Are you having trouble raising capital? Are you finding investors uninterested or non-responsive?
Is it possible that you’re spending too much time selling investors on your product, rather than on your business and market opportunity? Don’t think it matters? It does – there’s a big difference!
OK, let’s rewind and start from the beginning. You have a great idea! Your product is guaranteed to save the world! While this is a great start, your efforts to raise capital will hit a wall if you cannot objectively demonstrate a large market for your innovation and layout a clear path for creating a profitable, money-making business. Most investors are laser focused on understanding if your venture can grow into a profit-producing machine able to secure a sizable share of a market.
Here’s the problem… Entrepreneurs often spend too much investor face-time instead selling their product. As great as it may be, the product is only a piece of a much larger puzzle.
I recently spoke with a business plan software customer who has a nutrition education / food line especially beneficial for obese children. He went on about how great his product is and what the benefits are, etc., but I stopped him to ask about the market size and how he planned to create a profitable business out this wonderful idea…
He was unable to provide a satisfactory response to the question. So we agreed to explore it together. In particular, we decided to examine his market a bit closer to better understand its size, identify his target customer, and gain insight into the best (economical) ways to reach that audience.
We presumed that kids are not going to buy it and reaching a mass audience of parents was probably out of the question. Instead, we turned our attention to identifying qualified and influential 3rd parties who are in direct contact with the ‘customer’ and would likely to recommend his product. (Plus, we as consumers will often trust a 3rd party recommendation long before we will believe and act upon a direct sales pitch!)
To start with, we settled upon Pediatricians, Child psychologists, and 7-8th grade teachers as excellent groups to consider first.
My suggestion to him was to contact several pediatricians that he knew and run the concept by them. I asked him to write down verbatim everything they said – use their words, not his interpretation. Paying close attention to their responses was going help him greatly as he moved forward and provide objective insights to the investment community. Some of the questions he asked included:
- How many children do you see in your practice that would benefit from your product(s)?
- What percentage would actually buy it?
- What other products do something similar?
- How would they pitch this to other pediatricians?
- Can you accept a commission on sales? (Maybe not for his case, but perhaps yours…)
- How many pediatricians are there? (You’ll separately visit the associations and publications for their ‘editorial calendar’ and membership stats. More data/proof for your business model.)
- What associations do you belong to? Is it good? Do you actually respond to their recommendations? (Keep track of the percentages.)
- Which publications do you actually read? (vs. just subscribe to – we all have magazines and papers laying around that we may read eventually – which ones are their priority?)
After these conversations, he was able to gain some valuable insight as to the likelihood of interest by pediatricians, quantify the size of the market, learn the best channels for reach this audience, and most importantly uncover key information for building a viable business model.
He then proceeded to contact the other market segments in the same fashion.
The idea here is to reduce the hip-shooting to the absolute minimum and provide investors with many basic assumptions in which they can believe. As importantly, you are articulating a business model that directly meets the needs of the market and is structured for growth and profitability.
Investors, when doing their due diligence to verify your claims, will contact their own experts. When you provide data and information sourced from real potential customers, investors will likely get the same positive response. This not only strengthens your case for investment, but reassures them that they can trust in what you tell them.
The above story illustrates only part of the picture, but you get the gist of it:
Investors don’t want to buy your product, they want to invest in your business!
Is this too much work? If it is, well that’s the price for playing with investors. There are very few investors who will provide capital if you don’t have your act together. Would you really build a business without doing this bit of basic research anyway?
So, before you pull out your glossy presentation that touts the amazing features of your game-changing product, be sure you have a solid business plan that clearly articulates a real market opportunity and a model that leads to growth and profits.
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There are two groups that never fail to confuse their product with their business — salesmen and freshmen entrepreneurs.
The problem is bad enough that I’ve added a segment to my workshops were we replace the term ‘business’ with ‘Enterprise.’ Then we sketch-out one plan that describes how they’ll sell the product to customers and another plan describing how they will sell the Enterprise to Investors.