The start-up game is a risky business, and for many entrepreneurs navigating the competitive landscape and securing the funding needed to survive is a significant hurdle that isn’t easily overcome.
The truth is, there is a limited amount of funding available to start-up founders and innumerable new ventures born every day that will be competing for it.
Investors simply can’t open their wallets for every good idea that walks through their door. (Frankly, those are a dime a dozen.) The ones that do secure funding, are the ones that have demonstrated how that good idea will actually come to fruition.
Consider the three most common mistakes your peers have probably already made when looking for investment and how you can be prepared to avoid the same fate as so many founders before you.
1. Not understanding your financial situation.
Experienced investors know there are few legitimate overnight successes and that realistically they will be lucky to see a return on their investment in the next decade.
Many newbie entrepreneurs, eager to prove the merits of their great idea, make the mistake of entering the discussion with an unrealistic value of their company.
Not being realistic about the financial situation of your start-up from the beginning shows a lack of understanding and frankly maturity, in regards to your ability to lead a company to a successful return down the line.
Ideally, an investor is looking for a company with a clear and scalable business model they can get behind and help grow. I suggest taking advantage of the various online-evaluation tools out there that can help you determine a reliable and defensible value of your start-up’s worth before you even enter into the discussion.
2. Under-utilising the management team.
Great leaders aren’t successful solely on their own. They surround themselves with people that add value to their business, and you need to do the same.
Investors need to feel confident that your team is the right one to take your company from a small, great idea and turn it into a high-yielding investment for them. The goal here is to convince an investor that your team is prepared to face all the challenges and criticisms that come with running a business. You can’t do that if you haven’t fully vetted your management team.
It’s important to prep your team before an investor meeting and ask them about their past experiences and failures, understand how that might benefit your business in the long run and use this information when speaking with investors.
3. Lacking a clear go-to market strategy.
Entrepreneurs just starting out often make the mistake of not understanding where their idea fits in the current marketplace. (If you aren’t targeting the right market the chances of a successful exit will be small.)
Having a clear go-to market strategy that demonstrates the potential for your company’s sustainable competitive advantage is of the utmost importance to an investor. That said, some entrepreneurs have a difficult time articulating a clear plan to reach a target audience and how to scale it over time.
If you failed to secure funding after an initial round of investor meetings, consider reevaluating where your idea fits or the marketplace all together. Perhaps the original market is too small or too crowded, but with a slight adjustment, your product could work in a different market.
The competition for start-up funding is likely to only get more intense as we see more and more of these billion-dollar exits and high-profile IPOs in the news.
The necessity of learning from past failures and adjusting your investor pitch to avoid the mistakes that have led many other start-ups down the road to failure has never been more important. While there are many reasons a start-up doesn’t secure the funding they need, it usually boils down to some combination of the three discussed here.
If you can prepare for those challenges before entering the negotiation room you will be in the best position to make a positive impression on an investor and walk away with the funds needed to stay in the game.
Alan Answers: Do You Understand The Basics Of Attracting Attention?
Whether you want to be a public speaker, find an investor or land a big sponsorship deal, the secret lies in how well you can tell your story.
I have always wanted to be a public speaker yet I’m very anxious about crowds and my public speaking is rudimentary at best. What should I do? — Lwazi
I was a terrible public speaker. I sometimes still am terrible. But I’m much better than I used to be. The way I got better was twofold. First, I’ve done hundreds of speeches, many of which were very embarrassing. The result is that I’ve overcome my fear of embarrassment (I’m still alive, turns out public humiliation is not fatal), and I developed confidence in speaking to crowds. Second, I read lots of books on speaking, including Thank You for Arguing by Jay Heinrichs.
My main takeaways from books are as follows:
- Tell a story. People love a story.
- Don’t read it. The easiest way to lose the crowd is to read your speech.
- Keep slides to a minimum.
- Have a memorable start and end. The middle is not so important.
- Dress the part. Act the part. Don’t sabotage your speech by dressing sloppily. Put your shoulders back. Look confident.
- Have a rational argument. Appeal to the logic of a situation.
- Give background on yourself to establish your credibility. The medium is the message (read Marshall McLuhan)
- Pull on the heart strings. Appeal to the audience’s emotions. Make folks laugh. They may forget what you said; they’ll never forget how you made them feel.
