Let’s talk about your business model. But before I drill down into it, it’s story time: I spoke recently with two entrepreneurs. They’d built successful companies before, but they hadn’t established a track record of successful liquidity events. Sure, they’d sold companies, but they hadn’t made enough on the sales to pay back their investors. Needless to say they were concerned about raising money for a new venture.
After a few minutes of conversation, their problem became crystal clear: Their former companies were essentially hobbies financed by friends and family. They weren’t held accountable by these investors because they didn’t report real progress to them. In fact, they barely even communicated with them outside of sketchy, constantly upbeat, reports over a beer at a barbecue. Eventually these informally funded companies floundered, and their assets were sold for a few bucks. Why? No business model.
Remember, Financiers Need to Be Sold on the Future
Fast-forward to today. Now both in their late 40s, these two guys want to raise $1 million for their new business. Determined not to repeat their previous mistakes, they hired an MBA who said they should sell 20% of their company right off the bat. Wait a sec—that means post-financing the company is worth $5 million. But there isn’t a company yet. There’s just a plan. What assets/alliances/compelling future does it have? What proof of concept, market traction, customers have signed on? Oops. Whipped into a frenzy by their “groundbreaking” idea, these two entrepreneurs forgot that professional financiers (and I include angel investors in this category) need to be sold on the fabulous future. Having the beginnings of a fabulous present sure help. Here’s how to get one.
Of the business model-people-money troika I describe above, the model category is the first most essential exercise in creating a sustainable, scalable business. I also lump the business summary within the business model category. To find your business model’s potential shortcomings, be sure you can answer the following questions:
Do you have a compelling business summary? Have you determined your product pricing, return on investment, and customer-expectation setting/communication? Will you deliver client care via a self-help Web site or service contract? How will it become scalable? Are you systematizing your business from the get-go with standard operating procedures, best practices, outsourcing, automation? (Remember, more systems can mean less paid staff and increased efficiency.) Have you identified the market “pain” in your primary, secondary, and tertiary markets? Can you clearly articulate your solution to this pain, how it works, and how it is delivered to customers? How will you distribute your product/service? Through retail, online, third-party channels? What is your revenue model? What are your revenue streams (variable, annuity, multiple, future)? What is your revenue recognition approach? How will you run your company, keeping it focused via the six-month plan, prioritizing, processes?
You must be able to distill your business, and the answers to these questions, into a business summary. I know this is a lot to swallow and digest if you’re a new entrepreneur or starting a new venture, but you can be assured that you will NOT raise significant funding without this.
Remember, you can learn more about constructing a solid business model IN PERSON on June 5 and 6 at my Results Now Summit in
To your continued success!
Christine Comaford, Business Accelerator
CEO of Mighty Ventures, Inc.
NY Times Best Selling Author