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 is published on Mondays.
RESEARCH TRIANGLE PARK, N.C. – Your potential investors want to know if customers will buy your product or service.
Anybody can get some number of potential customers to say wonderful things about your product and services. Concluding that they will actually buy is not wise. What they say doesn’t mean a hoot unless they will actually buy your product or service.
If you are building a brand new company with no customers, how do you prove that potential customers will buy? Here are some tips that might be convincing.
Know the Purchase Economics
For most anything you are selling, you must be able to show, in quantifiable terms, what the financial benefit is for purchasing your product. This requires an analysis of the financial magnitude of the problem your potential customer is facing and a financial benefits analysis of the positive impact that your product or service will have on that situation. Sometimes this is called the return on investment (ROI) analysis. You need to be very conversant in making this kind of analysis for all your potential customers. If you don’t, the buying decision is in jeopardy.
How Do Buyers Buy
You really need to know how your buyer makes buying decisions. Find out where they learn about new products. Know what the decision making process is going to be. Find out who the decision influencers are. Absolutely know who they buy from, whether it is from direct sales people, value added service providers or distributors. You need to know these things about your sales cycle in order to plan out your marketing and sales strategies.
Refer to Your Competitors
Take a look at what your competitors are doing. If they have customers who are buying solutions to the problem you are going to be solving, then you have a proof point that buyers will actual spend money to solve the it. If your product or service is superior to these competitors, then one might conclude that buyers will buy from you instead of them. This is significant proof that you are going after a viable market.
Talk to Your Buyer
It seems obvious, but you need to find out these things about your buyer by actually talking to them during your market research. If you haven’t talked to a few dozen relevant customers, you haven’t done enough homework. Trying to learn this kind of information through second or third party references is ineffective. There is nothing more convincing to investors than being able to cite real customer feedback about potential purchases.
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.