Public speaking is like swimming. Knowing the theory won’t stop you from drowning. You have to practice, practice, practice. You have to embarrass yourself regularly so you can overcome the fear of embarrassment. I’m told that Toastmasters is a brilliant organisation for practising in a safe environment.
On a side note, all of the above tips are important for entrepreneurs and sales people as well: After all, selling your business as a start-up is selling yourself, and the best way to do that is with a great story.
How do I convince someone to invest in my business? — Anonymous
The first thing an investor wants to know is how you’re going to make money. Theories are not really useful. Ideally, you need to show a proven revenue model that can believably be scaled to ensure that you generate more money than you spend.
The second thing most investors want is to know that you’re on a rising tide. Photo shops are not on a rising tide. No matter how well you run your photo shop, you are doomed to be taken out to sea where you will drown and/or be eaten by sharks along with everyone else.
The third thing that most investors want to know is that you’ve already made mistakes with other people’s money. Better you earn your school fees on someone else’s dime. Don’t shy away from the setbacks you’ve had. Admit to mistakes, elaborate on lessons learnt. You can be forgiven for almost any business failure, as long as your integrity is not questioned.
How do I find sponsors for an event? — Stephanie
Before you approach sponsors, first define your event’s audience. Make a list of potential sponsors who share that audience. For example, if you are hosting an entrepreneur event, think of companies that target entrepreneurs.
Once you have written down all the company names, start mining your personal network for anyone who works in one of those companies. You need to get to the CEO.
Sometimes a marketing director or executive is sufficient, but most times, especially if speed is essential, the CEO is the only person that won’t waste your time.
Be sure to use LinkedIn to explore relationships that people you know have in the companies. Maybe a friend of yours knows the CEO. The quality of an introduction via a mutually trusted friend is not far removed from a personal direct relationship.
Related: How do I start an events company?
Create a simple pitch deck. Be sure to include in the deck the benefits for the sponsor. No one really cares about the benefits for the audience, or for you, the organiser. Think about who is writing the cheque, that’s who you’re selling to.
Always give potential customers three options. People want options. Not too many to confuse, three is the magic number. The middle option should be the package you prefer the sponsor to choose. Most people choose the middle option.
Once that’s all done, start pitching. Do whatever it takes to get in front of the CEO. Then sell your dream. Don’t stress if you’re rejected. ‘No’ is better than ‘maybe.’ It saves you wasted time. Keep moving until someone bites, then stop moving and close the deal.
Listen to this
Alan’s audible book Be a Hero: Make Life an Adventure is now available on amazon.com and Audible.com
Read by Alan himself, Be a Hero is a collection of stories on how to make your life an adventure by changing your mindset and tackling adversity.
Go to amazon.com or audible.com to download your copy. Be a Hero is also available in Kindle and paperback through Amazon.com.
Read ‘Be A Hero’ today
Simple Tips For The Small Business Owner To Manage Cash Resources Efficiently
How to manage the funding of the operational and trading needs of your business.
The entrepreneur needs to know what is happening in his bank account at all times
At the time of launching the business and whilst preparing the annual budget, the funding required for the various parts of the business should have been determined.
This would have included the long- term funding of assets such as computers, plant and equipment, buildings etc. which, if funded, are normally paid off on a once a month basis.
At the same time, the payment arrangements for the operational or trading side of the business will have been put in place. This could be by way of an overdraft or be self-funded.
It is an essential part of the business owners’ duties, to ensure that the business is operating within these funding constraints.
It should be noted that in most cases where funding has been obtained the business owner would have signed personal surety so should the business fail he or she would be liable to make good any such debt.
How to manage the funding of the operational and trading needs of your business
Operational Cash Flows
These are the revenues received less the operating expenses incurred in order to achieve those revenues. The level of revenues and expenses should have been determined in the budget and that budget forms the guideline as to what kind of profits we should be achieving.
We thus need to constantly monitor:
Sales are the lifeblood of any business. Use the budget to determine what your daily sales are going to be and check daily. The entrepreneur must also be aware of the extent of cash sales to credit sales.
2. Gross margin
This is the difference between the selling price and the cost of the item sold and must be high enough to cover the overhead expenses the business incurs monthly.
There are 2 elements here, one being the cost of sales and then the expenses such as salaries, rent, stationery etc.
Ensure positive cash flows
- Revenues must be greater than expenses. Once your revenues fall below a certain level your business will be using cash not generating cash
- A large part of your total expense bases consists of what we call fixed costs and are not affected by the level of revenue. An example would be:
- rent payable. You would have to pay your rent even if you made no sales.
