We all need a little support here and there to help us grow. Small businesses are no different.
If your business hasn’t been growing lately or your startup idea is still just an idea, you may want to look to investors for some help. Investors can help your business grow by providing you with:
- The money you need to grow your idea, vision or enterprise.
- Networking opportunities that can bring in new and unexpected growth opportunities
- Important business advice and strategies you haven’t gotten exposed to before
All you have to do is get investors interested. To start, look at an investor’s expectations. Chances are you’ll need to do some prep work to get ready.
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What investors look for before investing
Understanding what investors are looking for can help you plan. You want to make sure your business idea meets their expectations and requirements. Before an investor provides any financial support to your business, they’ll want to:
1. Evaluate the market for your product or service targets.
This is where investors want to see unique products and services. If you’re offering your target market the same product as countless other businesses, they may walk.
Unique ideas that appeal to customers’ needs directly are more likely to keep an investor interested. Basically, your product should solve a unique problem for customers. The more innovative it is the better. Investors want to see that you have a competitive edge in your industry.
2. Determine the strength of your business and management team
Investors will not just evaluate your industry background and experience. They’ll also look at your management team. Management teams with experience are less likely to make mistakes. This translates into less risk for investors. Some qualities that investors look for when evaluating your management team can include:
- Decisiveness. Your management team should be able to make decisions quickly and efficiently for your business. Indecisiveness can slow down your business’s operation and ultimately its success.
- Responsibility. It’s your management team’s job to guide all your employees to successful outcomes. Investors want to see a management team that embraces their responsibilities with enthusiasm.
- Creativity. Businesses and their products need to evolve to survive. This means you want to encourage creativity in your business. All employees should work to establish creative solutions that can bring future success to your business.
- Commitment. Investors are not going to commit to a business or product idea unless there is a committed team already behind it. Investors want to see management teams that are dedicated to the future of your business. Dedication from team members also sends the message that they’re planning on sticking around. Investors don’t want teams with high turnover rates. High turnover in management teams can mean uncertainty for a business.
Keep in mind that every strong management team is backed by insurance protection. Investors will want to see that you have the right insurance coverage for your team. This means you may need to buy workers’ compensation insurance. This insurance is essential for protecting your business from certain liabilities. It also provides important benefits to your workers.
3. Look over your business plan.
Your business plan is an official way of communicating your business’s vision. Typically your plan includes information such as:
- Your overarching business goals
- Marketing goals, initiatives, and plans
- Projected financial timeline
- Obstacles you anticipate
- Who your target market is
- How you intend on reaching customers
- Your management and operational structure
Investors also want to know how you plan on using the cash they invest in your business. For instance, investors don’t want to see their funding going toward your salary. A better area to invest their money would be marketing efforts. Once you outline where you’ll spend their investment, investors will want to know what their return on investment will be. Don’t be surprised if investors want a timeline for this.
4. Examine your past and projected financial performance.
You want to be able to show investors that your small business is profitable. This is important because investors want high returns for the money they invest.
Some financial areas your investor will want to see include your:
- Net profit. Investors want to see if you’re already making a profit.
- Total sales. Investors want to see if people like your product and are willing to buy it.
- Cash flow. Investors are more likely to back an operation that has cash left over after paying their expenses. This leftover cash is important for meeting unexpected expenses.
- Debt. Investors view high debt as a risk. Often, extra cash flow goes toward paying off debt. This means, if your business runs into an unexpected slowdown, you may have trouble meeting your financial obligations.
Businesses that do not have strong finances will have less appeal for investors. When evaluating your finances you want to show a promise of future financial growth to investors.
5. Determine if they fit your brand and business’s vision.
Investors will evaluate your small business or start-up to see if you’re a good fit for what they stand for and are interested in. Establishing chemistry with investors can be important for connecting them with your product. This can also be essential for instilling confidence into your brand’s ideas and your ability to deliver as a business owner. The more you can build a relationship with investors, the more likely they’ll back your business’s vision.
