For the past 8 years, I have been advising entrepreneurs on their growth and funding strategy. I’ve seen the worst and I’ve seen the best.
Life is too short to learn from your own mistakes. Let’s learn from others.
First and foremost, we must understand what the investor wants from us. This brings me to the first mistake. Often entrepreneurs will spend hours practicing a pitch that does not tell the investor what he or she wants to know.
What is it? Who are you? How does it make money?
I think the world of free everything sold against advertisements has left entrepreneurs with the misconception that users come first and revenue magically follows. Yes, users come first. But revenue does not magically follow.
Let’s look at an ideal scenario. Snapchat created a superior product to serve a real need. A few design students from Stanford created an app that allowed users to text in the moment, without the fear of regret. This is a real problem.
Within two years, Snapchat had a massive amount of users on the app. 100 million monthly active users (MAUs) to be exact. And within two years, Snapchat displayed its first paid advertisement and started to figure out how brands could best interact with their users. Today, they are reportedly charging $750,000 per 24 hours of ad display. Many believe this number is inflated, yet even if they offered 50% off your first ad, $375,000 is a pretty penny for a 3 year old app. Let’s keep in mind, 10 year old YouTube is charging $500,000 for 24 hours of ad display.
When you build a product or service around a real problem, it is easier to acquire users. Once you study how those users interact with your platform, you can begin to create real relationships with brands. Real relationships with brands yield high ad revenue.
Rule #1: Know how you plan to monetize. Look at successful companies and take a page out of their playbook.
Second, a lot of entrepreneurs fall in love with the idea of being an entrepreneur without fully understanding what it means to build a great company.
What have you done thus far? Why should I believe in you?
Look, if you’ve not put skin in the game, few people will believe in you. It’s not realistic to approach an investor for seed capital with a ‘If I build it, they will come’ sad story. You need to build something. An MVP. A prototype. A splash page showing you’ve collected email addresses is nice, but have you gone out and had real conversations with these potential users or customers? Use your limited resources to create something based on their feedback.
In today’s world, anyone can create a blog, podcast, or video stream to communicate with his or her target audience. It’s critical that you, at the very least, create a community of potential users or customers to support there is a demand for the problem you’re solving. Utilize this group as your sounding board. Ask them for their perspective. Their feedback is gold.
Rule #2: Show up with more than a story. Everyone has ideas. Investors are swayed by your work ethic and resourcefulness, not your ideas.
Last but not least, get over yourself. If you are asking other people to fund your idea, be willing to listen to their advice. Far too often entrepreneurs are not looking for advice, but rather cash. I think this is backwards.
What are your deficiencies? Where could you use guidance?
It’s critical to focus on raising capital from people you actually want to learn from. It’s never about the money. It’s always about the advice.
Rule #3: Select investors who can teach you a thing or two. You do not know everything. In fact, nobody does. There are people who have experienced more than you and can help you avoid the common pitfalls. Listen to them.