June 3, 2020

Financing a Business Startup? Details Matter

If you are counting on outside investors to capitalize your start up idea, the details matter. Whether you are seeking an SBA loan, talking to venture capitalists, borrowing from friends or family, or entering yourself into Shark Tank, you absolutely have to know what you are talking about before you go for the capital.

Plan the Business

Simply filling in the spaces of a business plan template doesn’t cut it. It is critical to actually plan the business. That means applying the fundamentals of business to every aspect of your business idea. You must do the homework to ensure the idea is viable, the market has room for another competitor, and that your business model will actually turn a profit. No guessing is allowed, and any assumptions must be fully explained and justifiable. The details matter — they are what separates a good idea that is tossed around for years and a growing, profitable venture.

Know the Numbers

If you are going to talk to a potential investor, you had better know the numbers inside and out. Back-of-the-napkin estimates of sales and expenses are not enough. You need to know the standard ratios for your industry and how your projections compare. You need to know the break-even point under a variety of conditions and how the variable expenses will be affected under those conditions. You must have a reasonable target for how much it costs to gain a new customer…and your explanation must make sense. Throwing around ballpark figures is usually unacceptable. You must be able to discuss and explain the details of your financial projections.

Know the Competition

You also need to do your homework on the competition and market. Know the details of who they are, what they do, and how you are going to compete. If you can’t come up with a single direct or indirect competitor, you either have not done your homework or there is no market for your product. If you are entering a crowded industry, look for unexploited niches to fill and work through the details of how and why that will work. Study the target market to find out what they do, where they go, and what else they spend their money on.

Plan the Marketing

You will need a well-developed marketing plan for how you are going to get your customers to buy. Simply placing ads in the most convenient places doesn’t usually work. Rather, consumers are so inundated with advertising that you will need to find marketing opportunities that are targeted to exactly the right people. You will need details on the reach, expected response, and cost per sale of your planned marketing activities. You should have a plan for the initial wave of marketing and how it will be evaluated as well as some back up ideas in case the results are less than stellar.

The Details are Essential

If you are planning to approach outsiders for help in funding your startup, know the details before you ask. In fact, even those using their own resources to fund a startup would benefit from digging into the details before they launch…the failure rate would drop precipitously. But going in front of potential investors raises the stakes. Smart investors will expect you to know your idea top to bottom, inside and out. Get into the details — you will have a better chance of securing financing and a better chance to succeed.