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How to Convince Investors Your Small Business Has Potential

How to Convince Investors Your Small Business Has Potential

With a comprehensive business plan, a data-driven approach and a sense of purpose at the heart of everything you do, forming that kind of partnership will start to look like an invaluable investment to almost anyone.

Betting on the wrong small business doesn’t just cost an investor money. It costs them time, it can damage their reputation and it can mean they miss out on investing in other small businesses that might turn out to be more successful. No wonder they approach each pitch or request with a certain degree of trepidation, if not outright skepticism.

This shouldn’t discourage entrepreneurs from seeking out investors, of course, whether it’s their local bank, venture capitalist firms, funding programs from major organizations or even a group of angel investors. Investors are more than willing to put their money in places that offer them a chance to be part of a major growth story, and they recognize there are always going to be risks involved. As a small business or startup, your job is to help them weigh those risks against the strengths and potential of your firm, and its products and services.

Depending on what stage your business is at, though, you may not think you have a lot to show investors to win them over. If the business is still in the pre-launch phase, for instance, you can’t really point to any revenue figures or real-world customers. Even if you’ve been in the market for a while, it may not be readily apparent how you’ll transform from a niche player in an industry or sector into one of the market leaders.

One way to approach this issue is to put your marketing hat on, thinking of investors almost in the same way you think of customers and prospects. The initial “top of the funnel” in marketing is based on driving awareness and interest in your firm and its products and services, for example. Next comes the “consideration” phase, where you help customers and prospects see why you’re a better choice versus competitors. Then, in the “purchase” phase, you make the process as easy and satisfying as possible.

Pitching investors isn’t far removed from this process. You have to captivate investors from the very beginning. You have to demonstrate that you’ve done your homework and know who you’ll be up against in terms of rival companies. Finally, you have to show that the return on investment (ROI) for funding your company will work in a way that doesn’t keep them in limbo for an indefinite period.

These are a few of the things investors will want and need as you walk them through your pitch:

A business plan-at-a-glance, then an in-depth look

No matter where they work, investors are still human beings. They can only absorb so much information at once. One potential mistake entrepreneurs sometimes make is to essentially bury investors with details.

Before approaching any investors, for instance, you’ll want to have developed a thorough business plan which outlines your idea, the resources you need, how you’ll allocate them and the overall vision for growth. To simply stand up in front of investors and regurgitate the entire business plan is not the right way to pitch, however. Instead, think of how you can summarize the elements that may be most important to them.

Don’t approach this generically but think about your specific audience. If they are more risk-averse, they may want to get a sense of your total addressable market and the ROI details right away. Other kinds of investors might want to be hooked on the essential idea driving the need for your key products and services. Much in the way one-to-one or personalized marketing is the most effective marketing, tailoring your pitch is vital. Then you can offer the full business plan afterwards for them to peruse and discuss in more detail.

Position the investment next to your purpose

Investors want to make money, but they often want to make money in specific ways. A VC may have decided its mission is to empower entrepreneurs who are creating innovations in the healthcare space, for example, or firms that will be able to help us better protect the environment. An angel investor might want to put money in a firm that is addressing a pain point or challenge they once had to overcome themselves.

The vision and values of an investor should be aligned with the entrepreneurs they support. It’s not their job to connect those dots, though — it’s yours. That’s why you should think about how to best articulate your core purpose: why your firm exists, why the work it will do is essential, why you can do it better than anyone else and how that purpose will guide your strategic direction.

Leading with purpose will elevate the conversation beyond the hard numbers (or lack of hard numbers) of an early-stage startup or small business, and anchor it around things investors can relate to on a human level.

Map out the data-driven journey

Most investor pitches focus on the products and services a company hopes to offer, not the ones they’ll use internally to run the business. Given the digital nature of life today, however, you might be able to show your potential to investors by describing how you’ll collect, manage and derive insight from data using advanced technology.

While these tools may be available to any firm, it’s how you use them that really matters. Investors understand that mistakes will happen or that there will be ups and downs along the way. What they need to see, however, is that you’ll be able to continuously learn from your customers in good times and in bad, and that you can change course based on the truth you see in the data, rather than leaving things to chance.

Investors don’t necessarily want to be seen as merely the “money people.” They want to be partners with strong businesses that operate in a responsible and even inspiring way. With a comprehensive business plan, a data-driven approach and a sense of purpose at the heart of everything you do, forming that kind of partnership will start to look like an invaluable investment to almost anyone.

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