(It’s a long read but I believe its useful knowledge)
From the dialogues of ideas, we had yesterday on my wall about 30k investment, myself and a few investors who were reading through the various discussions and ideas to find if we can put our amounts of money behind a good and solid proposal, found out some mistakes people are making, which I think I will love to shed more light on, to increase your chances of attracting investment into your business.
1. A good idea is no longer enough:
Except you are coming up with a vertical solution (as Peter Thiel describes it in his book Zero to One), which is a completely new innovative, ground-breaking idea such as an iPad or iPhone which can be patented for intellectual property protection, having a good idea is not enough to woo an investor to put his money into your dream.
Ideas are everywhere and nobody has a monopoly over overthinking. So if you have conceived a good idea, don’t rush to an investor with it. Put the idea on paper, do a lot of thinking, brainstorm, don’t rush it, don’t be afraid that you have to move fast because someone else may start it ahead of you. The journey of business has taught me that having the first move advantage is only good if you moved with proper strategic thinking and planning, otherwise, someone else will take their time and use your failures as a Guinea pig, perfect your idea and step in big and more proper than you did, by that time you may not have the opportunity to do much damage control to your customers with your earlier mistakes and you will be caught in a crossfire of trying to stay ahead of the competition whilst dealing with all the flaws you are saddled with due to lack of proper planning.
For a new business venture as a budding entrepreneur, the direction is more important than speed. So take your time and do your homework well.
2. Research the Idea and understand that Industry
When I was starting my water business. I traveled to 3 regions, visited over 10 water factories, asked questions, and took pictures, understanding different parts of the business. I didn’t even know that, saying “Oasis Mineral Water” has a different implication with the regulator (FDA) from saying (Oasis Drinking Water). These two look ordinarily the same to a consumer, but they mean two different things.
In my research, I realized that you cannot be using GhanaWater as your source of water and use “Mineral” in your name. Also, sources of water are determined to label, so if you are picking your source from a spring rock, it’s different from the borehole and different from Ghana Water and all these affect your TDS. The treatment process also differs. Initially, I used the name Ozone Water, and I was advised that the word Ozone has technical implications because it seems to suggest that the treatment process I intend to use is by Ozonation, meanwhile, I was planning to use Reverse Osmosis. But my research saved me the cost of making mistakes that might have depleted my capital. If I hadn’t researched and I had gone ahead to design and print logo, bags, sachets, print mould (block/stencil), etc I would have incurred the cost to have to change everything all over again.
Today, I know almost every nook and cranny of the water business, from packaging to production to marketing to logistics to storage to treatment, etc
When you get an idea, you need to then immediately educate yourself extensively about that industry. So that when you meet an investor, you give him the impression that you know your stuff and have learned a lot about that industry. That way, the investor realizes that you are not just looking for quick money to move, you have equipped yourself with relevant knowledge that will reduce your proclivity of making mournful and lugubrious mistakes that could erode his investment.
Many businesses die and suffer because of a lack of sufficient research and specialized knowledge by the entrepreneur himself. So he resorts to trial and error which puts the investor’s money at risk – no investor wants to have the slightest feeling that he might lose his money if given to you.
3. Know your Numbers!
I am sorry, I understand that many people have a phobia for Maths, and even though in my view, maths is the simplest subject I have ever had to personally enjoy, it is also largely a terror to many people largely because of how they were introduced to it by inept teachers. But as an Entrepreneur, you must understand the numbers of your business; this is one of the biggest flaws of young entrepreneurs.
When you are painting a pitch to an investor, please paint them in numbers and not in emotions, passion, or feelings.
The investor wants a realistic breakdown with a justifiable practical explanation to them. Do not miss very basic calculations; it makes you appear gawky and lumbering with your business pitch.
Yesterday during our discussions on the 30k post, someone painted a good idea about Barbering shop, in all of his calculations, all he highlighted as monthly expenses was electricity bill (utility). Fortunately, I have run a barbering shop before (HairSoft Solutions) which failed. So I know that business inside out and why it failed. So I pointed out to him that his numbers were completely out of place and flawed.
Something as basic as wages to pay the barbers was not captured, he forgot that blades, towels, cotton wools, scissors, methylated spirit, etc deplete and have to be restocked, and they are all costs. What about CAPEX such as rent, and factoring in an increment of rent by at least 25% for the next renewal? If he did a thorough OPEX, he will have realized that all his projections were wrong.
4. Start the Business anyhow small by yourself
Take this from BigG, from my experience in this continent; the fastest way to get an investor’s attention is to have started the business yourself.
Someone in the comment wanted the 30k to start a business that will go into graphic design, web design, laptop repairs, etc. And in his “show workings”, he explained that he was going to rent a shop, “spec” the place, buy tables, chairs, printers, air conditioners, etc and hire a graphic designer, web designer, laptop repairer. Then he went on to explain how much each of them will likely make a day from design works and laptop repairs.
The first question on my mind was, why do you need an office space with tables, chairs, air conditioners, etc to start a web & graphic design business? Why can’t you start on your Laptop from your bedroom? After all, that is how I started Websoft Solutions almost 15 years ago!
If an investor will follow his guts to give you money, he must see your guts ahead of the game. He must have seen you doing it yourself, with the little scarce resources you have, so he can see how personally serious and shrewd you are. This gives the investor a good basis to evaluate your drive, and also it brings a realistic perspective to your numbers and financials. It also humbles you, depletes your emotions, and puts you in a reality check.
That helps the Investor to manage your shareholding expectations, because when the business hasn’t started at all, how do we deal with valuation? Everything will remain tentative and the risk becomes too high on both sides – fortunately for you, the investor has more to lose if the business fails, so he wants to see that you have come to the reality that your business is not worth so much equity preservation that you desire to keep to yourself after all. And even if it’s a loan, you will value it more.
I have more to say. But this is getting too long lol. And you know typically my articles can belong. But believe me, this is like a summary of a whole book I could write just from the comments and interactions that came through yesterday on the ideas post on my wall.
But guys, I’m impressed with all the various dialogues I read yesterday, we the youth of this Ghana are amazing, we are thinking great, and may God reward our hustle with blessings. I have identified a few potential ones which will require that I help them polish their idea and then we see whether the money can be advanced to them.
