Last week we talked about how to determine if you need help gaining investment and what is the best way to give your company an opportunity to close an investment opportunity. Let’s continue the discussion with how to best position your idea, your business, and ultimately yourself as an entrepreneur.
Address your weaknesses and discuss your strengths proactively
Every company has competitive risks and gaps, especially those that are truly in the early stages of development and startup. Angel investors (private investors), venture capitalists, and other potential investors don’t like surprises. They also use this information to assess the risk reward value of a potential investment. Most entrepreneurs approach weaknesses in two ways.
The first approach is to get defensive or to try and mitigate the gaps and competitive risks, but this can raise large concerns to potential investors. First, it can show that when it comes to your small business, you can’t be objective about it. You let your passion for your idea blur your initial judgment and your ability to make effective decisions. Secondly, it can strain your ability to show that you are a credible leader and ultimately a good custodian of their investment in your business.
The ability to separate the personal views from your professional life can ultimately make or break your ability to raise capital and limit your effectiveness in demonstrating that you can utilize their investment to maximize the potential of your business long term.
The second approach (and the better one) , is to be proactive in accepting and communicating your weaknesses and demonstrate your ability to identify any potential hurdles and pitfalls, and gameplan an approach to efficiently address them. Micheal Dermer, Founder of The Lonely Entrepreneur puts it this way:
Proactively bring up your deficits and strategy for strengthening your weak points before you are asked about them. This will be a pleasant surprise for investors. They are used to leaders minimizing their weaknesses. They will respect leaders who are honest and willing to put their talent on the line against the challenge. If you acknowledge your weaknesses and state a plan for dealing with them, it creates trust and credibility, increasing your chance of closing an investment.
Let your small business do the talking
Don’t look to hard sell your business to potential investors. Let your offering sell it for you. The big question is “how do you do that?” Using data of course. Venture capital firms and other investors want to see 3rd party data that validates your offering, show the market, the employees, any media coverage, and your customer base.
- Show that the market has interest in your product, that your offering has a market share that can be targeted.
- Your Employees
- The focusing on the key members of your team and how talented people are bought into your organization.
- Customer Base
- People want to hear from other people, highlighting your current customers and even focusing on testimonials from them can have a huge impact on the overall customer base.
- Media Coverage
- Coverage from the media give your brand trust and clout, Leverage recognition to show value.
The more meaningful 3rd party data you can provide your investors, the more credible you can position your offering to an investor. Let others sell your business so that it can sell itself.
Build a Message Model that gives credibility
Here are a few tips to build a message model for raising capital with potential investors that can help you gain credibility:
- Offer 3rd party references
- Validation from others is an extremely powerful tool, especially if you extend the offer before they ask for it. Encouraging potential investors to talk directly to your customers, other employees, and even vendors can help to validate success from the front line rather than through hearsay. Companies that don’t offer references enthusiastically can risk appearing as shaky and a weaker offering than discussed where companies that offer references before being asked show confidant and capable.
- Avoid using fluff
- Investors don’t need the extra fluff, calling your product “The greatest discovery since sliced bread” can alienate potential investor backing. Stick to the facts and let your offering sell itself to investors.
- Avoid talking about potential deals
- Savvy Investors don’t want to hear about possible deals or partnerships. By discussing potential deals in detail you risk scaring away skeptical investors by possibly signaling to them that you haven’t done much yet with your business.
- Avoid your emotions about your business
- Again separating your personal feelings from your professional feelings is difficult to do, but if you let your personal feelings show through in your message model you can risk straining your credibility with the investors.
You want to focus on having investors to either invest or pass on your business not because of your approach to the process, but because of the overall viability of your business and offering.
So this week’s big takeaways are, identify your strengths and weaknesses and know how to address them to investors. Build a solid message model for potential investors that helps give credibility to your offering rather than investors focusing on just your personal assurances. Lastly, let your business offering do the talking through data and 3rd parties. Happy customers, vendors, and employees will always be your best source of validation of success. Come back next week for our 3rd and final section discussing what to know about securing investor backing.