Sales improvement specialist Marcus Cauchi uncovers the reasons why many entrepreneurs fail to get the funding they want.
Here we go again. Another bubble bursts and billions in investment goes down the swanny. Don't be fooled by what you read, we’re in this one for the long haul. UK banks bailed out to the tune of £820bn. German economy showing signs of cracking. Goldman Sachs recently tanked causing jitters. Are you ready for the crash in Q1 2010? Times are tough indeed but investors still have lots of money. They are just not ready to invest...with you.
It is inevitable that getting investment in the next five years is going to be tough. Banks aren't lending. Governments have to cut spending but are printing money fuelling the risk of inflation. Investors are cautious and withholding. Building a better mousetrap isn't going to be enough. Unless you are meeting your commercial targets and giving your investors a 'Ready Brek Glow' that they will exit, you probably won't get funding. You are more likely to get a date with Cheryl Cole. If you are an entrepreneur looking for investment, you better know how to get out into the market, sell and bring home the bacon.
Experience tells me inventors and innovators simply don't see themselves as salespeople; they're technical experts, engineers, technologists and professionals. The problem with these entrepreneurs, as venture capital and storyteller, Dr Gerry Lemberg once said, "They create elegant solutions for problems that don’t exist." Herein lies the cause of the problems. Their goal is to produce a ground-breaking product or high quality service, not to be commercially strong. Many would prefer to be thought of as an expert than go to the bank.
Then, like any victim, they blame investors for asking for too much, lacking in imagination and muscling in on their masterpiece. Now of course they're right. But most entrepreneurs are in a distress-purchase situation and they are showing they're afraid. How? They offer too little for too much, for the wrong reasons because the numbers are based on guess work, not systematic research and testing.
History is littered with the corpses of companies slow tortured to death by technical experts and amateur business people. Embittered investors view inventors as machines that turn cash into toilet paper. The market is littered with their great ideas that never took off; Dasani (Coca Cola's water), Sony mini discs and the Sinclair C5 amongst the more famous. This is why entrepreneurs seeking investment almost without exception look unattractive to investors. It should come as no surprise then that only 0.2% of applications achieves funding.
No clearly defined target market, many entrepreneurs produce a product and then try and find a customer. They have never asked anyone to put their hand in their pocket to pay for it, to see if it is economically viable. They research, they develop, they brainstorm, they educate and burn through money as if it is someone else's...oh wait a minute, it is.
If you don't already know who is going to buy your product or service, go and ask the people you think might. If you can't get enough people interested, stop. The product or service needs to be something that people want to buy. In my experience, unless what you can take away the pain of an identified group of customers, the likelihood is that it won’t make much money or survive for long. Do not seek gratuitous advice from people who are not in your target market; your professional network, your friends, etc. This is another common mistake. The only people whose advice matters are those that will pay you.
Systems are vital but some entrepreneurs don't have them for anything other than for what they are good at. They can put clinical pathways in place. They can put manufacturing process together. But they don't have processes that tell them why they are doing what they are doing; the 'Reality Check'.
They don't have a selling system or a marketing system. They don't have a recruiting system or a system that identifies whether their behaviour and that of their staff is helping or hurting their business. In short, they are not commercially strong. Entrepreneurs need to build a business as if they mean to sell it from day one. That means that they have to have the right systems, strategy, structure and skills.
Recruitment systems need to predict whether a new hire will work out before they come on your payroll. The forecasting system must be accurate and tell you when the good times are going to roll and also, months ahead, when the train wreck is going to hit. You need selling and management systems that hold the top team and staff accountable for delivering the behaviours that lead to the commercial results.
The benefits of having these systems when it comes to negotiating with investors are worth it. If you know the size of your target market; not in terms of those that might buy, but in terms of those that will, think of the conviction that you will communicate to investors. Investors respect people with conviction.
Attracting investors is about projecting that you can make your interests deliver the investors interests. That requires building your business on strong commercial foundations. Attracting the right talent who attract the right customers and behaving like you intend to build a business not a practice to fund a lifestyle. No investor wants to pay your salary. No investor wants to buy your risk. Make your prospectus speak to the investors interests not about paying your mortgage.
Marcus Cauchi is managing director of a London based Sandler Training franchise.
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