By Christine Thoma
Investment is a crucial part of a start-up’s life. There comes a point when an entrepreneur needs to examine how a boost in capital can support their company’s success. This is a very important decision. You want to make sure to attract the right investors. After all, this is the beginning of a long-term relationship like getting married! Therefore, you want to make sure to look for the right signals in them, such as strategic expertise and experience, compatibility and contacts. In turn, investors will look for the right signals in you. Here are seven simple steps to follow that will help you launch a start-up worth investing in.
Investors are always attracted by a compelling vision. Your vision statement needs to be compact, and clearly communicate your start-up’s raison d’être to potential investors. If you can’t answer why your start-up exists, your business goals will be all over the place – which is not a convincing proposition for investors to trust you with their money.
Find the right people
A start-up may be the result of one good idea, but its success depends on the team executing it. Therefore, you should not compromise on what you need – make sure to scratch the surface until you know that you have found what you were looking for. Investors will want to get comfortable with your team in the following areas: personality, skillset and experience and business acumen. It is all about the people to turn the initial idea into something meaningful.
Know your end-users…
…and put them first. Your big business idea has to appeal to a specific target audience. If you are not solving a problem for anyone, what is the point of your business? Therefore, it is absolutely vital to keep your end-users firmly in mind as you develop your product or service. The happier you make your customers, the more likely you are to succeed. Investors are keen to see that your product is not just an impressive piece of technology but has real-world application.
Don’t get overwhelmed
In a start-up, you will be swamped with choices what you could do. However, as time and money are your most critical resources, it is key to stay disciplined and ruthlessly prioritise where to put your energy – and where not. The Hedgehog Concept by Jim Collins is a useful framework for this. It advocates a focused approach to allow you to tackle your main business challenges and pursue success at the centre of three overlapping circles: passion, purpose and profit.
Of course, a large market is compelling and you are in the start-up game to capture a sizeable opportunity. However, the more attractive the opportunity, the more intense the competition. This can be a big problem when you are still learning where and how to compete. Therefore, it could pay off to start in a concentrated niche that you can plausibly dominate. Find your early adopters there and use their feedback to iron out initial flaws. Once you have something that works, you can steadily expand.
Test, learn and demonstrate
Your business will live or die by the adoption of your end users. Therefore, try to put something in front of them as soon as possible: launch, then learn! To get validation, you need to have a clear understanding of the underlying metrics that drive your business. In the beginning, investors are interested in two key metrics: 1) Stickiness: This is an indication for the health of your product. What do users think about the interaction with your product? How many of them come back and actually convert into regular users? 2) Organic growth: If you convince your early adopters, they will help you spread the word about a delightful experience. Do you see new users coming in without tapping into paid marketing?
Be tenacious, yet flexible
Positivity and brutal realism are not always easy bedfellows, yet as an entrepreneur it is essential to the success of your start-up to juggle both. Never lose sight of your end goal but be brutally honest about your business flaws. Be flexible on how you get to your end goal – if you feel you are stuck in a dead end, consider changing the approach. Always be wary of your most precious resources – time and money – and make sure you always spend them wisely.
Christine Thoma is head of strategy, Zeal Investments