Focus, Focus, Focus – What Investors Want to See

Editor’s note: “The Angel Connection” is a regular feature in WRAL Local Tech Wire. LTW asked consultant Bill Warner to share advice for entrepreneurs seeking venture capital investment. He is chairman of the Triangle Accredited Capital Forum, an angel investor network with over 100 members throughout the Southeast. The Angel Connection is published weekly.

RESEARCH TRIANGLE PARK - Investors are very sensitive about the focus of the company. They are always looking for the signals that tell them that the company is on track and is focused on meeting its primary objectives. Let's go deeper into what the investor is looking for.

1. Have a focused market you are pursuing

From the onset of a business idea, you must be able to narrow in on a specific market opportunity. If your business plan discusses more than one primary market segment, you are in trouble. Why? It takes a lot of resources to pursue a single market. For each market segment, you will have to have the right product, marketing approach, sales channel, sales skills, support structure and administration. If you try to go after more than one market at a time, you will be multiplying the resources you will need by the number of markets you are chasing. This adds tremendous risk to your company, increasing the possibility of failure because you are doing too many things at once. Additional market opportunities can be pursued, once the first market is successfully addressed.

2. Have a focused understanding of your buyer

It is fairly common to see new product or services proposals that are painted with a broad brush when describing their exact customer problem that is being solved and who will be the buyer. You must clearly answer the question, "who will buy the product or service, and why?" This requires you to explain the customer problem that you are solving, bringing it down to dollars and cents. The buyer's return on investment has to be large and fast in order to compete with other buyer priorities. Know how to reach the buyer. Know how to influence the buyer's decision. Know how they buy. If you don't know these things, nobody will believe you know how to sell your product or service.

3. Have a focused product that wins

Your product or service has to be a "winner." That is, it has to clearly meet your buyer's needs, be better than all other alternatives available to the buyer, and bring home a high priority "must have" business opportunity for the buyer. Quite simply, if you cannot describe your offering in these terms, you probably don't have a winner. Your product has to be offered at a competitive price, but also be affordable to develop, market, sell, manufacture and support.

4. Have a focused marketing plan that generates leads

The marketing plan has to create awareness, excitement and interest in order to generate qualified sales leads. Marketing is all about getting sales leads; nothing else counts. If you are using the wrong marketing tools to achieve this, you are wasting money and will not get sales traction. Advertising in publications that aren't read by your buyer doesn't make sense. Tradeshows that don't attract your buyer is a waste of time and money. Don't spend money on marketing unless you can clearly see how it will generate leads.

5. Have a focused sales approach that affordably closes sales

The sales approach has to turn sales leads into closed sales. Selecting the most effective and affordable sales approach will ensure you make a profit. Selling a low priced product through direct sales people is not affordable. Selling direct while using a distributor/dealer channel is redundant and conflicting. Compensation models have to be attractive to sales people. Carefully think through the right sales model for your business.

6. Have a focused financial model that describes a successful business

Of course, the most mind-numbing part of running a business is making sure the financial model really works, from both a profit and cash flow point of view. Many companies miss the fact that starting a business with delayed cash collections creates a negative cash position when you have bills to pay before you collect the money. Having a cost structure that leaves insufficient gross profit to pay expenses is a non-starter. Spending more on marketing and sales than the price of the product is disastrous. Your financial model needs to be viable and a lot of careful analysis is necessary to avoid running out of money.

7. Have a focused and experienced management team

There is no substitute for wisdom and experience, and every company should have a healthy share of it in their management team. Companies go through many transitions as they grow. The management team has to know how to deal with the unique business challenges at every transition point. Having successfully managed these transitions many times before is essential for a growing company. Else, the company will stumble their way through them and run a very high risk of failing.

8. Have an unwavering focus on meeting your milestones

Nothing is more powerful than getting business results. If you have developed a high quality product, created a lead pipeline, achieved sales, won awards or gotten a patent, you have been meeting important business milestones. It shows that your whole team is dedicated to getting things done, on schedule, within budget and with high quality. Investors and board members are attracted to teams that are successful.

Focus! Focus! Focus! There is nothing more important to your success. Companies that stay on a focused track will have the greatest chance of success.

About the author: Bill Warner is the Managing Partner of Paladin and Associates, a business consulting firm in the Research Triangle Park area of central North Carolina, and is the Chairman of the Triangle Accredited Capital Forum, an angel investor network with over one hundred members throughout the southeast.