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Are you honest enough to admit to yourself that you don't know what you don't know? Be honest.
I work with a number of investors and the statement I hear most often is; far too many aspiring entrepreneurs fail to get their business off the ground because they are not adequately prepared to secure funding.
Many have a great idea or concept, maybe even a patent. A patent is not a ticket to success. Let me give you an example: I am a mentor for the University of California Entrepreneurship Academy and I interact with some brilliant young people. The University of California system (ten top research institutions) has 19,244 patents, licenses or pending patents and licenses. Yet 60 percent of the revenue comes from five patents. Five!
Many aspiring entrepreneurs have excellent industry knowledge and often a top notch team. What they don’t have is money. Most will not get the money because they do not understand the process. They don't know what they don't know.
Let me illustrate this point. I was a high tech executive for nearly twenty years. We were working on a project with on Oil Company in Louisiana. Since I was going to be there over the weekend one of the oil executives said “Frank, we are going to take you on the tour of the Everglades Saturday. When I arrived at the location, I realized that Everglade is code for “Alligator Infested Swamp.” One of the oil executives must has noticed my fear and said to me, “Frank a guide will be joining us in about five minutes.” Then he said something I will never forget. “I have lived in Louisiana my entire life, and I never go into the Everglades without a guide for two reasons. First, they know what they are doing and where to go. Second and most important, they know where NOT to go. Every year we have people come down here who don’t want to pay for a guide or expertise. They go into the water alone, and unfortunately, sometimes the alligators win.”
I hear the same story from many entrepreneurs. They say we are smart people we don’t need to pay for a guide, we’ll figure it out. So they throw money down too many rabbit holes trying to piecemeal a strategy. After they run out of money chasing their “I can do it myself model,” they give us a call. By that time it is usually too late. The Alligators won.
Investors work best with people they know and trust. They trust people who can work with the entrepreneur early and vet the opportunity to the right investors. They trust people who can take out the hype, lay out the facts, and secure the investment agreement, which is more difficult than you think. They trust people who will continue to work with and advise the business after the funding is secured.
We look at five things BEFORE we even consider talking to an investor:
- How did you get to where you are? Bootstrapping is great if you ever get on Oprah, but it says to me you have no money and are wasting your time. The first question is do you have enough money to hire an organization (like us) to guide you through the swamp. If NO—thanks for your time. If yes, we provide the following steps:
- Prepare a strategy that addresses WHY you want to start or expand your business. What value does it provide?
- Prepare a business plan, including the key team members, that corresponds with your strategy.
- Prepare a branding/marketing/positioning program that differentiates you from the herd.
- Prepare an investor strategy that justifies your assumptions. It details how much money you need, when you need it, how the money will be used and when do you expect to be profitable.
Those are the five things investors want presented to them by someone they know and trust. This person is usually not the CEO/owner who they don’t know or have a relationship with.
My recommendation to you is contract with someone early who can guide you through the swamp or run the risk of letting the alligators win.
Let me leave you with this: The secret to walking on water is to know where the rocks are.