The investor checklist
If you’re too busy looking for funding, you aren’t putting your time and energy into building a business that investors want to back. Don’t fall into this trap.
Last year we were fortunate enough to pitch our start-up, Plan My Wedding, to the Sharks in South Africa’s inaugural Shark Tank. Even more exciting, we were one of the few businesses that secured an investment.
What the entire experience has taught us is that as start-ups, we place too much emphasis on the importance of funding. Attracting an investor is exciting, and the growth that funding can bring is positive for the business if used correctly, but the reason we received funding in the first place is because we were already building a sustainable business. That’s the kind of business investors are attracted to.
Too many start-ups focus on finding funding to the detriment of actually building and bootstrapping their start-ups.
Here’s the reality: The way to get funded is to get started. Too many entrepreneurs spend their time pitching investors, planning and refining their business plan, rather than building a business that investors want to invest in.
Investors can bring immense value to your business, both in funding and mentorship. But, what they are really interested in is a return on their investment. Your investor won’t have the same amount of passion, drive and willingness to succeed as you do in the business you’ve created. That’s your job. They also might not be able to give you the time you need, at the time you need it.
As the entrepreneur, it’s up to you to take action on what you know or need to know in order to work on your business. And here’s the key that so many start-ups miss: The ability to do that is one of the core reasons an investor will invest in you in the first place.
Before we secured our spot on Shark Tank, we were already pulling together the resources we could get our hands on. We were living the business, bootstrapping it and hustling every step of the way. We didn’t view finding an investor as the be-all and end-all of our business. We were making it happen. Of course, finance is important — even necessary — to business growth. But there are many ways to grow revenues; funding is just one option.
We’ve also learnt that if you really want to secure funding, you need to tick all these boxes anyway. Investors back entrepreneurs who are already out there, finding innovative ways to grow their start-ups.
Here’s what we’ve done to grow our business, and why we believe the Sharks wanted to back us.
1. Get on the journey together
Entrepreneurship is lonely, but it doesn’t need to be. Find other start-ups who are on the same journey and help each other out with tips and advice in each of your areas of expertise.
Leverage each others’ knowledge bases and networks. We have two great contacts who recently started their own social media companies and who constantly give us tips on how to engage with people over social media. The key point here is ‘learn what you can from whoever you can.’
2. Connect and join networks
Get out there and meet liked-minded people. There are various hubs and local incubators in every city (Google Start-up Grind is a great event held monthly in most cities). We constantly attend networking events that bring together seasoned entrepreneurs, speakers and the local start-up community.
These are a platform for knowledge exchange, with speakers from local incubators and venture capital firms sharing their own experiences and lessons in business planning and expansion.
This way you can combine the best in local and international pitching with live streaming of international events, training workshops and guest speakers, all aimed at keeping entrepreneurs informed and equipped with the right tools.
We tap into every free webinar or talk on a subject we’re interested in that we can. We also formed a group with fellow entrepreneurs where we meet once a month and help each other talk through business challenges and connect each other with other entrepreneurs.
3. Convince people to work for you for next to nothing
You’re not ready to hire a big team, but you also can’t do absolutely everything alone. So what are your options? We’ve started leveraging our contacts and forming barter agreements. If you need extra hands, interns are a great option and this creates a platform for them to learn and grow within your business. They are often hungry to learn and prove themselves, as well as gain experience, and will go beyond the call of duty to prove this.
In the beginning, keep costs low and make progress on as little capital as you can. Keep your costs to a minimum, even if you have to use some personal funds or funds from friends and family. There are two benefits to running a lean start-up.
It allows you to bootstrap your business, and if you decide to approach investors, you can prove that you can budget and stick to your budget. Investors aren’t there to pay flashy salaries and help you buy a BMW. They want to see that you can be frugal and use their cash to build the business.
4. Focus on revenue
One of our investors has a good anecdote explaining the importance of revenue: Before you can go anywhere, you need to put petrol in your car. You can worry about your speed (profits) when you hit the freeway and start gaining more momentum. In other words, create a product or service that you can start selling.
If you can’t do this because you’re building an expensive prototype, use your professional skills to launch a side business to support your start-up until it generates revenue.
