This excellent question came from a connection recently and I felt my answer to this would be of value to others. More specifically the question is: “What would you say is the biggest ‘investor ready’ tip you would give to a company just launching their product?” So here goes.
On one hand this question opens up a host of clarification questions. How big is the company? What sort of product? What’s the vision? Has the company tested the product in the market already?
On the other hand, these clarification questions may not matter at all. Any company that is about to launch a product, whether they are experienced at doing so or not, should be asking the same question and on reflection I find that a common answer exists.
Some years ago when I launched a tech startup during the dot-com boom, companies were going public on the back of a business plan. Yes, for the new generation this is unfathomable and impossible to relate to. In the early days when the internet was just getting going you didn’t need to demonstrate where the revenue would come from nor would you have to show why the time is right for this business. Basically anything that could gain internet eye-balls would be nothing short of revolutionary.
This is important context because it highlights where we’ve come from over the past 20 years. Over these years investors and entrepreneurs have had to face the reality that regardless of what they are doing, they are building a company and eye-balls won’t pay the bills.
So to answer the original question I believe that we can learn the most from successful business leaders about what it takes to run a successful business. Yes of course investors all have their preferences but it’s the fundamentals of running a business that should be the common denominator. One of the most prolific business leaders of recent generations is Jack Welch who revolutionised how business was done at General Electric across a large number of subsidiary companies and was so successful that his namesake management school became legendary worldwide.
Jack Welch figured out that 3 metrics that he judges any company by and these are: customer satisfaction, employee engagement and cash flow. Regardless of whether you’re just launching a product or need to fix a business, these 3 metrics are absolutely key. Remarkably I hardly ever come across businesses that have these on their radar so explicitly. One company I met said they track 75 things to which I suggested they can easily fall victim to not being able to see the wood for the trees.
So, having just those 3 ‘Jack Welch’ metrics at the core of what you do is a good starting point. In addition, from all the business pitches I’ve attended, it’s become apparent that the other basics are not being adhered to, namely ensuring you have a clearly defined mission, a comprehensive business model and well-defined value proposition.
It’s absolutely critical to have a clear mission statement. Often this is something that needs expert help. For something seemingly simple which is to define your business and goals in one sentence, many founders either overlook this step completely or come up with something that is self-limiting or has other biases. For this reason working with someone who deeply understands where you want to go with your business and has a strong ability to position the business idea is essential. Beyond the mission statement, the shared vision statement is the ‘real deal’. Most successful large businesses are working internally with a shared vision statement but they typically don’t publicise it because it’s somewhat long-winded and too much for the general public to care about.
Lastly, “business model” is one of the terms most freely tossed around by founders and management teams. Too often I hear overhear conversations like:
“Good pitch and nice idea, so what’s the business model?”
“Our business model is to take x% commissions on every marketplace transaction.”
“Okay, makes sense.”
No, it doesn’t make sense. ‘Business model’ is not synonymous with ‘revenue source’. A company’s business model must consider so many aspects including: value proposition, cost types, revenue types, channels to market, partners, customer segments, assumptions, market trends, priorities, and other key information to clearly define the business you are in and the broader ideas you are working with.
In summary, the biggest investor ready tip would be to ensure you have the following:
• Management focus to manage the business across the 3 core metrics of customer satisfaction, employee engagement and cash flow, with the ability to demonstrate how you do this;
• Clearly defined mission statement and ideally a shared vision statement;
• Defensible business model that is comprehensively defined and documented including a clear and understandable value proposition.
Whether they know it or not the businesses that are getting funded, or at least are highly attractive to investors, are the ones that have all of these in place. The more I work with entrepreneurs and identify the reasons they are stagnating or otherwise stuck, the more I notice the same pattern which is that these basics have not been developed properly.
As always, feedback is very welcome. I’m keen to learn what others have experienced and whether the ideas outlined here resonate. Also if you need help with defining any of these elements then get started with our free guide “7 rules for raising capital” available here.
CMS360 is a set of management practices and solutions designed for today’s high growth companies. Our frameworks guide teams to be successful in launching and scaling businesses and the online program consists of courses, coaching and community. www.cms360.org