Why Growth Funding Fails
It’s not about the gap in the market, it’s about the market in the gap. Not a new line, but still one that is often forgotten or misunderstood.
It is something I often see when a business is trying to justify it’s growth plans and projections. It is also something that lenders and investors are really hot on.
The Common Example
The most common way this misunderstanding manifests itself is in how a business determines and justifies it’s potential. If you have ever watched Dragons Den then you will have heard this line.
‘The market is worth £xxbn, I only need 0.1% of the total market share…’
Who cares? Wanting and getting are totally different. I remember my parents saying ‘I want doesn’t get’ and, yes, I have used that line myself. The fact that you only need a small share of a large slice of cake is of no real consequence.
You may have identified a gap in the market but have failed to identify the market in the gap.
Switching it around
Instead of focusing on the share of market required, provide forecasts along with who your next five clients will be. Focus on the need you solve and how you access those clients.
By focusing on the clients you are going to win you demonstrate a few key strengths to the lender;
- You have thought about and identified your actual target customer rather than a sector, you know where your sales (and repayment for any lending) is coming from
- You know your business and how to grow it
- The early stages of your forecast can be relied upon, it is quantifiable rather than bluster and hot air
The bottom line is that by approaching things this way you engender trust and differentiate your proposal from the rest of the pile sitting on the lender’s desk.
Remember, it’s not the gap in the market but the market in the gap.
By Dave Farmer
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