Pre-Existing Knowledge

When you’re trying to explain a complex idea to someone, it’s extremely helpful to explain your new idea using terms, concepts, or ideas that the other person already understands.

For example, if you’re talking to a seasoned finance professional, you can use terms like “EBITDA” and “valuation multiples” and they’ll understand them.

However, if you’re speaking to someone unfamiliar with finance, you’ll want to say, “how much money a business keeps after paying all the bills,” and “how much someone would pay to buy the company.”

You want to change your choice of words to be appropriate for your audience’s level of pre-existing knowledge.

This is especially the case when your audience isn’t familiar with the topic at hand.

In this situation, the key is to simplify your choices of words — even if doing so reduces the technical precision of what you’re saying.

For example, you may have noticed that “EBITDA” does not actually equal “the amount of money left after paying the bills.”

(Technically speaking, it’s the amount of money left after paying the bills, except for the tax bill and the interest portion of a loan payment. Actually, that’s only true if you’re using cash accounting instead of accrual accounting... not to mention allowable depreciation, but I digress.)

You see how simplifying an idea to improve ease of comprehension often means reducing accuracy (and its associated complexity). When conceptual understanding is the goal, simpler and easier to understand is better than accurate but complex and difficult to understand.

When you teach a new concept, you want to always start by referring to something that your audience already knows.

This might seem redundant, but it’s actually one of THE secrets to explaining complex ideas in an easy-to-understand way.

By doing so, you establish a mental reference point that you can use to explain a concept they aren’t yet familiar with.

If you’re trying to explain your startup to an investor, you’d say, “You know how Uber is personal transportation on demand? Well, our startup is just like Uber, except instead of transporting people by car, we transport cargo shipping containers by semi-truck.”

If you’re trying to explain the concept of A/B testing to your CEO, you’d say, “You know how drug companies run clinical trials by giving half of their patients the drug and the other half a placebo? Well, A/B testing is the exact same thing, except instead of testing the effectiveness of a drug on patients, we are testing the effectiveness of our sales presentation on prospects.”

To be an effective communicator of complex ideas, always start with what your audience already knows.

This presupposes that you actually know your audience, but that’s a topic for another day...

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