Based on my own experience as a startup investor, and feedback from like-minded friends, we all get pitches for at least ten startup ideas for every one new business plan. New business founders need to remember that investors fund business implementations, not ideas. In fact, investors will tell you that ideas are worth nothing, outside the context of a real team with a real plan.
In fact, you can find websites on the Internet offering thousands of new business ideas, including “Cool Business Ideas,” “Ideas Watch,” and “Business Opportunities.” Amazon offers a multitude of books with free ideas, such as “Small Business Ideas,” and “Business Ideas: 100 Starting Points to Make Money.” In addition, we all have friends who harbor a few million-dollar ideas.
What we are all looking for are proposals that clearly have bridged the gap between an idea in the clouds and an implementable and financially attractive plan, put together by a skilled and committed team. If you follow these recommended steps before approaching investors, you may indeed convince someone that your million dollar idea could lead to a billion dollar business:
-
Gather some market sizing data from industry experts. Just because you and your friends are convinced that everyone will love your solution, that doesn’t mean there is a market. Of course, there are no guarantees, but if can find an independent sizing of the market opportunity, your job of convincing customers, and investors, will be much easier.
-
Show evidence that your solution will create a viable business. Not all ideas have cost-effective solutions, or customers able and willing to pay real money. Thus you need to build a working prototype, and project total costs, a winning business model, and real growth opportunity. A good social cause doesn’t always imply a viable business.
-
Test your assumptions in the target marketplace. With interactive social media and blogging, you have every opportunity to test and tune your idea before spending any real money. Sell your solution before you build it (that’s what crowd funding is all about). If you can’t build any momentum at this level, funding is unlikely to make a difference.
-
Draft a short pitch for customers, and one for investors. Contrary to popular opinion, these are not the same. The first is for people who might buy your product, and the second is for people who might buy a chunk of your business. The first is good preparation for a customer website, while the second is a prelude to a full business plan.
-
Formalize a company entity, website, and social media presence. With these, your idea is visibly and legally transformed into a business. For investors, these are required to prove execution ability, and for you they are evidence of business value and a new brand. I recommend you start with a Limited Liability Corp (LLC) and a winning name.
-
Stake your territory with some intellectual property. Just like an idea has no value in the abstract, your solution has minimal value generically until you put a fence around it as a barrier to entry. Nothing defines innovation, uniqueness, and commitment ability like a patent, trade secret, or a trademark. Investors pay a premium for this execution evidence.
-
Assemble key team members with the right skills and experience. Most investors agree that the right technology makes a product, but the right people make the business. An individual can have a good idea, but it takes a team to build a good business. The team needs to show marketing as well as financial skills, and the ability to communicate.
Remember, you only get one chance for a great first impression, with investors as well as customers. Both look for real evidence that you have something far past the idea stage, before they will consider contributing their hard-earned money. In addition, even you won’t know what you really have, or not, until you complete the key steps outlined above.
It’s a lot less painful to iterate at this level, until you get it right, before you ask for other people’s money or use all of your own to scale up. For all these reasons, I recommend that you limit your idea discussions to friends and potential customers on social media, and wait until you have a viable solution before broadcasting your funding needs to the investment community.
The only sure-fire approach to selling a million-dollar idea is to first build and sell a billion dollar business. Then every investor I know will line up to buy the idea without question.
Marty Zwilling
