Editor’s note: “The Angel Connection” is a new feature in WRAL Local Tech Wire. LTW asked consultant Bill Warner to share with readers advice for entrepreneurs seeking investment. He is chairman of the Triangle Accredited Capital Forum, an angel investor network with over one hundred members throughout the southeast. The Angel Connection will be published on Mondays.
RESEARCH TRIANGLE PARK, N.C. – Before you ever approach an angel investor, you absolutely need to understand your business and have done the research and analysis necessary to write a business plan. One of the first questions you will get from any investor is: “Who will buy your product or service?”
You need to have a crystal clear answer to that question or the investor will conclude that you do not understand your business.
Know the Market Where Your Buyer Lives
The foundation of your entire business model is based on a large and growing market in which a compelling problem exists that a buyer will spend money to fix. You must know everything about your market opportunity and what drives it:
• Description of the market
• The problem you are solving
• Market size
• Market growth rate
• Market drivers
• Industry trends
• Buyer’s purchasing preferences
• Key alliances
• Required sales and distribution channels
If you are not able to explain these things and answer the hundreds of questions you will get about them, the investor will conclude you don’t have a business and your chances of getting any further interest is near zero percent.
Profiling the Buyer
In business, profiling is necessary. First, within the kinds of companies who are having the problem you will be solving, you need to identify the person who has the purchasing authority to spend money to solve it. That is your buyer. Then, you need to understand everything that affects the buyer’s purchasing decision:
• What is the buyer’s role within the company
• What is the purchase decision making process
• How are purchasing recommendations made
• Where does the buyer learn about new products and services
• What are the buyer’s purchasing preferences
• Who does the buyer buy from
• What are the dollar limits of purchasing authority
Talk to Your Buyer
You need to go meet a few potential buyers as part of your business plan research. The strength of your understanding of the buyer is tremendously enhanced when you actually confront eight to ten of them and learn about their perspective of the business problem you are going to solve and their view of how you can get them interested in purchasing your product or service. Whether you have focus groups or interviews, do this task well so that you get information that is not filtered by your own bias. Knowing what real buyers think is like mining gold.
Avoid Future Pitfalls
Do a thorough job of learning about your buyer. It is best to do the work up front to understand the buyer than to learn later that you have it wrong when it may cost a lot of money to rework your plan, products and services.
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.