So, you have an idea for a business.
Business ideas are not only cheap, they’re a dime a dozen. That said, you believe that you don’t only have an idea, but a viable business plan. So where can you access funding? According to Pavlo Phitidis, the assumption that someone else should give you money is your first big mistake. He is a firm believer that funding should start at home, at least in the start-up phase. “The bootstrapping phase is an essential ingredient to the overall success of a business,” he insists. “If you put everything you own into a business, and then proceed to ask friends, family, your book club and everyone else you know for additional funding, you will think very carefully about how you spend those resources. This will make you a better business owner, running a business that is already more likely to succeed, and it will make you far more attractive to banks and financiers when you need additional funding to grow the business.”
Indeed, many entrepreneurs waste a huge amount of time looking for funding which they could otherwise be putting into their businesses. A good case in point is a local seamstress who applied to the National Youth Development Agency (NYDA) for funding to produce matric jackets. While the finance was approved in principle, she needed to prove that she had orders and there was a demand for the product first. “She ended up approaching scholars and collecting deposits for their orders,” says Lebo Gunguluza, founder of the South African Black Entrepreneurs Forum (SABEF). “The deposits gave her enough money to actually manufacture the jackets, and then she received the remainder of the money for each order upon delivery — all before she actually received the funding she was looking for.”
The lesson is simple: the belief that a business can’t get off the ground without funding means entrepreneurs focus on securing finance instead of innovative ways they can get cash to launch their businesses.
“This entrepreneur actually got her company off the ground faster than she managed to secure funding,” says Gunguluza. “Don’t wait around for finance simply because you think that’s the only option open to you. Think out the box — your goal is to get cash. How can you do that? If you stop focusing on finance alone, you might be surprised by what you come up with.”
Gunguluza calls it ‘pre-selling’. If you need cash to fund your business, get that cash by pre-selling your product or service. In other words, get your clients to pay you before you deliver the goods.
There does come a point in the lives of many businesses, however, where future growth is not possible without funding. In order to make yourself an attractive prospect for financiers, Phitidis recommends first bootstrapping, and then taking the time to ask what you have to offer the financier.
The secret to finding funding
Don’t think for a moment you are alone in the financier-financee relationship. In fact, according to Alexandra Fraser, research analyst, Invenfin Venture Capital, the average funding partnership in the US lasts longer than the average marriage. So it’s important to be on the same page from the word go.
“No-one takes the time to ask the simple question, ‘What does a financier want from me?’” says Phitidis. “Entrepreneurs are always so busy thinking about what they want from financiers, that they forget that finance houses are businesses as well, with specific mandates that they must follow. As a business owner, before you start looking for finance, do your research and recognise that there are different types of funding that have specific criteria and mandates that must be met. Ask yourself which financier suits your business and industry best, and vice versa. No amount of moaning, sulking and bashing down doors will work if you are approaching the wrong financier. Figure out what they want, establish if you suit their profile, and then show them why you are a suitable candidate for their funding.”
Christo Fourie, IDC Venture Capital Unit, agrees. “Each fund has a unique mandate,” he explains. “You can’t change that mandate.
Move on and find a fund that fits, rather than banging your head against the wall and wasting your time.”
So what do financiers want?
According to Alexandra Fraser, the first thing funders want is for entrepreneurs to validate their ideas before they even pitch them to investors. “This can be as simple as starting with a Google search,” she says. “Did you research your idea and your market? Yes, innovative ideas are great, but not all ideas are as innovative as entrepreneurs seem to think they are, and many are simply not feasible. Is there a need or a want, and is there a market? That’s where you need to start.”
Fraser offers two examples. The first is Coca-Cola’s marketing success. “People were not dying of thirst before Coca-Cola hit the market. The brand needed to find another need or want to attract customers. It’s vitally important that you know what that hook will be. You can’t simply say: I have a product and people will buy it. Why will they buy it?”
An example of poor research is entrepreneurs who do not understand the market they want to operate within. “For example, we have received a number of pitches from entrepreneurs who have developed technology for mobile lotto sales,” says Fraser. “On face value this is a great idea: there is a need and a market. Unfortunately, there is also legislation expressly forbidding lotto tickets from being sold on mobile phones. Before they put time and effort into these pitches and even developing the technology, these entrepreneurs should have done their homework and validated their ideas.”
