Platt Perspective on Business and Technology

Thinking like an investor as you plan and build your business – 2

Posted in startups by Timothy Platt on November 23, 2012

This is my second posting to a series that focuses on building a fundamentally sound business, that is designed and built in terms of meeting fiscal and other core business success requirements (see Part 1.) And I approach this from the perspective of two very simple questions, that I add are rarely considered, and certainly by first time entrepreneurs. You have what you see as a sound product or service idea that you would build a business around – an idea that you see as holding real monetizable value for real customers in real marketplaces.

• Are you building a foundation for a business around that idea that would meet the due diligence requirements of real world experienced investors?
• And closely connected to that, have you though through everything involved in actually doing that, and clearly enough so you can convincingly argue the case that your business idea and your approach to building a business from it are likely to succeed?

I began this series mostly focusing on the investor’s perspective and what they would look for but also partly focusing on the entrepreneur’s perspective and their homework requirements in the event they might actually seek outside investors and backers. But for purposes of this series, the important point is not whether an entrepreneur would seek or even want to bring in outside funding in this way. It is that they understand how investors think and that they do the same types of due diligence analysis on their own business that a third party investor would, to identify and address potential gaps and weaknesses that those outside investors would look out for. And I continue this discussion by offering a checklist of basic questions that you as an entrepreneur need to be able to answer.

• Does your business idea address a real marketplace problem or need?

If your goal is to develop, offer and sell a product or service, there have to be real customers out there who would see that as offering enough value to them to be worthwhile for them to buy it. And that means addressing a problem or need that they have, and as they perceive it. If you have an interesting idea but you cannot find a way to reframe it in terms of real consumer needs and ways to addressing them, you are doing basic research – not build a viable marketplace-oriented business.

• Are you going to address some real problem or challenge in a new and creative way that would give you competitive advantage as your business gets going?

Here, that does not have to mean finding a new way to do something that no one else has ever tried anywhere. It means offering something unique enough in your particular target marketplace to stand out, so you can start out with realistic hopes for capturing significant market share there.

Note that this can mean addressing a standard and ongoing problem or challenge in new ways. But this can also mean finding effective ways to reframe a problem or challenge, making novel approaches to addressing it possible.

And with that I turn to consider the entrepreneurs who would offer and develop these ideas. Active angel and venture capital investors are approached all the time by people with interesting ideas. Ideas per se are easy to come up with; the challenge is in finding the people who can turn their ideas into real working businesses, and who will follow through in the face of setbacks and the unexpected to succeed in that.

• How organized are these entrepreneurs for doing this?
• Do they listen?
• Do they have the requisite skills and experience to follow through on their business intentions, and to find and bring in the right people at the right time and the right rate, to fill in their organizational and operational gaps as they arise?
• Are they likely to be focusing on the right issues in the right order?

All of these questions and others that could be added that follow the same basic pattern boil down to a single overarching question:

• Can these people make this work and actually identify and follow through on all of the sequential decisions they have to make and steps they have to take?

At two installments this is a very short series, but it does highlight some crucially important points. If you want to succeed as an entrepreneur and as a startup founder think like an investor and ask of yourself, the questions they would ask you. Be hardnosed and insist on the details and both from yourself as you organize your thoughts, and from any partners you would work with on this. And if you find you would fail this investor’s challenge, step back and look to how you would do better in developing and presenting your case. And think and plan and refine until you are ready, and both to build and to convince others of your capability to do so. You can find this and related postings at Startups and Early Stage Businesses.

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