In our business, we didn’t have enough funds to complete a phase of our website. So we started focusing on other revenue avenues. For example, doing the planning of a client’s wedding ourselves instead of through the site where it was done for them. My business partner, Chelsea uses her website developer skills (which she taught herself through a free online training resource, EDX) and helps people design their websites. She offers this service to other entrepreneurs.
I’m doing coaching sessions with my certified training in NLP (Neuro-Linguistic Programming) and ASE (Authentic Self-Empowerment), where I help entrepreneurs deal with the mental side of owning their own businesses and the various self-limiting beliefs and challenges entrepreneurs face.
Build additional finance streams to finance your future
With these additional income streams, we finance future product improvements and development.
But be careful; you don’t want to lose focus. As a start-up, consider these questions when approaching any new revenue stream: Will this ultimately distract you from your primary purpose? Can you adequately juggle multiple projects at once? Are you disciplined enough to ignore ‘paying work’ when necessary?
5. Hustle (get busy)
This is the be-all and end-all of current entrepreneurial catch phrases, and it basically means: To proceed or work rapidly or energetically; to hustle about putting your business in order. If you need followers, likes or leads, go on any of the social media platforms and search, add and befriend those in your target market or people who you feel could be influencers.
This not only lets you see what they’re up to (and what they care about), but helps them to build a mental image of you and your business, which helps you build rapport before you offer them your service. You need to be out there. You never know which contact might lead you onto bigger deals. If you don’t try, you won’t succeed.
6. Be an expert
Whatever field you’re in, focus on becoming the expert in your field. Research your market, industry and best practice extensively. Understand your customers and their needs. Find or add key features or service offerings that will make you stand out from your competitors.
Explore ways to give your customers better value at a lower price than your competitors. Innovative technology (new entrants into the market) and services have a long, proven history of upsetting more established firms. Every day we find ways to do things faster, better and cheaper.
As start-ups, we have many advantages. We’re smaller and more adaptable to change and we can adjust our strategy and focus faster than more established businesses. With Plan My Wedding, we have designed extra features and resources to our site that will guide couples through their wedding planning journey.
Offer what your competition does, and more
While some businesses in our field are directories with tools to download, we offer this and more. Ours is now a ‘one stop shop,’ encompassing all the components of planning a wedding into a single platform. No site offers a guided process with all the extra features we can and will offer, and we’ve capitalised on that gap.
We also know that eventually another company will offer even more, and so we’re aware that service needs to play a major part in our business and our brand. We have representatives in each area of the industry that manage and help vendors improve their businesses on our platform. This keeps us relevant and the go-to-choice for suppliers.
Pulling it all together
Don’t discount the role funding can play in your business. The right investors will help you grow your business. Just don’t view investment as your only growth tool. There is so much you can do, on your own. Focus on what you want, on where you want your business to be one year, five years and ten years from now. Fix it in your mind and create your own reality.
Don’t pay attention to the odds. They’re stacked against start-ups, and if we focused on them no-one would ever live their entrepreneurial dream. Get out there and make it happen.
And then the magic happens: Your business is fundable because all your basics are in place, and now you have the luxury of choosing whether you want that investment or not. You’re no longer chasing money; you’re strategically building your business.
What Can A Business Loan Be Used For?
Read on below for what you can use these loans for.
Sometimes in the business world, you might need a financial helping hand. This is especially true if you are starting out as a business owner or building your business from where it already is. This is where business finance can be highly useful because you can use it for any number of issues that your business might be facing.
When you apply for any business loans you should know what you want to use the money for. For example, asset financing is used to lease, hire or purchase new equipment or vehicles for your business.
Small business loans can be used to boost your business funds or for purchasing new premises. Interested in applying for business finance? Read on below for what you can use these loans for.
You can purchase inventory
If you sell products, the chances are that your cash flow can often be dictated by having to restock your shelves. But if you have a business loan, you can purchase more inventory to replenish your stock and stay in operation throughout the year.
