What every wanna be entrepreneur, if and when they’re wanting or ready to expand, needs is capital. So they seek funding through venture capitalists or angel investors. In their attempts to do so, it begins and ends with their approach, where their pitch is usually structured wrong.
What’s found common is that the same mistakes are being made, by those seeking financing. What most entrepreneurs who are looking for capital believes, is that it’s their company that stands far beyond everyone else. That they have a far superior product or service that everyone’s looking for. That they’ve built a better mousetrap.
They’re so invested in their belief that they develop tunnel vision, while spending all their time and savings on something that may be flawed. They’re committed so deep that they won’t accept or listen to constructive criticism, and won’t waver during their plea for financing.
The Product Exists Already
What you learn in Business 101 is, “find a need and fill it.” Once you identify something that’s missing in the marketplace, and then fill the “pain” that’s associated with it, you may of potentially found a solution that will make you money.
What the experts claim however, is that everything on this planet has already been thought of. Also, know that what copyright law states is that you can’t protect an idea, but only protect the expression of that idea.
So realize that you’re most likely not the first to identify that “need.” Instead, think differently from what your competition is doing. Even if your idea happens to be unique, what you’ll also need is a solid business plan, this to get ahead of the crowd.
It’s Business Never Personal
One mistake that entrepreneurs make during their “pitch,” is attempting to become friends with the investor. These investors are business people first, as their primary responsibility is to make money and protect themselves.
They’re only as successful as their investments, so avoid the kissing up and excessive schmoozing, attempting to be their friend. Instead, have a solid marketing strategy with revenue to back it up.
Just The Facts
Never disclose everything at once. First target and qualify who you want to share your business plan with. It should reveal your idea, along with how you’ll profit from it.
The key becomes how you execute, that will determine your success, and someone deciding to invest in you. Always protect yourself the best you can, by getting patents for your product before you introduce it to the world.
Never Overvalue Yourself
The most common mistake that’s made is overstating financial projections, this by miscalculating market size, the time it takes for product development and launch, and the length of the sales cycle.
Most entrepreneurs will get overly enthusiastic regarding their idea, while not knowing the critical data such as market size, pricing, or who’ll want to buy it.
Is the “need” or “hurt” to buy the product big enough. How easy can someone duplicate it. Avoid the most common spiel which is, “The market size for our widget, is two billion people and everyone needs one!”
Investors are rarely fooled by short-term numbers, while long-term projections are critically analyzed. Realistic projections may delay the funding process, this because they’re not as flashy.
If you do get financing, it’ll be based on what you’re realistically projecting you can achieve, and the investor will reward you for that.
Realistic Projections
Once an entrepreneur finds a revenue stream, they think that their company is on easy street to profitability. What investors know is, until you have the sale in the bank, you can’t book the revenue.
What you need is to keep on top of your numbers, know how the revenue is trending. If it’s declining or increasing. You also need to know your cash flow, such as how long it takes to collect payment from your customers.
Spending too quickly creates cash flow problems, so you need to prove you have foresight and discretionary use of funds. Entrepreneurs who are able to treat their budgets the same way they treat their product development, are those who survives and thrives.
Know Your Burn Rate
Create an employee and expense plan that’s feasible. Do you hire or outsource people when you can cost justify them, do you hire them once you see the need for them.
What appears most favorable is having a core group of employees, along with having a reliable stable of outsourced staff. Always be networking, this to compile a list of people you may want to employ.
Know how long it takes to train people. Know exactly what your expenses are, and what your burn rate is if you’re currently losing money.
Run A Tight Ship
Be as airtight as possible by constantly finding ways to lower operating costs, along with minimizing outside help or assistance.
Are there unnecessary partners. There are certain partners who you need for your business, such as the investors. What you need is to justify each partnership, and know what type of value they offer, which can be articulated.
Investors may pass on you, if you have too many partners holding too much equity, which will set off red flags. What’s not needed are those partners who don’t contribute, as they’re just “cockroaches” that don’t serve a purpose.
Be as concise as possible, because meaningless partnerships are a liability and profit consuming. If there’s too many “cooks in the kitchen” the payoff becomes too small. Investors will then wonder why they should waste their time and money on you.
So make sure you qualify all your partners, and have a valid reason why you have an alliance with them. You should also disclose how much equity each partner holds.