Venture capital investors are a special kind of customer. They are not buying your product. What investors are really shopping for are great investment opportunities. This distinction is lost for many entrepreneurs who fail to attract investor attention by spending their time pitching the wrong thing.
When your company has the right team, has a compelling business model, is making good progress, and has all the other characteristics that venture capitalists look for, they’ll be more likely to invest.
Because a company is much more complicated than a single product, selling your company to investors is going to be more complicated than selling your product to customers. In addition, no company is perfect.
Flaws and undeveloped aspects are commonplace in early-stage companies. The key is that you have a well-conceived plan about what exactly you hope to accomplish in the next few years and how you are going to accomplish those goals.
Learn how to plan and structure your business model, product, and promotion strategy. Some preparation is imperative and some is optional. You’ll be more comfortable approaching investors when you know you’ve done your homework.
VCs are going to buy equity in your company not simply because you have a superior product but because they think that the whole company package is worth their time, and the company is poised to make a lot of money in the future.
So show off your whiz-bang product, but don’t forget to put the spotlight on the other things that investors care about, too. The more you are able to see the world through their eyes, the more you will understand what they care about.
Avoid product development tunnel-vision
Early-stage companies are quite naturally focused on research and development (R&D). During the research and product development stage, you can easily succumb to tunnel-vision and forget about company development. Product development is necessary, but so is business development, promotional development, customer research, and financial planning.
Occasionally, the whole company will need to go “heads down” and work solely on product development. If your product is software, for example, all members of your company may engage in a 30-day stint of hardcore software developing, coding, testing, and debugging.
If your product is something more tangible, you may be highly involved in formula or materials testing, prototyping, or building. It’s normal for companies to work 100 percent on product development for very short periods of time.
The danger is endlessly focusing all your time and resources on product development at the expense of other important areas. To avoid getting sucked into the product development vortex, plan for these strategic periods of product development and intersperse them with customer field research, marketing, and other business development activities. Don’t lose sight of why you went into business in the first place.
Intersect product development and business development
Your company needs to do a lot of business development while you are in the midst of the product development stage. Many of your business development activities will be focused on learning how to create and sell the best product to your customers.
Often, you will find yourself handling major tasks, like product development and business development, in your business simultaneously. This is totally normal in a start-up. For example, suppose you own a business called Live Again, which helps people manage their finances after a serious accident or illness.
Your company plans to use insurance companies to distribute its software product and needs to create a relationship with its distribution partners early, before the product is completely developed so that it can be sure that the product will suit the needs of the insurance company’s customers.
In this case, a business development activity (finding distribution channels) intersects with a product development activity (product design).
If the insurance company insists that Live Again’s product must be compatible with the insurance company database management software, you’d be happy to add that feature to your product development plans.
If you had finished the product before trying to partner with the insurance company, you would have had to add a major feature to the already developed product, a change that may have been too expensive to implement at that time, costing your company an opportunity to reach thousands of customers.