Purchasing new inventory during seasonal dips, such as selling out of items during the festive season, can become expensive. This is where finance can come in handy. You can have the funds deposited into your company bank account and use it solely for restocking your shelves, allowing better management of accounts during these trying times. It is not a long term solution, however, to use a loan to purchase inventory can be helpful for small businesses just starting out.
You can upgrade equipment
Having outdated equipment will put you at a significant disadvantage to your competitors. This can be remedied by taking out business asset finance in order to upgrade your current equipment. You can lease, hire or even purchase everything you need to maintain your original business plan.
For example, a transport or logistics company can use this finance to improve their fleet, to upgrade their current trucks, or to provide new technology to drivers to help them navigate the South African roads. If you are a boutique design agency, you can use your loan to purchase new computers with the latest software so that your staff is always on the cutting edge of all trends. On your loan application, be sure to list what you plan on using the money for so that you have accurate estimations of your interest rates.
Keep your office operational
Keeping your office operational means that you need to pay for day-to-day expenses. This can include anything from replacing an old coffee machine so your staff stays caffeinated to paying the utility bills so that your office does not go dark when you need electricity the most.
This could be seen as starting capital for small business owners, which you can then supplement with more income or repay once your business starts to earn more and become successful. You could create a list of all of your needs, such as paying lights and water bills or fixing kitchen equipment and look for those that you need to focus on the most. For example, your staff could bring their own lunches into the office in case you need to replace the fridge or you could strike a deal with a nearby coffee shop to save yourself from spending unnecessarily on expensive coffee equipment.
You can boost your marketing budget
Marketing is not easy to understand for everyone. While you might have a brilliant business mind, your aptitude for selling and marketing your company might not be your strong suit. This can be helped by investing a business loan into a marketing company for your strategy, which can help build awareness about your business and make it a success.
You will have improved brand visibility and can reach customers in new and exciting ways. And you will also see a significant return on investment when reports and analytics come in showing your business’s performance. Marketing is an integral part of building a flourishing business, so using your loan for this purpose would not be a waste. Be sure to speak to your lender about whether this is an acceptable use of your business finance and what the interest rates would be.
A business loan can be a sound investment, especially if you consider what it can be used for. You could look into purchasing new inventory for your shelves during a busy shopping period, or upgrade your machinery for your next big project. You can use the money to keep your day-to-day expenses from becoming overwhelming or boost your marketing budget so you can reach customers and build your business.
Does Your Business Really Need Funding?
Strategy, risks, and opportunities.
Businesses need capital to grow, and most small enterprises rely on external funding to meet this requirement. While accessing funding can be challenging for entrepreneurs, taking on the financial commitments of a loan should never be taken lightly. Many small businesses fail because repayment conditions are so onerous they impact cash flow, and business owners end up blacklisted, which dampens their future prospects.
First, ask yourself some hard questions
Before you decide to apply for that loan, cash advance or capital injection, make sure that your business really needs funding. Critically evaluate your business. Consider that you’ll ultimately need to give something back for that funding – an equity stake, or interest payments.
Determine how much the extra funding is worth to you, and what would happen to your business if you couldn’t get it.
Define your goals
The type of funding you need (and how you validate it in the application) is dependent on your short- and long-term goals. If you’re not currently on track to achieving your business objectives, determine what stumbling blocks or pain points are holding you back. Ultimately, you should be certain that the capital will help you achieve your objectives.
Evaluate your financial pain points
Next, determine which of the identified obstacles can be overcome with extra money. While most could, a loan may not be the answer. Entrepreneurs often use financing to temporarily plug holes, instead of fixing them. Without addressing the root cause of the issue, the business will continue to struggle, while also dealing with the extra debt.
It is also important to consider the nature of your requirements, and the impact this will have on finances. For instance, using a loan to hire more staff requires upfront funds before additional revenue can be generated. The same applies to sales and marketing initiatives.
Expanding your footprint as part of a strategic plan to grow your business also requires funding, but these are usually long-term loans that take more time to pay back. A thorough evaluation is needed to determine the potential return on investment and compare it to other opportunities.
Evaluate if the strategic benefits will outweigh the mid-term cash flow risks.
Consider your options
Before making any financial commitment, first look for ways to optimise your operation to realise cost efficiencies within the business that can free up working capital to fund the fix.
