Presenting your business idea to investors can be intimidating, especially when they begin firing questions at you. Careful preparation is key to demonstrating your product’s potential, and can give you confidence in the face of scrutiny. Where to begin? Consider completing these four steps before trying to sell your idea to investors.
1. Test Market
Oftentimes, inventors and innovators are blind to shortcomings that may hobble an idea. Putting a product into the hands of consumers can result in a lot of helpful feedback. One of the best ways to uncover the challenges and opportunities that may face your business is by test marketing a product.
Local events are great places to showcase your idea. Consider renting a booth at a farmer’s market, craft show, or festival to reach a large number of consumers in a single day. Small businesses rarely have the funds for a formal focus group, but you can often gain insights for the cost of a booth fee. You can also try using personal connections to find local businesses that will let you set up a demonstration table for a low fee.
Test marketing should begin with the earliest prototype and continue as your idea is refined and perfected. Record feedback to get a realistic view of how the product could perform in wide release. Does it work as advertised? Do consumers appreciate what the product does, and are they willing to pay for the innovation? You need to answer these questions for yourself, because prospective investors will almost surely ask them.
2. Approach Retailers
Investors want assurances that your product will sell. If you walk into the meeting with established retail relationships and encouraging sales numbers, they may be more likely to open their wallets. Don’t focus solely on national chains; local stores can be effective grounds for building a customer base. A boutique or mom-and-pop store might be willing to carry your product in small quantities to gauge interest. It’s important that you approach retailers who stock similar products; the local hardware store is probably not interested in leggings.
In some cases, a niche option like a greeting card retailer or restaurant may provide better distribution and visibility, since there’s less competition for shelf space. No matter what kind of company you partner with, make sure that enough revenue flows back to you in order to help fund your efforts.
3. Create a Solid Business Plan
A sense of opportunity is often enough to get an entrepreneur excited about an idea, but investors want to see the numbers. You should lay out these details in a business plan. Consider basic data such as manufacturing costs, the size of the market, and your current funding, debts, and liabilities. Have you taken steps to help mitigate risks that can threaten the business? It’s critical that you’re honest with yourself and potential investors so that everyone goes into the venture with reasonable expectations.
4. Practice Your Pitch
Confidence and professionalism are the intangible elements of a successful pitch. Regardless of how much time you spent preparing a business plan, a lackluster presentation can shake the confidence of potential investors. Practice in front of a mirror and encourage friends and family to ask probing questions about the business. Is there someone you trust who’s not afraid to be brutally honest? Great! Present your pitch to them for feedback.
There are many reasons investors might pass on an idea; your lack of preparation shouldn’t be one of them.
Investors may also want to check your business credit file to help asses the financial risk of your company. Do you know what’s in your business credit file? Start monitoring your business credit today.
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