Great Ideas: Woo investors

Written by ProfitGuide

It’s a crushing experience. You sweat over a business plan and pitch it to a potential investor, only to see that tight smile that says, “No way I’m putting a penny into your company.” In Burn Your Business Plan! What investors REALLY want from entrepreneurs, business plan specialist David Gumpert writes that investors are right to be skeptical, because most plans fail to answer the tough questions. He says a realistic plan must convincingly answer questions such as:

  1. What’s the opportunity? It’s not enough to say you’ve spotted a problem and a way to fix it. Investors despise those marketing studies that say “this market is expected to grow 250% a year for the next 10 years, and if we can capture just 1.7% of the market, we’ll all be multi-billionaires.” Instead, you need to show how your approach will work better than any previous attempts to exploit the opportunity, and how you’ll make money doing so.
  2. What special advantages do you have? That might mean a management team with a distinct skill set that a rival company couldn’t easily match. Investors probably won’t be impressed if you claim your advantage is having a head start on the competition — not unless you have a barrier to entry, such as a patentable product or process that would make it hard for new rivals to imitate your offering.
  3. What is the secret of your expected sales success? Investors know that selling is a special talent, and one that many young companies don’t have on board. They’d love to hear that you have a rainmaker on your team, or a proven sales technique that can easily be taught to others.
  4. What have you learned from the competition? The more specific your answer, the better. For instance, “competitor X impresses us by being so systematic in asking new customers what they like and dislike about its service. We plan to take that idea a step further by responding immediately to customer dislikes.”
  5. How will you use the funds you raise? Investors are more concerned than ever that their money be spent in ways that most directly generate revenue and profits. They’d rather hear you itemize how you’ll use it to hire three more salespeople and develop sales support literature than on product innovation research.
  6. What are the risk factors? Your realism in this area will reassure investors. If it’s likely that competition in your industry will intensify over the next six months, then tell them you expect this to happen and explain how you plan to respond.
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