Always Check Your Work (With Investors)

The finish line is close. We are nearly convinced that our idea isn’t just the one we love the most, but that its TAM is very promising. The business idea feels airtight. And the growth story is sharply defined. 

Until reality hits us squarely in the face. Fewer than one percent of all business ideas or startups that apply for venture capital (VC) funding actually get it. This number rises to 10 percent if the business idea came through accelerator.  For those not looking for VC funding but looking for grants or personal loans, only 30 percent get the money their first year. For women, these numbers are even smaller, particularly in the VC world where at last count women only earned two percent of total funding.

Think of this step as a necessary evil whether you hope to get money now or know you will have to in the future. It’s less about getting a committed investment, and more about tapping into the guts of the people that fund business ideas for a living. So, what do you need to do?

Ask first for opinions, not dollars. Think of your initial conversation with investors as the “get-to-know-you-and-your-business-idea” conversation. Your investment ask comes later. Now’s the time to learn if your industry is big enough and your competitive advantage is interesting enough to get you the money you want – something smart investors will be able to tell you in five minutes or less (Not because they really are as smart as they think they are. But because they have heard a million of these pitches before and have a spidey sense for when a TAM story is a winner).

Hang on to every word they say. How an investor responds to your pitch is critical and will deliver invaluable insight you want to capture, good or bad.  If, after your spiel, the investors can spit back out a tight elevator pitch on your business, consider yourself good to go. If they don’t, refocus on “how” you tell the story first, and see if it gets better reception. A rookie mistake entrepreneurs make is focusing too much on the product or service itself without first identifying (and selling) the size and growth of its TAM.

Understand when it’s appropriate to tune out their comments as well. Unfortunately, a study by The National Venture Capital Association found that 50 percent of their members believe that women are less likely to succeed in startups. If that’s who you inadvertently told your story to, abort immediately.

Don’t worry if the part of the story you find most interesting, isn’t to as interesting to them. Investors are focused on the rigid valuation model their firm utilizes, which often has nothing to do with your customer’s value proposition. We guarantee investors are going to be far more interested in the recurring nature of your product or service rather than the product feature that will make customers go wild. And that is OK.

Finally, use the “1% Rule”. Achieving positive investor feedback is a major milestone. But you need one more final gut check on your idea before moving onto Rule Two. So here it is - if capturing 1% of the market is sufficient to make yourself a million (or millions), you are truly ready to go.

Yes, 1% is an arbitrary number, but it also feels do-able (and more importantly, sellable to investors.) And remember, the million isn’t revenue, its profits. So, you are likely to need several million in sales to reach that threshold. We consider $200 million globally as a good-sized industry to start.

No matter what, keep going. If your first business idea doesn’t get you here, don’t give up. Get creative. Figure out ways to expand your product or buyer and try again. It’s okay to go back to the starting line as many times as you need to to ultimately get to the million(s)-dollar idea that will change your life.

What’s Next?

Take a deep breath and savor the moment. You have a business idea you can feel hella confident about. And the beginning of a growth strategy aimed at taking advantage of the secular trends most likely to impact your business idea. Congratulations. Time to graduate to Rule Two - Build Yourself a Kitchen Cabinet.