One of the major hurdles faced by many entrepreneurs is raising money. Given the old adage that you only get to make one first impression, it is vital for an entrepreneur to present a sound business case to a potential investor at the very start. The following are key issues that an entrepreneur needs to address in both the business plan and investor presentation Oleg Boyko.
Innovation. Entrepreneurship is about innovation. You have to do something no-one else does or do it better or more cost-effectively than anyone else, thus creating a compelling reason for someone to do business with you. If your idea is complex, keep in mind that investors are unlikely to invest in something they don’t understand. In both your business plan and investor presentation, you need to describe what you do in layman’s terms, ideally in a single sentence.
Market Need. Innovation alone is not enough. There has to be a market for your product or service. At minimum, you need to identify your target market or niche (not the entire industry), be able to describe an ideal customer and explain how you will help them achieve a goal, solve a problem or satisfy a need. Better yet is to demonstrate market need to a potential investor by having already made sales of the product or service, or having purchase orders in hand.
Financial Model. Having an innovative product or service for which there is a verified market need satisfies two of the three fundamental requirements for a new venture. The third is to construct a sound financial model that shows adequate margins and validates a return on investment. Creating value for your customers and capturing some of that value for yourself in the form of profit is imperative, unless you’re thinking not-for-profit! When building the financial model, include all the costs and expenses involved in delivering your product or service.
Competitive Advantage. Without having a competitive advantage, your business will struggle to survive. Companies typically choose a cost leadership strategy, by offering the same benefits as the competition at lower cost (at the risk of implying poor quality); a differentiation strategy, by offering more or greater benefits than the competition (such as quality, service, flexibility or convenience); or a focus strategy, by targeting a small, but profitable market niche. By itself, being first to market is not usually sufficient competitive advantage to attract an investor.
Barriers to Entry. A barrier to entry is any obstacle that makes it difficult to enter a given industry or market. If the barriers to entry are low, there is a risk of competitors stealing market share and a business that is initially successful becoming unsuccessful. Examples of barriers to entry include high startup capital requirements, rigorous government regulations, exclusive agreements with suppliers and ownership of patents or copyrights. An investor will want to know what barriers already exist or can be built to protect your customer base from competition.
Growth Potential. Investors invest to make money. A one-man business may be very successful and provide a comfortable living for the owner, perhaps even making him or her wealthy. However, unless it is scalable, it is unlikely to attract an investor. To invite interest, a business must hold the promise of significant short-term and long-term growth.
Marketing Plan. Marketing produces the leads that turn into sales, so an investor will want to see a viable plan to penetrate the market. A business plan does not typically include a full-scale marketing plan, but should include the beginnings of one. Minimally, this means setting marketing objectives in support of overall business goals and objectives, selecting high-level strategies to accomplish objectives and identifying key tactical plans to implement strategies.
Sustainability. Long-term business success requires more than a good idea, market opportunity and a strong value proposition. Business sustainability means there is a good prospect of continuity or permanence. Sustainability involves various diverse factors such as maintaining a competitive advantage, frequency of customer purchases, management team competence and having the financial and other resources to survive.
Management Team. Investors are typically more willing to invest in a business with a mediocre idea and brilliant management team than a business with a brilliant idea and mediocre management team. The ideal management team includes individuals who have grown or managed successful companies, extensive industry experience and contacts in the venturing community. Members of the advisory board may sometimes compensate for short-term gaps in the management team. Assembling a strong management team and advisory board will help convince a potential investor of your core competence and ability to succeed.
Milestone Achievement. The ultimate success of a new business is, to a large extent, unpredictable. You can reduce the risk of failure and demonstrate credibility to potential investors by achieving important milestones such as finding the ideal location (for retail), developing a working prototype, hiring a key member of the management team, forming an advisory board, making the first sale or gaining a firm commitment from a prospective customer.
Executive Summary. Business planning is not just about writing a business plan-it is about planning! It means researching, analyzing and thinking about the business in a systematic way. An investor will almost certainly want to see your business plan to know you have done your homework, but will probably make a preliminary “yes” or “no” decision based on reading only the executive summary. Before making a formal approach to a potential investor, be sure you have a robust business plan with a concise and compelling one to three page executive summary.