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WHY DO FOUNDERS HAVE A DIFFICULT TIME RAISING CAPITAL (Part 1 of 10 Series)
By:
Sara Rauchwerger
Managing Director
Geron Vanderfeesten
Founder, Investor, Consultant
As recipients of thousands of pitch decks, working side by side with investors and investing in companies that successfully raised funding, we have seen repeatedly that one of the main reasons that companies are not successful at raising funds is because of a lack of understanding of what it means for a company to present an attractive investment opportunity. With this in mind, we have written this article, as part of a series of articles, to help companies understand how to evaluate their own business operations in order to capture their own aerial perspective before spending time on writing a pitch deck. This Introduction is focused on providing an aerial overview of the whole operation. Parts 1-10 will dive deep into each of the elements that influence strategic decisions in a company for success.
Introduction – Streamline Your Business Operations to Successfully Raise Funding
Early-stage founders face business challenges in all aspects of operating their entity. Founders need to juggle multiple priorities, from creating a product or service, marketing, sales to investments. However, one critical aspect that often gets overlooked is building and maintaining effective internal business operations that are strategically aligned with a set out vision and opportunity.
Founders often do not realize that one of the key reasons that they are having a hard time raising capital is because they are not focused on building their business – Executing on a set goal with an experienced team tackling a real market opportunity.
Startups generally are not thinking hard enough about how to build a solid corporate, well-oiled, commercially viable machine around their idea. There is a lack of understanding that great technology/product/service alone does not build a great company because all technologies/products/services may be great. Yet entrepreneurs who are able to build a scalable business around the product/service offering are much more likely to be successful at raising funds.
The bottleneck for investors is to clearly understand how these companies can execute on a set goal, demonstrating that the team is experienced enough (or can identify a required team structure) that can tackle a real market opportunity in a commercially sustainable way that can scale.
The Ten (10) Key Elements to Success:
To avoid the above-described pitfalls and learn how to set up your business to successfully fund raise, we introduce the overreaching principles founders often overlook in 10 key elements. We will discuss each element in-depth, as part of this series, so stay tuned for amazing insights from industry veterans who have helped dozens of startups raise capital.
What are the 10 key elements that early-stage founders need to be able to tell a “great” story, demonstrate they have a strong foundation to build a company that can scale and bring value to their customers, investors, and partners? Here are the 10 key elements for founder to consider that ensures the team achieves its goals, and the fundraising process generates the expected outcome:
1. Define your steps to success by setting clear goals and objectives for the business: Define what success means to your business, in what time frame and establish measurable goals and objectives to track progress. If you are not able to meet your goals, establish a contingency plan to ensure that your internal operations are not disrupted. Part 1 Available Now.
2. Build a realistic organizational structure: When the team is small, multitasking is an important element of an early-stage companies’ success. Determine the roles and responsibilities of each team member with a clear definition that roles are flexible and “everyone” must help to move the company in the set direction. Create an organizational structure that facilitates communication and collaboration with the right expertise and expectations.
For example: Early-stage companies do not need a separate human resource, finance or accounting person. Assign multiple roles to a qualified person as part of a growth strategy that can then allow this person to hire supporting help as the company grows. Combine other tasks within the company to minimize expenses. Part 2 Available Now.
3. Don’t skip on setting up early processes and procedures: It might seem tedious for an early-stage company to set up processes and procedures very early in its inception because it may feel like the company strategy is a moving target. But to build a successful product/service with the ability to capture your first/second/third and more customer engagement(s), it is best to start early and create an efficient and effective structural system in place.
These processes and procedures should be flexible and adjusted as part of your set milestone goals to streamline workflow and minimize issues/errors/problems. The reason you are in this business is to satisfy a customer need(s), hence having a positive feedback loop from your customers is more of a reason to set these processes early to develop your own internal capabilities. Part 3 Available Now.
4. Communicate, communicate, communicate: Build an effective internal communication mechanism that allows for an open line of communication among team members and encourage feedback, transparency, and accountability. Use tools such as Slack, impromptu meetings, formal meetings or any other communication platforms that can facilitate an internal channel that is open to avoid redevelopment, missing an opportunity for customer success and much more. Part 4 Available Now.
5. Plan ahead to acquire/steal talent: It is evident that early-stage companies do not have the funding to build a dream team. Using creative resources, equity-based hiring, part time talent and more can help push your company to an initial level that meets your goal. Focus on generating revenue to bring in the talent and the path of least resistance since seeking funding takes time.
Foster a positive company culture to attract the dream team when your business starts to take some roots. Don’t spend money at this early stage on talent, there are plenty of free services available starting from your own personal network to LinkedIn and more.
6. Manage your finances wisely: It is easy to spend on unnecessary activities such as overloading a product with features that only a few customers want to providing services that do not scale and satisfy only a few customers. Or spending on unnecessary internal talent, software products, or anything else that has no immediate value. If you are building a business to scale, minimize build time and focus on what most of your customers want so you can generate revenue and build traction.
Monitor cash flow by setting up milestones that bring returns (i.e., investing in the right resources at the right time). If you plan to have investment injected into your business, do not wait to seek out funding until you run out of cash. Start now while building traction and more importantly generating revenues to keep you sustainable.
7. Understand your customers and what makes them happy: You must understand your customers’ needs and expectations. It is essential that you identify your target customer(s) and understand what motivates them to purchase from you. Remember that your customers have options and can easily go to your competitors. Do not underestimate your customers, they know what they want and need. Your customers are your key source to ensuring your company succeeds.
If you have a brand-new idea, product, or service that does not yet exist in the market and requires you to create demand, it’s important to anticipate a slow start. Dig deep because almost every company has some form of competition, despite thinking you are the only one out there!!! Always account for the time to brand and adopt. Evaluate what makes you different to successfully attract an audience to your company and brand yourself.
The most effective way to win is to talk to your potential customers and gather early feedback.
8. You are allowed to make mistakes but learn from them: It is easy to make mistakes. Hence do not give up or play a blame game. Learn, adjust, and move forward. Encourage a culture of continuous learning and development.
Build a contingency plan at each milestone and carefully evaluate what end results you as a company would like to achieve.
Some common mistakes include bringing the wrong people to help build your company, so what, find others. Not clearly understanding your customers, so what, adjust your product offering and keep getting feedback until you get it right.
9. Do not over think use of technology and tools: Leverage technology and tools to automate tasks, enhance productivity, and improve data analysis. There are plenty of available free tools, however, before you start using any free tools, ensure that it’s the right tool for your future growth. Do not waste time on tools that are cool because everyone else is using them. Use tools that can help you achieve your goals while limiting your initial cash spending.
There are lots of companies/corporations with resources providing startup/early-stage companies free tools that can easily get you off the ground.
10. Is your purpose to scale your business: Your vision for the company is naturally focused on growth, but growing a business does not necessarily position you to scale. Clearly define your company’s vision for scalability (i.e., replicating customer engagement for a product/service that can reach millions vs thousands).
Be realistic on the market opportunities by developing a strategy that can show a clear path for expansion, a means to forecast future needs, and identifying potential obstacles along the way (i.e., economic influences to product adaptation or competition).
Building a successful company requires more than just having a good product or service. Founders need to focus on building a strong foundation of internal operations, allowing them to scale effectively and sustainably. By prioritizing these ten elements, your startup can establish a framework for success and achieve your goals to seek out investments at the right place and the right time.