If you determine that funding will address your pain points, by boosting inventory ahead of a seasonal spike, for example, consider vendor financing or supplier credit options before securing financing from a bank.
If you need to expand the business, look for ways to lower the associated costs. For example, franchising a new location to a competent partner can relieve you of some of the financial burden. A product-based business could perhaps generate extra income by selling via online channels, or through distributors or other retailers instead of a new store.
However, should you choose to proceed, before you sign any loan or credit agreement, make sure you consider all possible scenarios:
- How long will it take before your investment starts covering the costs of your loan?
- How will you manage repayments if your forecasted growth doesn’t materialise?
- How can you pivot to reallocate resources if your plan is not working out as initially intended?
The bottom line
Before you start looking for funding for your business, critically evaluate if your business really needs it. If you decide capital is necessary to reach your goals, and you’re willing to take on the responsibility, carefully consider the type of funding that is best for your particular type of business and your specific needs.
How Investors Choose Who To Invest In
Why entrepreneurs tend to focus on the wrong things when pitching to investors, and what investors are really evaluating instead.
The hypothesis of my book Lose the Business Plan was that great businesses are not determined by Excel spreadsheets and the all too predictable J-curve, but rather by the entrepreneur or entrepreneurial team and their ability to see opportunity, navigate obstacles and make things happen.
The truth is that entrepreneurs focus on the wrong side of the coin when meeting with an investor. They focus on the deep detail of the business plan and concentrate on justifying assumptions, predicting and overcoming objections, and emphasising market potential. Yet it’s my experience that the real decision on whether or not to invest in a company is more heavily weighted towards the entrepreneur or team rather than the business plan itself.
Once the ‘numbers’ stack (in other words, the business model makes sense) and the risks have been considered and appropriately mitigated, then the real decision-making can begin. The final decision comes down to four important characteristics of the entrepreneur himself or herself.
1. Is she honest?
You may have the best business plan in the world and you may have mitigated every possible risk but, if you are not someone the investor can trust, no deal will be made. I find that entrepreneurs often underestimate the importance of their reputations and, in today’s connected world, it’s so quick and easy to reference someone’s character.
Entrepreneurs who think about the short game and make morally questionable decisions for the prospect of quick profits generally find themselves in an ever-diminishing circle of people who will do deals with them. Your reputation is everything and you should guard it at all costs.
2. Does she work hard?
I am still not resolved around the cliché that you should work smart and not hard. (Perhaps I missed the memo or was asleep during the lecture that demonstrated how this is possible.)
In a world that is changing at an astonishing rate, in an economy that is becoming more and more competitive and in a business environment that is becoming ever more complex, it’s hard work to remain relevant and ahead of the curve for any extended period of time. Every quarter sees a new trajectory that needs to be investigated and navigated. In my opinion, this requires not just smart work but hard work, too.
It’s certainly true that investors like to invest in entrepreneurs who will take their investment seriously, who take their businesses seriously, and who are on top of their games.
3. Is she smart?
Smart does not always mean book smart but it definitely means street smart. It means having the ability to read a room, to see an opportunity, to learn new skills quickly and also being able to apply new learning’s to the business.
Investors look for investees who show agility when adapting to feedback from the market, from their competitors, from their staff and more.
4. Is she ambitious?
Investors do not like investing in ‘mom and pop’ operations. They seek the highest return on investment and that comes from businesses that can scale profitably. Scale is always relative to the investor’s perspective and not your own.
An investor with a couple of hundred thousand rand to invest will have very different expectations of the size of business he or she would like to invest in compared to another investor who has tens of millions of dollars. It’s important for the entrepreneur to authentically resonate with the level of ambition of their prospective investor, and be able to express that ambition through a coherent and cogent vision, as well as a plan to achieve that vision.
Remember, no one starts out as the ideal investee. It’s something that is built up over time and requires constant maintenance and curatorship. It’s essential to continually work on your reputation, to ensure that you are up to date with your industry, and to reassess your level of competence in your market. This is the only way to make sure you become and remain an ideal investee to a potential investor.
Read next: The Investor Sourcing Guide