minimally Viable Product (MVP) – the least expensive version of the product, to use for testing purposes.
4. Validate with real customers.
5. If the Hypotheses are not validated, Pivot and repeat the process.

This approach requires checking with the customer early in the game. As Eric Young talks about in his this clip, it is all too common that entrepreneurs get too far down an expensive design process without any customer validation.


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TRANSCRIPT – “I think you know one of the most common mistakes of young entrepreneurs, typically people who are engineers or technologically you know based or focused is they spend an awful lot of time and energy focused on their development and the nature of the improvement that it represents over whatever status quo is within that field. So they’re moving the ball forward but often times they don’t stop and pause and go ask a perspective customer what do you think. What does this mean to you? You know realistically would you adopt this? Would you change your behavior? What are the implications of that? And so you know I think of it as the better mouse trap. There’s a lot of focus on a new and better way of doing something that means a tremendous amount to the developer, to the entrepreneur. But it may or may not mean as much to a perspective customer. So you know back to that notion of marketing, understanding how to think about what is a customer, go asks questions in an objective way and listen carefully to what they say. Be realistic about you know the nature of the responses and craft your strategy accordingly.”

Ultimately, it is all about understanding the problems/needs of the customer. To do that, the entrepreneur has to think like a user, as pointed out by Stephano Kim.


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TRANSCRIPT – “For me, it really just starts with like what’s the problem that you think you want to solve. So if it’s a consumer problem, you know, we’ll just go take pen to whiteboard and say okay, here’s a person, now what do they do, right, what do they do next, why is that cool or why is that great, you know, okay. Though it’s not a pc, it’s a phone, okay, alright so now they’re on the phone. They’re doing this. Why is that important? What’s missing in their life? What do they think they’re missing? What don’t they know what they’re missing? And, you know, go through an entire journey of user from start to finish and usually through those user journeys a lot of like implications come out. Like say, so maybe it is someone that just wants to be able to easily buy things on off a mobile device. Okay so person picks up their mobile device. The first thing they might have to do is download an application. Okay, how are you gonna make that user aware that that application exists? So there’s marketing implications. Got it. Okay. Fine now they have that application on their, on their phone. Are you gonna make them tap in their credit card number? What’s that experience like? I don’t know about you but I hate the keyboard on an iPhone. I wish Black Berry, you know, I had a Black Berry in my hand again. You know so fine now that they’ve actually sent that order and all of a sudden that user is thinking oh my god, I just put my credit card into a random app. I just put that into the internet. How are you gonna get over the whole entire cognitive dissonance and fear of fraud? On the flip-side, how are you going to make sure that that person is who that person is? And so I think if you go through the pain staking process, right, of a detailed user’s journey, all of these things just kind of come out. And if, you know, you’re very structured in your thinking you could start park these topics of discussion to fall of the user journey and categorize them of like okay, here’s how we’re gonna actually market these folks. Here’s market to these folks. Here’s how we’re actually gonna collect payment. Here’s a security issue. Here’s, you know… For me it’s like lets just define the universe first and then lets break it up and lets figure out how we like tackle that and you can do the same thing for a business so. You know one of the companies that we built was a digital marketing platform for Fortune 500 companies and you know the experience becomes okay, here’s the marketing manager at, you know, a credit card company XYZ and their job is you know first, really analyze data and then second, understand like what the value proposition, their value proposition for black card, gold card, platinum card, you know, cash back card, right, who actually care. So they’re going through that whole entire process and so they’re building, you know their own user journeys and for us it’s like okay, how do we then make that entire process for them frictionless, how do we make it helpful. Right? Where in that entire chain is there is a very large problem that we can solve for them because they’re solving such a big problem at such scale, they can’t solve everything for themselves. Right? So it’s, it’s a similar exercise, but I think the perspective comes because you’re serving people who serve people.”

Key takeaways:

Entrepreneurs (including Alex) should identify the relevant market segment and hone in on 1 or 2 hypotheses to test in the market. The next step is to seek feedback from customers (and sponsors, in Alex’s case) on whether they see enough value in the product/platform.

Click on “Pitch Comparison” above.

Pitch Comparison

“So I’m making a network of digital podcasts that we will monetize…that will…that will…that is going to meet….sorry.”
“I’m blowing it” (Alex Blumberg, Episode 1)

When he does his business pitch, Alex’s fails to convince Chris Sacca, a very high level investor, to invest in the new company that is eventually named as Gimlet Media. Why? And when Chris reframes the pitch, on the fly, and says it back to Alex, why does it sound so good?

Let’s start with some basics mistakes that Alex made.
1. He is pitching to the wrong part of the funding “food chain.”
2. He does not articulate a compelling value proposition.
3. He does not know how much money he needs.