Ultimately, whether an entrepreneur receives funding or not boils down to market research. “Research can be painstakingly slow, but it’s also vitally important and will save time, money and effort in the long run. Market research isn’t only about creating a marketing plan. It determines everything you do in your business: what will customers pay? What should the business’s revenue model look like? How can the business attract and keep customers? If you can’t answer these questions, you won’t get finance.”
Innovative ideas are by nature ‘big picture’. They are based on the belief that anything is possible. Proper market research grounds the big picture in reality, which decreases risk for investors, and ultimately makes the business viable. “Great business ideas also don’t need to be brand new,” says Fraser. “Creating a market can be incredibly expensive because you need a huge marketing budget to introduce consumers to an unknown product or service. But, if you are offering something that is known, but solving a need or doing it better, you are tapping into an existing market. You simply need to differentiate yourself.”
Securing finance is all about proving to investors that you understand your business, you know who your market is, and you know what you are selling to them, how much you are selling, and what you will make based on those sales. In other words, you have a realistic sales forecast.
Investors aren’t going to be fooled by inflated projections either. “Using the example that there are one billion people in Africa, of whom 95% have cell phones, does not tell me who your market is for an application that lists restaurants in Cape Town,” says Fraser. “An industry and a market are not the same thing. Understand your market and then start from the bottom up.”
Do your homework
According to Daniel Hatfield, co-founder of VC firm Edge Growth, a general rule for all investors is that due diligence has been undertaken by the entrepreneur, which means – among other things – knowing where the sales will come from. “Top down thinking is great for big ideas, but the details lie in bottom up thinking,” he explains. “An entrepreneur who has researched their market, spoken to potential customers and understands what they can buy and for how much, can determine what their sales will be – and through that, how much money will actually be coming through the door. Top down thinking says, ‘I only need 1% of a R15 million market each month to make a profit’. Bottom up thinking asks, ‘How will I make my first three sales, and how will I meet the revenue target of my first six months?’” These are the answers investors are looking for. After all, they either need to see a return on their investment, or, if they are a bank, they need to know you can service the debt.
“The golden rule in partnerships is that a partner with money is very useful, but a partner who will also provide you and your team with the space, time and freedom needed to build the business is a true friend – and that friendship will stand the test of time.”
Richard Branson, Founder of Virgin group of companies
Four things funders look for
Edge Growth co-founders Daniel Hatfield and Jason Goldberg share the four main questions funders ask prospective fundees.
1. The market
Is there a great market for your product? Is it a growing market full of opportunities, or is it saturated?
2. Competitive advantage
Does your business have a competitive advantage? Do you have a value proposition that is quicker, smarter or cheaper than your competitors? Why should your potential clients buy from you?
3. The team
An idea is all fine and well, but unless it can be executed it isn’t worth much. The team is a vital component to the overall success of a business. What kind of experience do the various team members have? What does their network look like? What qualities do the various team members display, including competence, balance, high energy, motivation, determination and trustworthiness. A golden rule here is to do what you know.
4. Economies of scale
Can you start small and expand over time? Is the business scalable? If it is going to make money you need to be able to scale the idea – and you need to show how you plan to do that.
“There are never NO competitors. Tell your funder that there aren’t, and you come across as naïve, uninformed and out-of-touch with your market.”
Alexandra Fraser, Invenfin Venture Capital
Perfecting your funding pitch
If you have banged on more doors than you can count and are still receiving “no” to your funding pitch, your problem might lie in how you’re delivering your pitch. By Jason Fell
Effective elevator pitches can be crucial for entrepreneurs trying to secure funding from angel investors. The goal of the pitch – written or delivered face-to-face – is to briefly share the ’who, what, where, when, why and how’ of your business, while piquing an investor’s interest. The tricky part is cramming all of that into one explanation that, hypothetically, should be delivered in the time span of an elevator ride.
The pitch has to quickly grab potential investors, who often only read the first few sentences of a written application and then toss half to two thirds of them away. The best pitches however, describe the market the business is in, explain what problem it solves and demonstrate a track record. The worst ones fail for countless reasons.
Here are five of the worst elevator-pitch mistakes entrepreneurs make – and how to avoid them.
