August 18, 2016
You’re in the middle of an important pitch when you glance over at your investors. Maybe it’s your nerves, but all you see staring back is a sea of grim looking gazes. In times like these when part of you wishes that you could read minds, and the other is glad you cannot. Nerves aside, knowing what investors are thinking during most pitches is quite valuable. This information can help you to plan your next pitch around the most common thoughts that investors have.
How on Earth Is This Valuation Justified?
The show Shark Tank should be on your list of shows to watch if you are considering launching your own business. Yes, things are dramatized for television, but you will notice that most entrepreneurs are confronted with the same thing. They do not successfully justify their valuation. It doesn’t matter if your business is worth $25,000 or $10 million, be sure you can support your valuation.
I’m Sold on the Idea Not on the Person
The truth is that your potential investors are looking at you as much as they are looking at your product. If they do not have confidence in your ability to carry your business, your idea is meaningless. Focus on what you can do to show that you have…
- Invested in your own business
- Skills and credentials to make things happen
- Put in sweat equity
- Done your own marketing
Be prepared to answer the following question for anyone interested in investing in your business: What have you done to make things happen for yourself?
How Do I Get my Money Back?
Your idea might be brilliant, your story might be compelling, and that will get the attention of investors. However, the truth is that investors agree to hear your pitch because they want to know how they can make money by investing in your venture. If you want to appeal to investors, think profitability. If you’ve already made a profit, show them that. If you have created a plan to become profitable, that’s also a must have for your pitch.
Anybody Can do This
Even if you have come up with an idea that is entirely new, you are at risk for being disrupted. Investors are going to wonder what is going to stop somebody else from moving into your space, and doing exactly what you are doing. So, take that into consideration.
What will you do if another, established business takes notice of what you are doing, and decides to do the same thing at a lower cost (even if they are taking a loss)? The ‘Walmart Effect’ has certainly driven many startups out of business.
On the flipside, what will you do if another startup finds a way to do what you are doing at a lower price? Know who your competitors are, and articulate barriers to entry that you are able to create.
This Seems Like a Hobby
There is nothing wrong with turning a hobby into a profitable venture. However, the unfortunate truth is that most hobbies don’t convert into businesses successfully. Yes, you may be able to turn your crafting hobby into a business that generates a small amount of profit for you, but that doesn’t necessarily mean that it can be scaled.
Because of this, investors are super wary when entrepreneurs present them with stories of “I’ve always loved to do this, and my friends said I should turn it into a business.” Does this mean you shouldn’t pitch this kind of idea? Absolutely not. Passion is important. Just be sure that you have done your research, that you know how to make a profit, and that you come off as knowledgeable as possible.
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