What did you think of Alex's pitch?

The Funding Food Chain

Start with the (simplified) idea that there are two sources of capital: debt and equity. Debt can be from sources such as commercial loans, Small Business Association, trade credit and credit cards. Debt is ONLY used when there are substantial assets to secure a loan and there is enough cash flow in the business to cover the debt service.Lean-Startup-breakdown

By contrast, equity, which is the exchange of money for partial ownership in the business, does not impose a debt service burden because the payout to the investor is typically deferred until later. (We’ll leave aside for now the much more complex topic of how valuation works to determine how much money equals how much ownership.) A great way to think about equity is that it is sought from players in a series of concentric circles:

Center: self-funding → Next: funding from friends and family → Next: high wealth individuals (angels investors) Next: venture capitalists → Next: institutional investors.

Where Alex Goes Wrong

Alex, leap-frogged right over self-funding, family and friends all the way out to seeking funding from a billionaire venture investor. Chris Sacca’s firm, Lowercase Capital, prides itself from being differentiated from the typical venture capitalist (VC), but their concentric circle past is outside the “inner ring” of family, friends and small angels.

As the entrepreneurs like Alex move away from personal connections and outward towards those who don’t know him, it becomes more difficult to convince investors to fund the business unless you have:
• A very clear storyline and strong value proposition.
• A large target market.
• A strong management team.
• A compelling business model for the competitive landscape.
• Clear financial metrics.

The further the entrepreneur goes from the center of the concentric circles, the more power (equity) is conceded and the higher the expectations are for returns to the investment.
Accordingly, entrepreneurs typically start in the middle and work their way outward. Alex started with somebody he thought was in one of the closer circles; he met Chris Sacca during an earlier reporting gig. But in truth Chris was too far out from the center for Alex to succeed. In addition, the business idea was still in an early form and not ready for due diligence by a venture investor.

Comparing the pitches

Let’s look at Alex’s business pitch at the time he spoke to Chris Sacca, who is a VC (Lowercase Capital is his fund) and score the pitch on the crucial elements valued by the venture world:

  • Storyline and value proposition: C/C+
  • No compelling evidence.
  • No articulate story.
  • Large target market: D
  • Compared to other audiences, the world of podcasts is relatively small.
  • Management team: C
  • Just Alex so far.
  • Business model in a competitive landscape: C
  • Unclear what the competitive edge would be over other podcasts.
  • Financials: F
  • No financial metrics.
  • Not sure how much he needs to raise.

Now let’s look at Chris’ “remix” as if he were pitching the business:

  • Storyline and value proposition: A
  • “I realize there’s a hunger for this kind of content out there.”
  • “Advertisers are dying for it. Users are dying for it.”
  • “Are you in?”
  • Large target market: B
  • “..if you look at the macro environment, we’re seeing more and more podcast integrations into cars.
  • “People want this content. It’s a whole new button in the latest version of IOS.”
  • Management team: A-
  • I am the “producer of This American Life, a successful radio show, on top of the podcasts and iTunes”
  • “I know how to make it better than anybody else in the world.”
  • Business model in a competitive landscape: A-
  • “I’ve already identified a few key areas where I know there’s hunger for the podcast. We’ve got the subject matter….advertisers who want to get involved with it.”
  • Unfair advantage: “Because of what I’ve done in my past careers with This American Life, with Planet Money, people are actually willing to just straight up pay for this stuff.”
  • Financials A-
  • “We’re putting together a million and a half dollars.”
  • “Very easily we could get to 300,000-400,000 net subscribers”
  • “We will ultimately scale to be a network of 12-15 podcasts.”

Overall, what grade would you give Alex's pitch?

Overall, what grade would you give Chris' pitch?


Overall, we might give Alex kudos for having the nerve to pitch to a venture capitalist, but his pitch score is too low to get that part of the concentric circle interested. Instead, his pitch is more appropriate for friends/family or angles, who would tend to care more about Alex’s passion for the business and sense of conviction that it is a “big idea.” Such investors would be more likely act primarily on their core beliefs about Alex himself and less about the nitty gritty details of the business. As Sacca advises, “You gotta tighten up your story.” Another problem with Alex’s version is that he could not get to the point quickly enough for his audience’s short attention span.
Chris’ version of the pitch is given with confidence, coherence and more specifics. He does a better job telling the story. Even though Sacca’s pitch is not perfect (he goes on to refute a few of his own points), it would be compelling enough to keep get an initial conversation with a venture investor.

Key Takeaways

1. Funding happens in stages and each step requires that the entrepreneur provide more proof and give up more control.
2. Pitch to the right part of the concentric circles at the right time.