Your Company Not Your Product
When businesses look to raise investment finance for the first time they have a habit of not understanding what the investors are actually investing in.
Ask yourself this;
If you were to invest your money into a new start-up that had developed a unique way to detect heart disease, what would you think you were investing in?
The normal answer, and a natural one, is that most will see the product, it’s potential, and the growth market it could be sold into.
The product is what most business owners see as their company. The product is generally the child, the emotive being the company has nurtured.
What company owners too often miss is that when an investor looks at your business it is not the product they are investing in but the company.
The Difference, Product & Company
Often a company’s prime asset is a product or technology. Commonly this is a patented item or protected design, it is the reason the company is in existence.
The difference is that surrounding that product is a plethora of detail. It is this detail that can often be the make or break between getting equity investment or missing out. Think of things such as;
- Shareholding
- Infrastructure
- Staff
- Management
- Leases
- Overheads
- Debts
- Delivery
- Sales Channels
All of these will have a bearing on the investor’s decision, but still too many company owners will focus on the product only.
What To Do
Firstly, get your head round everything else that is going on in your business. Ask yourself how fit your business is to take on the investment and how many things will need to change to make proper use of your new cash injection.
If you are going to analyse things then start with a few key areas. Just because equity investment sounds complicated doesn’t mean it cannot be made simpler. Forget the intricacies and focus on the easy things, one of the best models to use for this is ‘Porter‘.
Porter looks at five key forces that impact on a business. If you work with these forces, flesh out the detail and build around them then you will start to put your company on a firmer footing and make it more appealing to future investors.
Good questions to ask at this time are;
- Have I got copies of key buyer contracts?
- Have I got copies of key supplier contracts?
- Are job descriptions in place that accurately reflect what the key people do?
- Are management systems solid and used effectively? (this means accounting, invoicing, sales management, HR, cost control, client management, service feedback etc)
- Are databases up to date, accessible and value adding?
All this is about ensuring your overall company is as good as the product you have.
Business Plan / Prospectus Mistakes
If you have read this far then you will probably guess this next part. The biggest single mistake I see with business plans written to obtain investment is that the plan does not fairly represent the business, rather it is a plan written around the product.
What I often find interesting is that these business plans cover the history, development, sourcing, sale and profit of the product but fail to show a Product Life Cycle. The Product Life Cycle is one of few common business models that is product specific, so why is it the one thing missing? I guess it comes back to not realising that equity investment is made in the company, not the product in isolation.
For more information about how to pitch for investment then contact us, alternatively you can check out some alternative advisers, get it touch and we can provide some details (Blue Horizon VC are a US based company and are worth looking at).
For any questions about this post then please get in touch or add your comments above and we will respond.
By Dave Farmer
Dave Farmer is founder of Lime Consultancy, an award winning business lending specialist based in Sussex.