by Michael Noel | June 11, 2019
Every great achievement or accomplishment is usually accompanied by the cliché expression, “Practice makes perfect.” In the business world, just like any great composition, when it comes to building the right pitch for potential investors, research makes perfect.
When preparing your pitch, it is important to keep in mind that there are many elements involved. If executed the right way, these elements will work together in harmony, leading to a crescendo so powerful that any investor would be foolish to turn it down.
The four elements you need to focus on when building your masterpiece are benchmarks, numbers, prototype and researching potential investors.
Establishing Realistic Benchmarks
Developing a new product or service is an exciting time. Sometimes it is easy for entrepreneurs to get so caught up in the excitement of starting a business that they have high, unrealistic expectations because they don’t do the proper research.
To avoid creating unrealistic projections, it is important to do thorough research of existing similar products, current product need, and the financials needed to make the business a reality. From digital recon work on competitor social media and website activity, to more complex demographic analysis, there are many ways a business owner can establish realistic benchmarks.
Knowing the Right Numbers
While people often overestimate their sales projections, they often underestimate their expenses. Research is key during this step because it’s important to consider all factors when building a budget for a business plan or loan. Leaving one estimate out can throw the whole budget off and turn off investors.
The costs that should always be considered are:
- Startup Costs: How much do you need to open the business and get it completely started? Oftentimes there are those who get bored in their job and assume it would be easier to start their own business. They have about $5,000 in savings that they can invest right away and just assume that will be enough. But no, just like every other step in the process, they need to do the research before they take the leap. The easiest way to achieve this is to look into what their competitors have done and what they needed to get started.
- Fixed & Variable costs: Fixed costs (rent, utilities, etc.) are easy to calculate because you pay them every month and they rarely fluctuate. Variable costs differ from industry to industry. This is where your research comes in. After you conduct the research on every expense you expect to come across, it is important to estimate high when you build your budget, due to the fluctuation and instability of these expenditures.
- Cash Flow Statement: It is important to create a spreadsheet that tracks all money coming in and going out. Whether it’s cost of goods to be sold, salary and wage payments or any other types of income or expenses, investors want a clear picture of what exactly is needed to run the business day to day.
- Profit and Loss: This is historical for existing businesses. Ideally you want a financial analysis of the previous three years. This is what is typically required to obtain a bank loan, but may vary with other investors. For start-ups, the P&L should include a projected net income in line with the industry benchmarks over time. It’s best to demonstrate a ramp up of sales over one to three years; so, your first year may show a loss. That’s okay! But, in years two or three your net income (profit) should be consistent with the benchmarks.
Have an Actual Prototype
Investors do not want to hear ideas or see doodles of what could be. They need visuals. They need to actually see what they are investing in. If you have a new product the market has never seen, is important to seek out manufacturers that can bring your product to life. Do not create a homemade replica. Invest in a functional unit to display.
Create a Presentation Aimed at the Targeted Investor
A common question that business owners ask is, “What is the best way to present my plan to potential investors?” Should they create a portfolio? A slideshow? A website? The answer could potentially be all three.
Just like any other step in this process, research plays a vital role in the avenue you pursue.
This time you must invest the research in the lender’s preference. If they are tech savvy, create a visually stimulating, high-tech presentation. If the investor only cares about the numbers, create an in-depth, easy-to-read portfolio that will answer every question.
No matter what avenue you take, just make sure that your presentation is appealing and focuses on what’s important to the investor.
Creating the perfect pitch is obtainable for any business owner. The key is to do your research. As long as you are realistic and stay grounded in expectations, you will be able to create a masterpiece that would be hard to say no to.