The Strength of Narratives

Ideas

February 24, 2020

Let us think about statistics for a second. Statistics, the application of complex, mathematical methods to give empirical answers to relationships, enables in its fundamental nature the collection, analysis, and interpretation of data, and is applied in several fields such as economics, psychology, medicine, and marketing. Even if statistics is used as a proxy for the other subjects, we often think of economics as economics, psychology as psychology, and hardly ever see beyond these interpretations. Why are we taught to view these fields as independent, non-causal subjects?

When viewing statistics from a psychological and behavioural point of view, we notice, usually, that the majority of human-beings fail to look at the subjects from a “two minds” perspective. The perspective of “two minds” refers to the emotional and rational perspective, which are normally defined as two different sets of thought. Think about the “rational” and “efficient” theories; we justify our decision-making based on rational thoughts, when in the end, they are more or less somehow based on emotional and intuitive interpretations. However, it is easier to prime the decisions, data, history, statistics, and the complex situations on rationality, since emotional reactions are so much harder to interpret or control.

A lot of people tend to use complicated vocabulary and jargon to mask their lack of understanding. The problem is we only fool ourselves because we don’t know that we don’t understand. In addition, using jargon conceals our misunderstanding from those around us. But to understand this more thoroughly, we need to understand what understanding is.

Building narratives when fundraising

During the past 8 months at Icebreaker.vc, I’ve spent most of my working hours on helping several of our portfolio companies reach their ambitious fundraising goals. We have seen several raise massive seed rounds: companies going from basically zero to tens of thousands in monthly recurring revenue in under a year, and companies who have mostly focused on research and development. In addition to obvious strong traction and early signs of an evident product-market fit, there is one theme that has been popping up as a recurring positive feedback: the strength of their narrative.

It has been shown, majority of the time, that a well designed and well thought narrative has been the most important part in convincing someone that you know what you are doing. As a founder who has a strong domain knowledge in a specific industry, it is easy to get strangled in a complex environment, since, after all, that is “your” industry and you are the expert in that field. Instead of presenting a solution to a narrowly displayed problem from your perspective, focus on who you are presenting to. If you would explain to your grandparents or to your children what you do, how would you explain it? The key is to get the listener, who ever that is, to understand. This is a framework we’ve been developing for our portfolio companies for their next fundraising rounds:

Let’s use some actual examples from the companies that have gone through this project:

1. Start with what it is.

What is the thing/industry/vertical in its most simplest sentence?
What is brand licensing? The process between a brand owner and a company, from agreement terms to selling of licensed products”

2. Tell why it exists.

What is the function of it and what does it do?
Wrong temperature destroys fish. Humidity destroys medicine. Shocks destroy laptops. Quality assurance teams track and monitor temperature and other conditions to guarantee product quality.

3. Explain who/what is in it.

Who/what are the actors that have the most fundamental role inside the function?
Conversation review is a stand-alone process at scale -> Large support teams have dedicated employees for quality assurance.

4. Give an example.

What is the example that shows the magnitude of the problem in the what, why and who?
“A team of 3 transfer pricing professionals is yearly responsible for tracking 100,000,000 transactions and creating 1,000 legal documents consisting of 100,000 pages. Finishing 1 documentation takes on average 300 hours.”

5. Set the example into practice.

What does this example mean? The best way to explain it is by explaining an easily relatable process.
In practice, that means setting up an internal transfer pricing “factory” with 100s of employees or spend over Xm€ a year on tax lawyers to do the work -> 99% are forced to outsource and lose control.”

6. Show what you do.

How do you then combine all the aforementioned steps into one breathtaking solution? Focus on features and descriptions that gives the answer to the problem described above, rather than digging deeper into details.

It has been extremely delightful to see what kind of effect this framework has had on the founders. Several of them have started to see their story or company in a completely different light, which have also shaped their brand image in a way.

In storytelling, you build a certain authority when zooming in from the clouds to the ground. Everyone has traversed their own path and received information in their own way, where every little bit of information has had its very own unique effect on their understanding. We interpret what we sense, and it is so much easier to see and feel what is going on where we stand rather than what is happening up there. We should simplify complex real-life situations in order to give it a more generally understandable context, since people’s understanding stems from a variety of different inputs: childhood, social background, studies, work experience, to name a few. Next time you are fundraising, or just presenting yourself, think of this.

I can’t wait to continue working with all these exceptional founders, and stay tuned for huge news from our portfolio!