5 Ways Entrepreneurs Send Investors Running
By Patrick Smyth
Creative entrepreneurs can be fun to work with and they present unique challenges as their imaginations fly unfettered. The possibilities they imagine for their dream are endless and they can struggle with focus and reality. Learning to channel the creative energy and boundless dreaming into a plan of action that will result in some measure of business success can be extremely challenging for many. Nowhere is that conflict and contrast between a dream and reality highlighted more than when the entrepreneur presents his story to would-be investors.
If you are one of the creative entrepreneurs, your reality check begins with an understanding that the investors are attempting to evaluate the opportunity by assessing the risks involved and the value created so far. This can be a rough process for the entrepreneur who is so fixated on the creative aspects of the invention and the wild-eyed dream in his or her head. Several statements that entrepreneurs make to seasoned investors are sure to send them running, and fast. They may like the product but perceive you to be the biggest risk impeding its potential. In that case, they may make an offer to buy out the product, leave the entrepreneur out of the business and insert their own management team.
Five statements frequently made by entrepreneurs that send investors running:
- Nobody has ever done this before. It may be possible that nobody has done exactly what you have created in the way you have implemented it, but this statement reflects either complete ignorance of how people are solving the problem today or amazing arrogance in somehow believing that you have magically emerged from the mists of creativity and invented something so unique. First, you lose credibility with the investor for your lack of insight, and second, you may convince them that there is no market for what you have created. Nothing good can come from such a statement. You would do well to acknowledge the various ways that others are solving the problem today and then clarify why your creation is a better solution.
- This product will revolutionize the world of… This statement is similar to the first one but instead reflects ignorance about consumer loyalty and buying behavior, the market, product adoption rates, distribution channels and more. A million faster-better-cheaper-sweeter products have come along promising to revolutionize the world. Even large corporations are not immune to this problem. To be successful with your new invention does not mean revolutionizing anything without the faintest idea how to accomplish that. Instead, it requires a thorough understanding of the issues involved with getting your product into the hands of willing customers and converting them into raving fans. Where it goes from there is up to you, your product and your new fans.
- We don’t need marketing. Ah yes, this is the tried and true, “This product will sell itself. Everyone will want one.” Similar to number two, this statement reflects amazing ignorance about how you will make customers aware of the product, persuade them to buy it and then convert them into raving fans. Far too many entrepreneurs prepare financial projections practically devoid of marketing spending, yet portraying astronomical growth from the day of the launch of the product. The odds of that being a successful strategy are less than slim.
- Tens of millions of eyeballs will flock to my web site. The lack of marketing in building strategic plans shows up more frequently in web-based business concepts. Entrepreneurs naively assume that simply having a URL, launching a web site and then doing some search engine optimization and social networking will cause the hordes to come visiting. They will happily cite YouTube, Facebook and other successful large web-based entities as examples. For each one of those sites, there are thousands of potentially valuable and creative web sites floundering in the vast ocean of the internet. They struggle for relevance, attention, awareness and a regular loyal fan base. Do not assume a “build it and they will come” attitude. You must sell it and get them to come and let them help you build it.
- If just 1 percent of the US population were to buy one. Of course, if this was possible, it seems to be a fantastic opportunity. The problem is that it reflects the same ignorance and naivety about marketing above. Simply assuming a very small percentage of a very large market will buy your product because the small percentage seems “very conservative” reflects a complete lack of understanding about who will by the product, why they will buy it, how you will get it to them, how you will make them aware of it and so on. Instead, design a marketing and sales plan to show clearly how you will acquire the first few customers, and then the next few and so on until it grows to a large number. Who knows, this may turn out to be a small percentage of a large market but you get there by selling to one customer at a time.
There are many more misunderstandings than can turn a potential investor off the dream. For example, responding to the question, “What will you do with the money we invest in your business?” with, “I’m going to pay off my $98,000 credit card debt.” A dose of reality often earns more money in both investment funding and marketplace success as the entrepreneur takes a closer look at exactly what will be required to deliver the product, make customers aware of it and convince them to buy it. All this while making a handsome profit — yes, that is what business is ultimately about and investors are keen to understand how you will convert their small contribution over time into significant financial gains. Revolutionizing the world is rarely included, but sound judgment about the customer, the product, the business model and marketing usually is.
Patrick is a coach, speaker, and trainer to individuals and business leaders. He helps leaders to achieve success by clarifying their vision, strategic plans, leadership, change management, brand and marketing strategy. He helps individuals to remove self-limiting beliefs and fears that prevent them from acting on their goals and dreams. 615–261–8585 http://www.patrickgsmyth.com