What would you say were the most important things to prepare or think about as I approach a BAM investor? What are some typical pitfalls or mistakes I could avoid?
Before you walk down the road of approaching an outside investor, why not consider the possibility of self-funding – also known as “bootstrapping” – your company? If you decide to bootstrap, you may be surprised at how differently you approach your business, as well as the funding process. Bootstrapping can create a healthy foundation from which to begin your business, and can provide invaluable lessons to entrepreneurs. Lessons learned from bootstrapping can include:
- Tests your business plan – A bootstrapped business that can bring a product or service to market, develop a customer base, and create a revenue flow will help you identify the strengths and weaknesses in your plan. You now have the solid proof you need to affirm your ideas and build on them. You will have determined if the market needs or wants your product, what the market is willing to pay for your product or service, and what will be required to put the business on a path to profitability. In addition, you will have a better sense of true costs, not just cost of goods, but hidden costs that are usually not considered or may not be known when a plan is developed. Bootstrapping will also force you to consider how the product or service is being developed, and it may cause you to re-consider aspects of product development as being unnecessary for product or service launch.
- Provides incentive for a low burn rate – Limited financial resources will greatly influence the decisions required to operate your business, while at the same time maximizing efficiencies. This may include hiring employees that can function in more than one role, outsourcing certain roles until you can afford to bring them in-house, minimizing overhead like office space (know anyone with a spare garage?), as well as using a creative approach to marketing.
- Skills and values development – Self-funding can be a useful mechanism in helping you gauge your true passion and commitment to your business. It will help you develop a higher level of accountability as well as resourcefulness, resilience and courage. It will most certainly test your risk aversion.
Once your product has been fully tested and proven in the marketplace, you may then want to revisit the idea of outside investment. But do a quick assessment for your reasons in seeking additional money. If you are looking to scale your business, either through additional locations or through increased sales, is an outside investor your only means to accomplish this goal? This may be the case, particularly if you are in an untapped market and want to move quickly to secure marketshare before competition arrives. It may be that you have a work force for whom you are trying to provide employment, before a market has been developed. This can be a risky endeavor if you are attempting to provide employment but have no guaranteed revenue stream. If the business is not there to support the infrastructure, then you are doing more harm than good. You have created a false sense of security for your work force by creating dependance on jobs that will go away if the market never materializes.
Are you ready to give up autonomy? When an entrepreneur brings in an outside investor, there will more than likely be certain requirements on decision making, particularly at the board level. As a business owner, you are responsible to your investors, and lose much control – particularly at the creative level – when you take outside money.
So let’s say you have weighed the pros and cons and have decided to pursue partnering with an outside investor. As you prepare, consider that you must approach this process, as with anything, with excellence (Colossians 3:23). Your investor has been given assets which the Lord is requiring him to steward in a Godly manner, just as God is requiring you to steward all aspects of your business, including the fund raising, in a Godly manner. With that said, here are some ways in which you should prepare to address a potential investor.
Make sure you have a well-thought out pitch with a professional slide deck. Your pitch should be easy to understand, concise and clearly define the mission of the business. You should be able to articulate in the first few minutes of the pitch what the problem is you are trying to solve with your business, and your unique approach to address the problem. When you frame your pitch from the context of the story, both your story or those impacted by your business, that is when it becomes interesting – and demonstrates your passion. Make sure you are clearly conveying your passion for this project – why do you feel you are the one called to execute this plan? Why do you feel this endeavor is going to be successful? If your business is pitched as a social enterprise, be aware the statistics are not in your favor, research places the failure rate for social enterprise at 80%. What makes your solution different? Don’t cover too many specifics within your pitch, you don’t want to get bogged down in too many details at this stage. Make sure you leave time to answer questions at the end of your pitch – many investors won’t let you get through your pitch before they start asking the questions.
Within your pitch be prepared to answer the following questions, at a minimum. This is one time in your life when its not a bad thing to over-prepare.
- How much capital are you raising?
- How long will that capital last?
- What are you going to do with the capital raised?
- What are current sales and financial projections for the next two years?
- How does the company market or plan to market its products or services?
- Who are the founders and key team members?
- Why is the team uniquely capable to execute the company’s business plan?
- How many employees do you have?
Be prepared for investors to ask questions regarding specifics not covered in your pitch. Many investors fancy themselves experts on just about everything, so just answer questions to the best of your ability. Never get defensive when you are answering questions. and always respond with grace. If they don’t like or agree with your answers, it doesn’t do any good to get combative, just present answers to the best of your ability. For those answers you don’t have, tell them you will get back to them with the answer. You should be prepared to answer many questions about the financial viability of your company including the following questions:
- What will be your monthly burn rate?
- What are the key assumptions underlying your projections?
- What are the costs for the product or service?
- What are the likely gross margins?
- What is the company’s social media strategy?
- What is the cost of a customer acquisition?
- What is the projected lifetime value of a customer?
- What advertising will you be doing?
- What is the typical sales cycle between initial customer contact and closing of a sale?
Taking outside money to execute your business plan can be a long and arduous process, and it can take all your focus from your passion of running your business. Carefully weigh the opportunities and benefits of pursuing this path, and seek the counsel of those who have gone before you – here is one time where it is definitely a benefit to learn from the lessons of others!
Colleene Isaacs is part of the ‘Ask a BAM Mentor‘ panel of mentors. Colleene serves as an advisor to early stage kingdom-focused startups and assists non-profit organizations in under-developed economies to develop sustainable models for income generation. Colleene has over 27 years of business experience and has been the founder of her own restaurant business, as well as a co-founder of a technology-based company. She has served in various management roles for technology companies, including training and development, customer service, business and channel development, and marketing. Colleene has been married to Robert, her high school sweetheart, for 40 years and they have 2 children and 3 grandchildren. Colleene is passionate about using her gifts to help others discover and live out their unique God-imprinted design for His kingdom purpose.
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