Mistake No. 1: You don’t explain what problem your business solves
Some entrepreneurs spend too much time talking about how their product or service works and not enough time explaining what problem it solves. People buy solutions to problems. Don’t tell an investor how your lawn fertilizer works. Tell them about their lawn.
The Fix: Share why customers will buy your product or service
If you don’t understand or can’t explain what problem you’re solving and why customers want to give you money, then investors are probably never going to want to invest in your company. Who’s your best customer? How much money do they make from buying your product? And, how much money will you make from selling it?
Mistake No. 2: You offer too many facts and numbers
Entrepreneurs often use statistics to help explain their business. While some figures – such as your sales and revenue – are important to establish a track record, don’t go overboard. Leave out the ‘step-by-step numerical proof of your market size’ and rather be compelling. Save the reams of facts for later.
The Fix: Tell a story
To capture an investor’s full attention, explain your business by telling a story. Use personal examples about how your service or product has solved a problem in your own life. Or, put the investor into your story. If you’re selling a product for people who are blind, don’t start off talking about the difficulties blind people face. Instead, say something like, ‘Imagine if you or a loved one were to go blind tomorrow…’
Mistake No. 3: You tout sales forecasts
Early-stage sales projections often don’t carry weight with investors because they aren’t supported by actual sales history. As businesses grow, revenue streams, prices and even entire markets can change, rendering preliminary forecasts useless.
The Fix: Focus on the benefit your business offers customers
To help make up for the fact that you might not have a long sales record, it’s better to explain the benefits the business will provide customers and how the company is different from the competition. Answering services companies have been around for centuries, but if yours, for example, uses technology to deliver messages immediately without the client having to call in and pick them up, that solves a problem and has the potential to create excellent revenue and profit. That’s what’s attractive to investors.
Mistake No. 4: You’re too attached to your business plan
For some investors, it’s a red flag when entrepreneurs aren’t willing to work outside the protocol outlined in their business plans. For example, you have a device that monitors electricity and, according to your business plan, you sell that device to customers for a fixed price. But, when a customer wants to lease the device instead of owning it, and you tell them you can’t do that, it might be a problem for an investor.
The Fix: Embrace new revenue opportunities
If there’s a new way to consider packaging or selling a service, a ‘true entrepreneur’ will seize the opportunity to make money. Being flexible and willing to accommodate customers when they want your service in a format that differs from what you already offer is good. The goal should be to make your product as sellable as possible.
Mistake No. 5: You discuss ownership stakes
While it might seem natural to explain how much ownership you’re willing to offer investors, don’t do it in the initial pitch. It’s like the sticker price on a car. If it’s too high, you don’t even talk to the salesman. You just walk off the lot.
The Fix: Save it for the follow-up
Details about who gets what after an investment generally come up after an investor has finished researching your company. If an investor asks about ownership terms early on, you should simply say you’re “flexible.” Remember, your goal in the pitch is to build a relationship with the investor. Get them to fall in love with your idea.
“I invest in a person who understands their subject matter and has a strong passion to succeed. I need to see big drive and stamina to know they are in it for the long haul and won’t give up when there are hurdles, disappointments and difficulties.”
Vinny Lingham, Serial entrepreneur and investor
Improve your chances of obtaining funding
Understanding bankers and knowing how credit decisions are made can mean the difference between getting a loan – or missing one. By David Bangs
Banks typically don’t fund start-ups, but there is a point where your business is generating revenue and you are ready to apply for a bank loan. Here’s a brief guide to what makes funders tick and some tips to help you navigate their world. The main concern bankers have is protecting their capital, money with which their depositors have entrusted them. Consequently, bankers are generally very conservative. Their first priority is to recoup the principal of the loan. Their next priority is to earn a reasonable rate of interest on the loan. And their third priority is that you prosper and open more accounts with them.
Your job is to provide the banker with as many reasons to feel safe as you can. You start with a loan or financing proposal – a statement of what you need, why you need it, when you need it, and how you plan to repay it. The documentation should include a description of how much you need and what you’ll do with the loan, up-to-date balance sheets, cash-flow pro formas and projected income statements. All banks have forms to help you prepare these, but using your own business plan increases your credibility.
