“I have an awesome idea. See, I wrote it down on a napkin. How much are you investing?”
– Many Entrepreneurs
Ok – you caught us. We took some creative liberty with the above quote. Though it’s not something we’ve heard verbatim it certainly reflects the sentiment of many founders we come across. Given we strive to be forthcoming with the entrepreneurs we work with (and those we don’t), we’ll be candid and clear up any confusion. The answer to the above question is almost always zero (or nothing, or pass, or it’s not the right time, or… you get the point, but definitely not the cheque).
We certainly don’t want to pour cold water on the entrepreneurial spirit. It is imperative, that entrepreneurs have conviction – both in themselves and in their idea. However, we want to ensure that entrepreneurs and their companies succeed. Part of this is recognizing that the start-up journey can be challenging, and it takes a concerted effort to reach a stage where you can reach out to external investors. We decided to write this article to outline some key early actions that you can take to improve your chances of success.
#1 – Make Sure Others (not your Mom) Share your Optimism
100% of entrepreneurs surveyed think they have a billion-dollar idea. #fakestats
Fine – we’ll stop making stuff up, but we really think this is an important point. Company founders rightly love their idea and see potential; if they didn’t, they probably wouldn’t have started their company in the first place.
We think it goes without saying, but it comes up often, so we’ll repeat it; commercial success is dictated by how much other people (preferably your customers) love your idea. If your product or service: 1) solves a problem; 2) the problem is painful (figuratively); and 3) eliminating the problem has measurable, hopefully financial, benefit, you are likely on to something.
The only way to find out about your customers’ problems and pain points is to talk to them. If the problem is so painful that they are willing to fund the development, all the better. Developing a solution absent this feedback loop tends to be a recipe for disaster.
#2 – Surround Yourself with a Strong Team
At Tailwind Associates, we are fortunate to work with great entrepreneurs. Many great entrepreneurs in fact. Not one of these outstanding individuals had all the skills they needed to give themselves the greatest chance of success.
The best entrepreneurs recognize their shortcomings in their skillset and add to the team to address them. Maybe you need sales help, maybe it’s adding a CTO, maybe you want access to the wealth of knowledge that former founders have. All of this can be addressed by adding a co-founder or creating a Board of Advisors / Directors.
Either path has the added benefit of showing that you are coachable. Trust us – demonstrating this to potential investors is important.
#3 – Take the Easy Wins
So, you’ve developed the perfect go-to-market plan, which includes the lowest cost to develop your product/service, but there is some potential revenue available if you slightly deviate from your ideal path and marginally upset the development timeline. You pass this up because your plan has to change, right?
No. Definitely not. Please take any revenue you can along the way. No one will hold this against you, and ultimately the incremental revenue will be more of a benefit than the cost increase (but you already know this because you ran the math).
#4 – Sell, Sell Some More
Sales are the most important thing an early-stage company can have. They validate the company’s offering, ensure the appropriate development is occurring, and bring in much needed cash.
If you want to grow your company, you need cash. Cash comes from sales. If you want to grow your company faster, you need investors to put in cash – but they want to see customer traction. Jargon alert: customer traction = sales.
#5 – Repeat Step #4
If you thought sales were good, imagine how good 2x sales would be. Once you hit this, sell some more. When in doubt, sell.
#6 – Approach Investors
You now have a product that you and your customers love, a top-notch team and advisors, you are well on your way through development, and you have cash from selling your product (because your customers love it so much, they want to give you loads of money for it). You might not really need capital anymore. This is the sweet spot for attracting the right investors that will work with you to advance your business.
We’ll get ahead of the one question that is bound to come up… do I really need all of this to attract investment? Of course not. There are plenty of examples of startup and entrepreneurial companies that raised money without ticking these boxes. That said, these aren’t yes/no questions and the more progress you can show the better your chances of success. Framing it another way, advancing your company is never a bad thing.
At Tailwind, we help entrepreneurs build businesses. We believe in long-term relationships where we are part of the team, pushing forward with the entrepreneur to increase the chances of success, and freeing the entrepreneur to focus on their product and customers.