Most would-be entrepreneurs dream of developing their ideas or skills into a profitable company. But launching a business requires operating capital. Raising these funds is your first and biggest obstacle. Whether you’re counting on a loan, investors, or crowdfunding, here are four mistakes that could spoil your chances.
1. You Are A Bad Leader
Your partners and employees are the key to successful business. Many startups have a great product or skilled teams to start with, but business management falls to you. Venture capitalists and angel investors will take a good look at your leadership abilities.
If you lack people skills, character, and integrity, investors aren’t likely to trust you with their money. Gaining confidence is a balancing act between modesty and assertiveness. People generally expect salesmanship, but not lies and exaggerations.
Don’t try to hide your shortcomings. Instead, express your eagerness to grow and learn. You need the humility to remain flexible, empathize with others, and communicate effectively.
2. You Don’t Have Clear Objectives
Investors are looking for businesses that are scalable to maximize profits. This includes addressing the risks involved and how they will be dealt with. If you can show that you’re going to make money long-term, you’re company is a good investment.
Desperate startups may inflate projections or misrepresent market shares. You may be tempted to tell investors what you think they like to hear. But what investors want is an accurate picture of your business and where you intend to go with it.
Before you ask for money, be sure you have validation for your business model. Every dollar you expect must be accounted for in your planning. Growth expenses must be supported by well-researched facts.
Serious investors will confirm your claims and learn everything they can about you. A single falsehood or negative discovery could mean rejection. You should make every effort to be honest from the beginning.
3. Your Potential Customers Don’t Care About Your Product/Service
Even when you’ve got a solid business plan and a good team, you still need a viable market for your product or service. Many would-be entrepreneurs launch a business without trying to establish whether they have a sufficient client base.
If you don’t have an appealing offer, or can’t meet a competitive price while remaining profitable, you need to re-examine your business model. Do market research through surveys or focus groups to ensure there’s interest in your product. Gather the data to support your offer’s potential before you start to look for funding.
If your idea is something completely original, you may want to come up with a working prototype so potential customers can investigate it, instead of struggling to understand diagrams and explanations.
Any customer testimonials or case studies that support your business model will also help support your case. Potential investors may also want to speak to customers or do market research of their own. Don’t start your financing efforts unless you can clearly explain what your product or service does and what sets it apart from competitors.
4. You Are Pitching to The Wrong People
Raising money for your company is not very different from selling your brand to consumers. You have to be targeting the right people. For instance, a venture capital firm known to invest in software companies isn’t likely to provide funding to a new furniture manufacturer.
Perform due research and ask among your industry contacts for leads on potential investors. Those who already understand what it takes to succeed in your niche are the ones most likely to identify and put their cash into a promising startup. Odds are, they may also partner with or can contact additional investors.
Be sure you understand the difference between venture capital firms who are looking for high-reward investments and angel investors who risk their own money on small-scale startups.
To summarize, you are going to need money to fund your company during initial and often after growth phases. There are critical mistakes to avoid when seeking funds, such as a lack of leadership, character, planning, or market research. Take the time to find the investors that will best appreciate your business model, and put together a presentation that will impress them.
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