The nuts and bolts
Applications are rejected for the following credit-related reasons:
- Too little owner’s equity
- Poor earnings record
- Questionable management
- Low quality collateral
- Slow/past-due trade or loan payment record
- Inadequate accounting system
- Start-up or new company
- Other (only 4% of rejections have other reasons)
“If we recognise red flags during the pitching process we won’t give funding. These include a lack of understanding of the industry in which the entrepreneur operates, false claims being made or misrepresentations and a misalignment between the business plan and the entrepreneur’s oral ‘pitch’.”
Keet van Zyl, HBD Venture Capital
The ‘Six Cs of Credit’
What do bankers look for when considering a financing proposal?
1. Character: Character judgement of an individual is based on past performance. Personal and business credit histories are reviewed.
2. Capacity: This is figured on the amount of debt load your business can support. The debt-to-net-worth (debt/net worth) ratio is often used to justify a credit decision. A highly leveraged business with a high debt/net worth ratio is perceived as less creditworthy than a company with low leverage (low debt/net worth).
3. Conditions: Economic conditions, both regional and national, have a profound effect on credit decisions. If the bank is persuaded that a depression is coming, it won’t extend credit easily.
4. Collateral: Collateral is a secondary source of loan repayment. Banks want the loan repaid from operating profits and inventory so you become a bigger, better borrower and depositor. But just in case things go sour, a bit of collateral makes your banker sleep better at night.
5. Credibility: Do you know your business? Can you be counted on to be level-headed? How credible are your plans? Are they a collage of dreams or a carefully reasoned and researched plan? A business plan helps you answer the banker’s questions without hesitation.
6. Contingency plan: A contingency plan is a useful financing tool. Bankers like to see that you look ahead. A contingency plan proves forethought. It is a short worst-case business plan that examines the options open to the business and how those options would be treated. Decisions made in panic are poor decisions. A contingency plan avoids panic.
“It is vital for entrepreneurs to demonstrate a pragmatic and proven approach to getting the product to market.”
Charmaine Groves, Old Mutual’s Masisizane fund
Your funding options
Need cash but don’t know where to look? Here’s a breakdown of funders:
Angel investors: Angel investors are individuals who want to support start-ups financially. They use their own funds, and they tend to back the entrepreneur rather than the business.
Government grants: There are various government funds out there, and they all have their own terms, conditions and mandates. Do your research to determine which fund’s mandate suits your business.
Venture capital: This is not debt funded (ie debt that needs to be serviced, or paid for, like a bank loan). It is funding for high-risk, scalable, tech-related businesses. Venture capitalists are taking a huge risk, so they expect large returns. You will need to prove that your business is scalable and offers those returns. Again, make sure your business suits the fund’s mandate.
Seed funding: Some VC firms will offer seed funding, which is for start-ups.
Private equity: This is a share of the business in exchange for funding, and will usually involve angel investors or VC funds.
Bank loans: Banks specialise in debt products, which means you need to be able to service the loan. If you can’t prove that you can make loan repayments, you won’t qualify for a loan. This means you need to already be generating revenue.
Bootstrapping: Bootstrapping refers to building a business without funding. Why would you need to do this? The type of funding you receive is dependant on the stage of your business. The younger your business, the greater the risk you pose to financiers. As soon as you are successful and generating revenue, it becomes much easier to source funding.
“Funding works on a one in 100 rule: for every 100 business plans we receive, one will get funded.”
Alexandra Fraser, Invenfin Venture Capital
Looking For Funding? First, Understand What Funders Look For
Are investors interested in ideas? Traction? The team? The founders? They’re interested in all that and more, say VCs Keet van Zyl and Clive Butkow.
Put two venture capitalists and an entrepreneur (who pitched her business to almost every VC in South Africa before securing corporate funding) in a room, and you’ll hear the truth about funding: What investors look for, the realities for business owners looking for funding, and what you can do to increase your chances of securing funding — or better yet, build a great business without it.
In June, the Matt Brown Show hosted a series of events, called Secrets of Scale at the MESH Club, focusing on what it takes to scale a business. Matt’s panellists included Clive Butkow, ex-COO at Accenture and CEO of Kalon Ventures, a tech-focused VC firm; Keet van Zyl, a venture capitalist and co-founder of Knife Capital, and Benji Coetzee, founder and CEO of tech start-up EmptyTrips. To add a twist to events, both Keet and Clive chose not to invest in Benji’s business when she was on the funding trail, even though they believe strongly in both her and her idea.
