OK, how’s quoting a 1998 hit by Shania Twain as a business reference? For those who don’t remember, are too young to remember, or just want to revisit the ‘90’s, here’s a link to That Don’t Impress Me Much on YouTube.
Too often I hear about start-ups with the headline being how excited the entrepreneur is about their product or service idea. Investors definitely want an entrepreneur and management team that is passionate about their product or service. But that’s just step one.
The real magic is understanding the marketplace and being able to articulate how you’re going to make money. Investors are putting money into a business for one reason and one reason only. . . to get more money back out at a later date. If you’re an entrepreneur seeking investment capital and are not speaking to how the business is going to generate strong positive cash flow or have an exit multiple that will deliver an extraordinary return to investors, then you need to re-think your presentation and perhaps your entire business strategy.
I have read too many business plans and seen too many fund raising pitches that just don’t deliver on “tell me how we make money by investing in this company?” Even when potential investors love the underlying product or service, they are unlikely (note that I didn’t say never) to be swayed without a solid business plan that can speak to the underlying economics. I have seen investors leaning forward in their chairs with a glint in their eye as they see a new product or service idea but then walk away from the same presentation completely disinterested when they realize that the management team cannot deliver the answer to the fundamental question of how the business will make money.
To impress potential investors one needs both a compelling product or service idea (preferably one that will be disruptive to the current market and have high barriers to entry for anyone who might choose to attempt to follow) and a well thought out strategy for making money (in other words, providing a return to investors).
While potential investors will definitely have thoughts about how an idea fits into the marketspace, it’s not their job to figure that out. Moreover, they simply don’t have time to dive into each and every business to the level necessary to develop long term strategy and nearer term tactical plans. Both are the job of the management team.
So, if you’re in the start-up world, especially if you’re struggling to raise funds, think about how your presentation responds to the fundamental question potential investors are thinking about when they read your business plan or listen to your pitch. If you’re just talking about your product or service idea, they might have the following lyric running through their heads: ”Okay, so, you’ve got a car.”
The next time I reference song lyrics, I’ll pick a decade other than the ‘90’s.
If your business could benefit from fractional CFO services, I would welcome the chance to speak with you. Please give me a call at (314) 863-6637 or send an email to [email protected] The archive of these monthly newsletters is posted at the Resources section of homza.com
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