Based on my own years of experience in startups and big business, and more recently as an angel investor, I often cringe when I see one of you entrepreneurs missing a cue that I have seen work for many before you. I’m a big fan of leading with your heart and your passion, but I’m also convinced that logic has a big role in business, so don’t forget to highlight your balance as well.
For example, it’s great to pursue a higher purpose, like feeding the hungry, but don’t forget that running any business is a hungry mouth you have to feed. A passionate entrepreneur I met a while back had found that a certain algae could be grown cheaply, and could end world hunger. Yet he forgot that hungry people rarely have money, so his business case was not fundable.
To keep you on a positive track with potential investors, I recommend the following logic principles, to balance your passion in presenting your vision of a new business:
Make sure your plan includes some business metrics. Making people happy or improving usability are laudable goals, but projected product margins, volumes, and business growth are necessary realities for a successful business. You need to have quantifiable objectives, with measurements, to keep you on the path to success.
For example, if you have ever watched the Shark Tank show on TV, they always ask about the cost of customer acquisition. It still amazes me that some entrepreneurs seem totally at a loss on this question, or customer retention rate, or even margin expectations.
Show that you have to ability to move the ball forward. I often hear about efforts that have been stalled for several years, pending more funding, economic change, or other priorities. I find that good entrepreneurs always find ways to keep their project moving forward, in good times and in bad. I’m looking for all your initiatives, not your excuses.
Demonstrate a balance between instincts versus advice. Investors want to see a willingness to follow outside guidance, tempered by your own convictions. Blindly following someone else’s strategy, or even your own, will not facilitate learning and an ability to pivot along the way. Every startup demands logical changes along the way.
Don’t forget to focus on the value of you and your team. For early stage investors, you probably don’t enough results to prove the power of your solution. Thus investors are investing in you and your team, so you need to highlight the skills you have mastered, past accomplishments, and the connections you have established in your industry.
If this is personally your first startup, it’s very important to highlight prior leadership experience in school, business, or public life, and your ability to attract skilled people for your team, as well as advocates from your industry, social media, or prior relationships.
Pitch a rational plan for expansion and growth. Most entrepreneurs underestimate the resource and time requirements for scaling, and overestimate their own range of capabilities. Building a sustainable business is more like a marathon than an event. You need to talk about partnerships, employee roles, distributors, and strategic alliances.
Postulate competitive reactions and your responses. Competitors, like the market, never stand still as you disrupt their space. Show that you anticipate this, how they will react, and how you have ongoing strategies to stay ahead. This may include plans to merge or buy competitors, as well as a continuing plan to introduce new innovations.
Present a viable exit strategy for investors to cash out. Equity investors realize that they won’t see any real return until an exit occurs, such as a sale, merger, or IPO. Try to give some clear direction or when and how you see this happening, based on similar companies in your marketplace, or connections you already have in the pipeline.
Some people argue that presenting an exit strategy implies a lack of a long-term commitment by the entrepreneur. In my experience, I have just the opposite reaction, where no exit strategy indicates no strategic plan for how this startup will build a legacy.
Certainly every new business needs a purpose, as well as a heart. But don’t forget to address the basic elements of business logic – as these allow you to consistently deliver on your promises to customers. Every investor looks for that balance which assures a satisfying return for everyone involved. Use the principles outlined here to make your dreams a reality and change the world.
*** First published on Inc.com on 02/16/2021 ***
Source: Startup Professionals