Here’s what we learnt from their experiences, insights and advice for local business owners.
Funders back the jockey, not the horse
This is a truth that Benji has experienced first-hand. “After months of trying to find an investor, I decided that VCs don’t know what they want,” she says. “The ladder of proof just keeps getting longer — big white space, addressable market, an MVP (minimum viable product), traction, first users — there’s a long checklist and you just need to keep ticking those boxes. Great concept, great team, we love it, keep going. I can’t tell you how many times I heard that.”
What Benji learnt was that the corporate funders who would eventually choose to back her were interested in two core things. First, did she have skin in the game? By that stage, she had invested R3 million of her own funds into the business, and so the answer was decidedly yes. She was already backing herself.
The second was that they wanted to back her — not necessarily the business. They were interested in her passion, dedication, experience and networks. “You still need everything I mentioned before,” she says. “But ultimately an investor backs the entrepreneur, not the business.”
Clive agrees. “There are a lot more million-rand ideas than million-rand entrepreneurs,” he says. “At Kalon, we’ve seen 600 companies and we’ve made four investments. That’s one to 100 odds, which is pretty standard in this industry.
“That doesn’t mean the 596 businesses we saw weren’t good businesses. Some of them were fantastic. They just weren’t investable businesses because we knew they wouldn’t give us a 10x return. They also weren’t 600 unique businesses — they were 100 unique businesses six times. There are very few unique ideas or even businesses out there — and so it’s the entrepreneur who makes the difference, and who you ultimately want to back.
“We look at three things in an investment. Is the deal investable? Is the person investable? Is the risk investable? If all three answers are yes, we can take it further. You need to have a great jockey; you need to have execution capability; and you need to have traction in a large target addressable market.”
Funders are interested in traction
For Clive, traction trumps everything. “I look for the 4 Ts: Team, Technology, Traction and Target Addressable Market. Without traction though, the other three aren’t worth much.”
“Every single business we’ve invested in had customers, and wasn’t just an idea,” agrees Keet.
The best way to prove traction and to get funders invested is to start introducing yourself before you need money, and then keep them up-to-date on what you’re doing and achieving.
“We receive five business plans via email a day for funding, and we ignore them all if they haven’t come through our network,” says Keet. “This isn’t unusual. 93% of deal flow in South Africa comes from within the VC’s network.”
Don’t think of a VC’s network as an exclusive ‘invite only’ club though. “Building a network is all about attending ecosystem evenings and embracing targeted networking,” says Keet. “We’re all on Twitter. Get to know us. I’m passionate about the journey of an entrepreneur — send me a newsletter telling me who you are, and three months later where you are now. That’s my passion. I love that stuff.”
More importantly, it’s not just a business plan — instead, you’re letting potential investors into your story, and giving them the opportunity to share in your journey.
“It’s not that difficult to get into networks and bump into people at events,” says Keet. “And then it’s much easier to send a follow-up email saying, ‘Hi Keet, we met last week at the MESH Club at the Matt Brown event, can we have a coffee?’ It’s tough to say no to requests like that.”
Clive agrees. His advice is to always meet your investors before you need money. “We don’t have the bandwidth for cold emails, but we do enjoy sharing stories and business journeys.
“Think about it like this: We don’t invest in dots, we invest in lines. Tell me where you are now and where you’re planning to be, and then keep updating me. You’re then able to prove that you can stick to your goals, execute on them, and hopefully even exceed expectations. Get that right, and funders will come to you.”
Clive also says that smart VCs play the long game, often supporting businesses even if they don’t believe the time is right to invest in them.
Both VCs used Benji as an example of this strategy in action. While neither fund was able to back EmptyTrips, both Clive and Keet have kept in touch, followed Benji’s growth trajectory, and supporting her where possible, either with advice or connections.
“Keet opened me to the angel network,” says Benji, “and his partner, Andrea, introduced me to Lionesses of Africa. It was that involvement that allowed us to build a relationship with Siemens and Deutsche Autobahn. VCs aren’t just about funding — they enable ecosystems too.”
