It’s very easy as an early-stage founder to concentrate only on the product on which your startup is centred rather than the many aspects which come into play when creating a successful business.
It’s easy to focus all of your creative thinking on your product, and ignore areas like sales, marketing and finance.
But focusing on these areas, especially finance, could elevate your ingenious idea to the next level. When it comes to investors, think outside of the box. They don’t just offer cash – there is so much knowledge that can be gained through investors.
It’s difficult to take a wider view when the primary hurdle you face when running a small business is cashflow. Getting cash from investors becomes, of course, the main focus. In combination with a time-poor diary, looking for ‘knowledge’ investment can end up pretty low on the list.
When founders do this though, they miss out on some of the biggest opportunities that could be the making of their business. It feels less quantifiable than hard cash on the table, but you should consider that expertise and connections an investor can offer can be much more impactful than money alone.
The chasmic gap between development and sales
It’s no secret that many small businesses struggle in their first few years. Ahead of them is a canyon, and they have to get from one side (product development) to the other (actual sales). The size and difficulty of this task depends on the time it takes to get their product off the ground and start selling.
Cash investment certainly allows businesses to start the journey, but they must secure the right amount if they’re to reach their goals. Setbacks in any number of areas including product development, staff turnover and ineffective marketing can cause huge setbacks to early stage startups, stretching resources further and requiring even more investment to keep the business on track.
This first stage of a business is the most dangerous and risky period they will face. By bringing further business acumen into the company – including knowledge of product development, sales, marketing, connections with relevant customers – founders have the power to make this initial push a much easier and shorter process, requiring less cash investment, and so making the early-stage journey much more achievable.
The hamster wheel of investment
Another issue with sourcing only cash investment is that, on its own, it’s not sustainable. Founders can very quickly find themselves in an endless cycle of chasing investment, funding the next project, running out of money and chasing investment again.
Product development drags out as the founder spends so much time trying to find investment, and the focus shifts away from sales. Then, once the product is created, there isn’t enough of a push to sell, so founders continually try to source investment.
The issue here is, that despite money coming in, it’s not from a sustainable source. Only once a product starts selling, can businesses enter a more healthy cycle: sales, word of mouth, more sales, money invested back into product development and marketing, more sales…and repeat.
So the question is: how does a business enter that healthy cycle of sales as soon as possible and how can founders benefit from knowledge investments – not just cash?
Other investor assets
Investors are in a great position to provide a wealth of knowledge to businesses. If they’re angel investors, it’s likely that they’ve successfully built a business themselves and are now looking to grow other businesses, especially within their own industry. Passionate about business, and well-versed in the trials and tribulations of being a founder, angels will have a wealth of knowledge and experience around how to grow your business.
If they’ve an institutional investor, they’ve likely grown a number of companies from startups to multi-million organisations. Generally sophisticated investors, they will have broad experience across a number of sectors and types of business investment.
For investors, there’s clear motive to provide insights, guidance and support. By providing businesses with cash investment alone, they’re missing the opportunity to enhance the growth and increase the profitability of the businesses in question. The benefit of cash only investment can hold back founders and minimise returns for investors.
There are three main assets investors can impart other than cash:
– Corporate connections
Investors will likely be able to put you in touch with potential customers, marketing teams, industry leaders and business advisors that they, or their portfolio of companies, may have used.
– Industry knowledge
They’re also most likely investing in your company specifically because they have experience in your particular industry. They will have valuable lessons to share with you including mistakes they may have made and the very best routes to market. Having this kind of industry-specific guidance can prove invaluable.
– Business acumen
It’s unlikely you launched a startup to do the ‘back-end’ jobs of sales, marketing, HR, logistics etc. The focus of your passion will be your ideas and your product and you will also undoubtedly be time poor. Investors can provide the business knowhow and bandwidth to allow you to zero in on your main responsibilities as a founder.
It’s not just investors that can provide the above too. Founders should seek as much support and advice as possible from other founders, advisors and non-executive directors to accelerate the growth of their business.
When you consider the wealth of expertise, advice and guidance investors can provide, it’s clear that early-stage businesses that seek such partnerships have a much easier journey in front of them compared to the hamster wheel of cash investment.
What’s even better is that there’s an enormous community out there of investors looking to impart both cash and so much more in order to maximise their return on investment and grow startups. They understand how much impact they can have.
Seek knowledge and cash and make the level up you’re looking for.