A Four-Step Guide To Funding Your Next Fix, Aka Startup

Posted: Jan 8 2014, 8:21am CST | by , in News

A Four-Step Guide To Funding Your Next Fix, aka Startup
Photo Credit: Forbes

Hi. My name is Carl, and I am an entrepreneuraholic. It’s been seven months and 10 days since I started my last business.

As someone recovering from this disease, I can tell you that a few of the symptoms are loss of sleep, irritability, tunnel vision and grandiose thinking. For that reason, the hardest part of this addiction can be finding enough money to fund the next fix. This article is a four-step guide on making sure you make a compelling case to your supplier — aka investor — that your latest obsession is worth investing in:

Step 1: Explain clearly how the company makes money.

Since businesses like Snapchat and Instagram (which have made zero dollars in revenue) are being valued at $1 billion or more, some entrepreneurs believe that making money doesn’t matter. Let me be clear: This is wrong! The odds of you selling a business that doesn’t make money for a billion dollars are the same odds that you are going to win the lottery. Don’t fall victim to this trap. More likely, your potential investor wants to have a complex understanding of how the business makes money, because they want to make sure they can get their money back.

Often, as addicts, we get sidetracked. We start thinking that investors want to know how we make our product or what our process is. But the basic question investors will be asking is, “How is what you’re doing going to make money?”

You can be the best in the world at just about anything, but if you can’t make money doing it, then an investor won’t be interested in putting their money on the line. So above all else, make sure you take the time to show exactly how your business will make money.

Step 2: Explain the management team.

Investors will want to know who is running the company, so know how to answer these questions before they are asked: What are their core competencies? Why will this team increase your chance of success? Does the team have a “whatever it takes” mentality? If the team is your brother, your girlfriend, and three other friends from high school who have never run a business before, well, that’s going to be a problem.

Investors want to see that your team has experience and that each member is uniquely qualified to do their job. As I said earlier, investors know we have a problem. They also suspect our friends and family know we have a problem, too. It is up to us to put together a team that sets their minds at ease and allows them to see that even though we might have a problem, we have a strong team behind us helping us succeed.

Step 3: Explain your competitive advantage.

This step can be summed up in one question: How does your business meet customer needs better than the competition?

The answer to this question is huge. Investors want to know how your business is different. So, prove it. It’s one thing to be better than the competition on paper, but it’s much more impressive to have tangible proof by way of sales or customer feedback. It’s also important to consider whether your product/process can be easily replicated. For example, if your competition had $1 million, could they copy what you are doing and put you out of business tomorrow? If so, then serious investors will probably pass.

Step 4: Investors want to buy companies that are on sale.

If someone is trying to invest in your company, they want a discount. In other words, it’s important to show them that the value they are getting is greater than the risk they are taking at this particular stage of the company’s life. Prove it — with numbers.

Remember, facts are greater than feelings in this case.

* * *

If you can prove your business is worthy using all four of these steps, your investor (aka supplier) is much more likely to fund your venture. Try it, and let me know how the steps worked for you.

Until then, I’ll probably be here, thinking of more business endeavors.

Carl Dorvil started a tutoring and mentoring company called Group Excellence (GEX), out of his SMU dorm room at age 21. The company started with a $20,000 grant from Texas Instrument Foundation and grew to over $12 million in sales, earning recognition as an INC 500 company in 2011. At that time, Dorvil sold the company to a Dallas-based investor group. Two years later, he bought it back for 10% of the original sales price. Carl, a board member for the Dallas Angel Network, is currently featured as part of SMU’s national marketing campaign, “World Changers Shaped Here.”

The Young Entrepreneur Council (YEC) is an invite-only organization comprised of the world’s most promising young entrepreneurs. In partnership with Citi, YEC recently launched StartupCollective, a free virtual mentorship program that helps millions of entrepreneurs start and grow businesses.

Source: Forbes

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