Before you look for funding, make sure you actually want (or need) it
The most common question people ask Clive is, ‘How do I raise VC funding and from who?’ According to Clive, this is the wrong question to be asking. “Equity funding should always be a last resort,” he says. “The question business owners should be asking is, ‘do I need funding?’ The best way to build a business is through customer funding. Some businesses are capital intense, but I’ve built many tech companies with no external capital. Customer funding is gold.”
Even though Benji has needed additional capital to build her business, she has also learnt the value of starting with what your clients want.
“Businesses change and evolve. We started out wanting to fill trucks on the empty legs of their trips. I now manage more trucks than Imperial’s CEO, but we don’t own a single vehicle, because we’re a platform that connects transport operators with companies that need transport solutions. We’ve since built an open spot market and we offer insurance solutions.
“We spend so much time asking what VCs want — and I was guilty of this too — when we should be asking what our clients want and need, and then building those solutions for them. That’s how you get clients to fund your business.”
Creating traction, knowing what clients want, building a use case: These are all essential steps in the overall process, and they will either lead you to funding, or help you build a business that doesn’t need external capital.
Focus on what moves the needle
“The real trick to growth is focus,” says Clive. “Don’t try to do too many things. Go deep and drill for oil and gold. Once you’ve scaled a business and you’ve become the best at something you can start to expand. Too many entrepreneurs are easily distracted. Most start-ups don’t even know what they’re building until they start getting real customer feedback. If you’re doing too much it’s difficult to take that feedback in and adjust what you’re doing.”
Keet agrees. “Find your strategy, determine the key metrics you need to grow in, and then focus on growing those metrics — and only those metrics — aggressively.
“From a scalability perspective, the entrepreneur’s ability to execute their strategy is paramount. You need a good product, a large market, and to know where you’re going. You also need to be able to grow five key areas simultaneously: Customers, product, team, business model and funding. These need to grow in proportion if you want to succeed — which is where the ability to execute becomes so vital.”
“Scaling a business is always about the practical stuff,” says Benji. “Consultants and VCs always have acronyms — the 4Ps, 5Cs — I have the 5Es.
“First, you need an explicit purpose. Be clear on what you’re doing and why you’re doing it. Next, you need an effective model that makes financial sense. You need to achieve sustainability sooner rather than later, because the sooner you can fund yourself the better.
“Next is execution support, and this is all about having the right team behind you. You need to be able to execute fast — and that takes a team. It doesn’t have to be perfect; just get it done — done is better than perfect. That way you’re first and will hopefully stay ahead. I often call our customers to apologise for something we’re fixing on the platform and they’re always okay with it, because we’re the only one doing this, and we’re still building it up.
“This is followed by what I call ‘enveloped co-opetition’, which basically means working within your ecosystem. Work together with neighbouring industries. Grow together and support each other, even if you are also competitors. This actually opens doors.
“Finally, you need emotional resilience, because this is tough, and you need to keep at it if you want to succeed.”
“We tend to fund older entrepreneurs who are more mature, understanding and generalists. You need resilience and the tools to succeed, and that often comes from having spent time in corporates, building up experience and a skills set.” — Keet van Zyl
Open additional revenue streams
As Benji mentions, the sooner you can fund yourself the better, so building a sustainable business is key. In addition to this, opening additional revenue channels can help pay the bills while your business gains traction.
“Scalable businesses are based on products or platforms, not services,” says Clive. “However, you can fund the product business with cash flow received through services. Ideally though, as the business grows, you want to increase your product revenue and decrease your services-derived revenue.
“Think of your services revenue as short-term, augmenting the business model while you’re building it.”
Benji, who is still consulting, agrees. “My consulting work ensures I have revenue coming in to support the business if we need it,” she says.
“Look for anything your company does — or can do — that can be monetised,” advises Clive. “But most importantly, critically analyse your business offerings. If you’re solving a real problem, your business can be customer-funded, particularly if your customers love you. I’ve seen cases where customers will pay upfront because they need your solution that badly. That’s the business you want to build. It’s also something VCs look for, because it shows you have real product-market fit.”
