Top 3 Questions For Startups
When I left corporate as a 9–5, I chose to focus strategic consulting on working with startups. I had worked with startups for years through Consulting and decided this was an area I wanted to go all in on. One mentor of mine cautioned me that there is less money taking this avenue even though it may feel more rewarding. Still, I chose this path because I believe in lifting others up and working with innovative and enthusiastic minds. But this journey hasn’t been easy, particularly as I navigated working with founders of startups without anyone else to have my back. In past lives, I had the opportunity to work with large teams and when the client pushed back, the team would generally work together to help the client arrive at the vision. When I decided to work independently, the only person to back me up was myself.
Despite my credentials and longstanding history in the field, founders (rightfully so) never take my guidance at face value — usually because of the poor picture that has been romanticized around being a founder of a Startup and how easy it is to gain funding. Most of the time, clients want to understand more and I absolutely love it when this happens. So, we end up having more conversations beyond what I’m engaged for. Still, in some cases, it’s because it’s not the news they wanted to hear and they’ll do whatever they can to get the answers they were hoping to hear that confirms an overnight success option that leads to $3M in revenue after month 1. Regardless of which camp you fall within, I thought it would be helpful to document the top three common questions I get that tend to be the most challenging to work through with founders who are excited to gain VC/Angel investment.
How Do I Calculate Projections for an Investor?
The simple reality is projections really should be reserved for when you have historical data to leverage and model from when possible. There are a lot of unknowns, especially if you haven’t done product testing or consumer testing, and putting projections in front of a potential investor that have no foundation is a dangerous came to play. If you are going to put projections in front of an investor, make sure it’s based on numbers you can defend. A top down approach (focusing on available market share and your estimated share of this) will cause any professional investor to chuckle and ask you to reconsider your numbers. Instead, focus on bottom up numbers that you can work with. These numbers can be guided by industry and competitor benchmarks. Still, I would caution in how you present these numbers and what you project. The best way to workshop projections is with a month-by-month outlook that considers the details and bottom up traction, and you’ll want to do a month-by-month outlook for 12–18 months at least, then up to 5 years. There are many templates online to help, but I encourage you to save your money and work with a consultant. Templates online don’t account for your business model and pricing structure.
A Note: I’ve heard some founders tell me that they have a unique product and there are no competitors or the market 6 years ago from competitors was a different time. This is wrong. There are always competitors meeting the need currently and their trajectory matters, however direct they may be, and the more due diligence you put into understanding this landscape the better your discussions will go with investors. When investors conduct their due diligence for your deal, they will look at 3–5 competitors on their end to comp their investment trajectories to determine a reasonable offering. Get ahead of this discussion to position your proposals for this.
When Should I Seek VC/Angel Investment?
Often, I have clients come to me who have a fantastic idea and want a launch strategy to complement their pitch to investors. If this is what you’re seeking, you’re not ready for investment, at least not Angel/VC investment. Investing too early in your businesses puts you at major risk. There is a reason many Startups don’t seek Angel/VC investment immediately, and it’s not just because they’re not dreaming big enough. It’s because strategically approaching your funding strategy can make all the difference in your growth and success of the business. Rather than jumping into pitching for Angel/VC funding, focus on executing your product. If you need funding to build your product, focus on options like Convertible Notes from Private/Friends and Family options and more Bootstrapping options like Crowdfunding — I would caution against Debt options if at all possible. The word of advise here is to choose any partnerships wisely as family and friend investor relationships close to home can be complicated. Build out your funding strategy and focus on inflection points where you can scale up your funding to VC and Angel to avoid over-dilution and big issues. There is no way I can cover all of the options here in one article and it really warrants working with Consultant/Coach to best determine where you are, your goals and defining that funding strategy strategically before you get started.
What Do You Think Matters Most for Growth?
Simple: A Strategic Approach. This applies to your product strategy and development, your funding strategy, your go to market and growth strategy, and your exit strategy. Whatever phase you’re at in your startup, a strategic approach is always going to help you win the long-game. If you’re jumping in and skipping steps, you’ll likely find yourself in an unfundable position — without cash flow, without equity to give, without the right leadership, and much more. Strategic approaches may take a minute or two longer, but if you’re really looking for your Startup to succeed, start with a strategic approach. 90% of startups fail because they fail to strategically approach their business from the start and can’t recover. Don’t be that guy.