Costs that vary depending on sales levels are known as
- variable costs – A good example of a variable cost would be the cost of
- commissions payable to salesman. I.e. the more the sales the more the commissions.
The second part of daily cash management is the
- Management of working capital which consists of :
- a) stock
- b) debtors
- c) creditors.
Any inefficiencies here could have a severe impact on cash flows.
You always need to monitor your stock levels, as stock that lies idle on your warehouse floor is costing money. Software that monitors your stock levels and determines your fast-moving items, as well as determines your optimum levels and reorder quantities, is essential to proper management.
Related: Smart Money For Small Businesses
You must have a credit policy which must be enforced. Make sure that you provide in your budget for nonpaying debtors, as some of your customers will not pay you on time if at all.
Set credit limits and enforce them. Stop supply if payments are not being made in time. It is never wise to be reliant on just one or two major customers. Management of your debtors is critical to the success of your business.
It is so important that you obtain the best possible terms from your suppliers. This is vital in businesses where the margins are tight and in industries where payment from customers is slow.
You must be careful to ensure that you do not pay your suppliers faster than you receive your cash from your debtors. Suppliers will try and entice you with settlement discounts, but this will not help if your customers (debtors) are taking too long to pay you.
The small business owner needs to pay attention to these areas to be successful. These are very basic guidelines on the management of cash and it is recommended that the small business owner research this topic further and customise to his own business.
An Often-Overlooked Secret to Success
Practice the principle of reciprocity. You’ll reap unexpected rewards.
Entrepreneur and CultureIQ are searching for the top high-performing cultures to be featured on our annual list. Think your company has what it takes? Click here to get started.
In his book, Influence: The Psychology of Persuasion, Robert Cialdini lists six principles of ethical persuasion. The first s reciprocity.
“The reciprocity rule says that we should try to repay, in kind, what another person has provided us,” Cialdini states. And therein lies the key to what I’ll call the oft-overlooked secret to success: appreciation for what another person does for us.
Cialdini relates an experiment a university professor tried several years ago: He sent Christmas cards to a select list of complete strangers. And the response was overwhelming. He received dozens of thank-you holiday cards back from these people he’d never met.
Why? Because they appreciated getting a card from him and, as the law of reciprocity says, we respond to a positive action with another positive action.
How can this help you as an entrepreneur?
When you are in a state of appreciation and gratitude for what has been given to you, you are actually in a state of abundance – appreciating what you do have instead of focusing on what you don’t. Because what you focus on expands, if you are constantly focusing on what you can do for others and at the same time appreciating the things you already have, you will inevitably get more of what you want because that is your focus.
Remember, like attracts like. The more you are in an appreciative state, the more you will attract that which you yourself are appreciative for.
My friend, Lamar, completely lights up whenever I give him a gift. I love his genuine reaction of thankfulness so much that now I look for special things I know he’ll like, just so I can surprise him. His appreciation causes me to continue to give.
What if you similarly gave your audience something every day with no expectation of reciprocation? What would that do for your own psyche and your business’s bottom line? There is a famous biblical scripture that says, “Practice giving and people will give to you.” Have you tried that lately? Here are three practical tips on how you can display this concept in your life and business:
1. Create an alert on your phone to go off three times a day
When it does, take time to be grateful for three things in your life. Make time to appreciate three people in your life. And look for three ways you can give something useful to your clients.
2. Surprise someone
Recall a time when you received a completely unexpected gift out of the blue. How did it make you feel? I want you to create that feeling for someone else. When you make someone else feel appreciated, you will be remembered. Look for ways to make your customers feel that they are one of a kind.
3. Think about the three ways in which our brains take in information
There are three ways in which we can express our appreciation for others. Some people need to hear it, others need to see it and still others need to feel or experience it. Once you determine the dominant type preferred by those you’re trying to reach, the sky’s the limit.
This article was originally posted here on Entrepreneur.com.
Start-up Advice2 months ago
9 Quotes Every Entrepreneur Should Live By
Lessons Learnt2 months ago
15 Wise Insights From 15 Entrepreneurial Icons
Company Posts2 months ago
Enhance Your Entrepreneurial Flair With An Online Postgraduate Diploma From The University Of Pretoria
Personal Finance2 months ago
If You Think These 5 Things, You’ll Never Get Rich By The Time You’re 30