“Focus on learning, not earning. Take the long-term view and build the skills to become an employer. Learn as much as you can about business. There are unlimited opportunities to learn available to us today. Become a generalist to succeed and focus on being a leader, and then hire the specialists.” — Clive Butkow
The 3 Most Essential Points To Keep In Mind For Your Next Accelerator Pitch
No surprise that a great source for inspiration and lessons on speaking technique are TED talks.
Startup accelerators have been around since about 2005, when Y Combinator was founded in Cambridge, Mass. Since then, they’ve exploded in popularity – expanding from start-up hotbeds like Boston and Silicon Valley to assorted locations around the globe.
Milwaukee, though not traditionally known as a tech hub, is home to Gener8tor, an accelerator that recently launched an artist fellowship program. Sydney is an international city in its own right, but it’s also attracting tech entrepreneurs with its Future Transport Digital Accelerator.
And, while Cairo certainly has a rich history, it’s also preparing for the future of innovation with the Flat6labs accelerator, which celebrated its 10-year anniversary in 2018.
As the number of accelerators has grown, so has the number of applicants. For example, for the Ameren Accelerator, our own 12-week program for energy-tech startups here in St. Louis, we went from about 200 applications in 2017 to in excess of 330 this year. Such explosive growth, however, can be a double-edged sword for those hoping to earn a spot in an accelerator:
More opportunity may abound, but the competition is also stiffer than ever.
Standing out in a sea of applicants
Responding to the increase in applicants, accelerators these days are asking tougher questions: “How close are you to revenue?” “What’s the business model?” “How do we [investors] ultimately make money?” Therefore, if you’re one of the applicants, you need to not only know the answers to all these questions, but to deliver them clearly, succinctly and in a way that sets you apart. That’s a tall order, to be sure, but if you follow these three key steps, you’ll be on your way to nailing your pitch.
1. Cut out the “maybes” – focus on the facts
Most startups fail because they don’t solve a problem. Just look at Juicero, the now-famous startup that raised about $120 million before it shut down last September. That $400 juicer simply wasn’t filling a need, and as a result, couldn’t find a solid customer base. Juicero is not the first or the last company to make this mistake. According to an analysis by CB Insights, 42 percent of start-ups go under due to “no market need.”
Accelerators always want to know that there’s an actual customer need. In fact, this is critical. Don’t recite a laundry list of problems your solution might solve; instead, focus on the most important one – and detail step by step how you came to that conclusion. The best way to prove your problem exists is through market research. Engage directly with potential customers by conducting surveys on pain points, wants and needs. When you come with hard research in hand, accelerators will take you much more seriously.
2. Lay your cards on the table
Once they’re convinced of the problem, accelerators want to understand your solution. That sounds simple enough. Yet according to research from Marketing Experiments, companies often struggle to identify and articulate their value proposition.
A good value proposition is easy to understand, concrete and unique; it doesn’t rely on fluff, superlatives and jargon. So state your solution, and more importantly, state how it’s different from all the other ones already out there. Ideally, people will be able to understand your value proposition in fewer than five seconds.
Take Uber’s value proposition, for example: “The best way to get wherever you’re going.” This simplistic copy accurately captures its offering. And its homepage copy expertly sums up what makes the service more appealing than a traditional taxi: “Tap a button, get a ride; always on, always available; you rate, we listen.”
Additionally, accelerators want to know what you, as the founder, bring to the table. Show up, add to the chemistry and culture and be an active participant. At the Ameren Accelerator, we specifically look for leaders who come in ready to roll up their sleeves and drive growth.
3. Stay on track and weave a story
There’s nothing worse than an applicant who drones on and on. Try to keep your pitch clear and simple. For inspiration, look at TED Talks. Though those speakers pitch ideas rather than businesses, they are coached to become master storytellers. Most talks are fairly brief – they can’t be longer than 18 minutes – but more importantly, they’re succinct. An analysis of the top 20 TED Talks showed that all speakers stated their “big idea” within the first two minutes. Follow this format in your accelerator pitch.
Additionally, rather than spouting off statistics to make your point, try telling a dynamic story, lacing supporting facts throughout. Stanford University professor Jennifer Aaker tested the power of stories through an informal study. She asked her students to give one-minute pitches and then had the others write down what they remembered from each pitch. Sixty-three percent of participants could remember the pitches that were stories, compared to the mere 5 percent who could remember statistics.