Some areas to focus on for building a relationship with investors right away include:
- Making a strong first impression. Your first impression gives investors their first look at your personality. Investors are more likely to back a business when they enjoy working with you.
- Your negotiation skills. Going through the fine details of your business with potential investors firing questions at you can get stressful. However, it’s important to show that you can handle stress early on when interacting with investors. This will show them you can handle stress while growing your business with their support.
How do I convince investors to invest?
Getting investors to back your vision involves more than just selling a good idea to them. You’ll want to follow these steps for success:
1. Prove that you’re worth it by starting small.
If you don’t have enough funding to officially open your small business yet, start small. Set up a stand or booth at local events. You can even hand out samples at these events to get people interested in your products. This is especially easy if you’re planning on selling a food item.
Your goal is to start selling your products wherever you can. This can show investors that you already have value. Investing in an idea that has already seen small success is much more appealing than an idea that’s starting from scratch.
2. Start marketing your product or service as soon as possible.
To do this, you’ll want to:
- Build a website for credibility. Websites show that your business is official. They’re also great for directing customers to your products.
- Start engaging with customers on social media. Your business’s social media accounts are great spots to ask for customer feedback. However, you want to make sure you respond to their comments, concerns, and remarks. This shows your customers that their opinion is valued. When customers feel valued they’re more likely to commit to your brand. This helps you build a loyal customer base in the long run.
- Utilize word-of-mouth marketing. This is a marketing technique that is easily overlooked but is effective and affordable. For instance, when selling your products, you can simply ask customers to tell their friends about you. You can also use social media for word-of-mouth marketing. One way to do this is by creating incentives for customers to share your posts with friends. For instance, you may offer them a discount if they share your content or refer a friend to your business.
- Plan events and promotions for your opening. Whatever events you come up with, you can advertise them in a variety of ways. For instance, you can put up old fashioned posters or use social media to promote your events.
Investors want to see a strong marketing plan in place before they back an idea. This is also how you can start to build a following. Advertising your products before you’re open helps build interest and excitement about your product.
You can even use advertising to direct future customers to your small business’s website or social media accounts. Social media is a great way to get people talking about your brand. It’s also a great tool to showcase to potential investors that you already have a strong following of customers.
3. Train your employees ahead of time.
Make sure employees know what is expected of them and have completed training. You don’t want new employees learning on the job. Investors can perceive this as risky. Showing your investors that your team is fortified with training will show more promise for business results. Some skills to train employees on before you open your business’s doors include:
- Your business’s procedures. You want every employee to understand the flow of your business. This also helps new employees understand the expectations of their role.
- Conflict resolution. This can be especially important when an employee encounters an angry customer. They should know how to respond right away.
- How to stay organized. Every job is different. You want to make sure that new employees know the best way to manage their new role
4. Get investors’ advice.
Your investors are more than just a money source. They’re people with ideas, visions, and wisdom. Asking investors for advice not only helps you learn but it also shows them that their opinion matters to you. This can help you build a stronger relationship with them.
5. Prove that there is market demand for your idea
If you’ve already started selling products, you can do this by showing your sales to investors. Sales directly showcase that customers want your product or service.
If your business is brand new, then you can show investors market research. This can include information gathered from:
- Focus groups
- Online and in-person surveys
- Other customer interviews
If you’re talking with potential customers in your market, be sure to document their opinions, thoughts, and expectations. This can help prove that there is demand for a product or service like yours. You can also show investors any industry data you’ve used to develop your product or service. This can include official industry statistics or trend reports that back up your idea. Investors will also likely be interested in the overall size of your market.
Your business’s idea is a big deal to you. To get investors to feel the same level of passion you have for your business, you’ll need to fortify your business idea with the right components. These can include:
- Strong marketing
- A team of hard-workers
- Positive financial projections
Once you have these components in place, you’ll spark the interest of investors near and far.
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