Since I started working in this field, I’ve seen enormous growth in the number of accelerators across the country and around the world. However, those who wish to participate in these programs are up against fierce competition, and gaining one of these accelerators’ coveted spots will take more than passion and a potential patent. By following these three tips, you’ll set yourself up for success on your next pitch.
This article was originally posted here on Entrepreneur.com.
3 Components Of The Perfect Elevator Pitch
Can you clearly demonstrate value when faced with a time crunch?
After filming two seasons of Entrepreneur Elevator Pitch, I’ve come to realise that there are three key elements to delivering the perfect pitch.
Our show is unique when it comes to pitching: Potential entrepreneurs have just one minute to pitch their idea, service or product. Those 60 seconds have added pressure because the contestants are being filmed, and they are talking to a camera (instead of people) while riding up to the penthouse suite in an elevator.
In real life, with a different set of distractions, it’s essential to know how to deliver a convincing elevator pitch. Whether you are pitching a product, a service or yourself, here are the three essential components in a pitch:
- Stimulate interest
- Transition that interest
- Share a vision.
Can you stimulate interest?
The first step, stimulating interest, is the most important. In fact, an “elevator pitch” is usually determined by the limited amount of time you have, and circumstances may only give you the opportunity to stimulate interest. If you do a good job of stimulating interest, this can yield a second opportunity, where you transition that interest and share a vision with those you are pitching to.
Keep in mind that people generally buy based on emotion, using logical reasons as their impetus for action. So, make a point to connect with them emotionally in order to stimulate their interest. Don’t be afraid to show your feelings; demonstrate high energy and excitement for your idea, business or service. Your passion and belief need to come through in your pitch!
Use the 100/20 Rule to your advantage: Have the energy that you are providing R100 worth of value and only asking for R20 in return. This attitude will generate enough attention, giving you the opportunity to transition the interest that you’ve garnered.
Make the transition
But people don’t buy exclusively on emotion. There needs to be some logic in the decision to make a purchase. Therefore, you must address some sort of pain, fear or guilt in your pitch, that those without your product or service may experience. And if you can illustrate how you (efficiently) solve a big problem, you’ll have more statistical success in your elevator pitch.
Making a genuine connection can help you transition interest. Learn to make yourself equal, then make yourself different.
Simply having connections to the same people or a point of similarity in your backgrounds will help bridge the gap with those you are pitching. Then you can emotionally connect, following that up with the logic portion of your pitch.
Transition the interest you’ve generated with a clear explanation of what differentiates you. Build credibility by discussing your sales, distribution, revenue, awards and/or successes. All of these different ways to “attract” allow you to segue from emotion to the logical reasons to buy.
Of course, it is of the utmost importance to be honest when you are pitching. The truth always comes out, so ensure that you aren’t over-promising with your pitch. Don’t create a void that you are unable to fill.
What’s your vision?
Finally, in order to excel when sharing a vision, you need to have a value proposition that backs the 100/20 Rule. Make the value that you bring to the table as clear as possible. The value you’re asking for in return also needs to be clear. If you don’t display confidence in what you’re asking for, you won’t instill confidence in those you ask.
Tell others exactly what you want, why you want it and what you’re willing to give in return. You should have already proved your valuation when transitioning interest, then reiterated that valuation as you progressed in the pitch.
Take the people you are pitching through the reasons why you can be of value to them, the impact that you can have on their life or organisation and the capabilities you (or your product/service) possess that makes working together beneficial for all involved.
Practice your pitch, then get rich
After following each of these three steps, close with one simple question to gauge whether you are aligned or not: “Can you see any reason you wouldn’t want to move forward?”
If you utilise your pitch to stimulate interest in your product/service/self, transition that interest, then share a vision with those you are pitching to, the answer is almost always a resounding “no.”
And if you get objections or rejections, so what? Address whatever objections there are and if you still can’t get aligned, that’s OK. Take the perspective that the universe has a set number of rejections you need to get to before you find the right partner.
Related: How To Pitch
Be grateful for an opportunity to prove others wrong, and believe that if you keep working on your pitch, product, service or self, everything will come to you in the right way at the perfect time.
This article was originally posted here on Entrepreneur.com.
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