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The secret to getting investors for your small business

The secret to getting investors for your small business

The need for more cash is a perfectly normal objective for fledgling businesses, and yet it’s precisely this mindset — ‘thinking selfish’ — that can alienate investors.

When seeking investment, few people consider what investors are looking for in a business. Most business-owners think about what the investment will mean for them, rather than for investors. Consequently, many pitch their ideas to investors this way: ‘Let me tell you how extraordinary my product/service/idea is and how it will benefit from more cash from you’.

It’s often believed that if an idea is good enough, investors will be clamouring to get a piece of the action. Sadly, this is not the case. This is not because the idea has no merit but because the benefits of investing in the idea have not won over investors.

Oded Shenkar, professor of management at Ohio State University, tells us that the value of most ideas goes not to the originators of that idea, but to the imitators. For instance, Diners Club may have invented credit cards, yet it is not the biggest player in the market. Similarly, the US originates plenty of new ideas, but China imitates – and it is the latter that has built its economy by investing not in new ideas but ideas that are working.

Which brings us to ‘thinking scared’. This is one of the biggest reasons why businesses fail to get investors.

Investors may be successful enough to have spare cash lying around to invest, but few (if any) have so much that they are immune to the fear of losing it. This is particularly true when it comes to new ideas; we are innately afraid of them.

But this doesn’t mean businesses shouldn’t innovate. It means when seeking investment for anew product/service or idea, businesses need to ‘think scared’ and make it as safe an investment as possible.

One way to do this is to link the idea to business models and concepts that are tried and true, instead of emphasising the idea’s radical differences. It may be tempting to use words like ‘revolutionary’, ‘breakthrough’ and ‘never seen before’, but this type of language can also instill fear. For instance, think about how one would have pitched Skype to investors: it’s just like making a phone call, only cheaper because it uses the internet. Similarly, Menulog could be seen simply a courier service for food.

Ultimately, it is about ‘thinking stupid’. Businesses should communicate clearly with investors, and try not to overload investors with too much information. The offer, and the conditions of their ownership, should be simple and straightforward.

Businesses also need to ‘think selfish’ by making it beneficial for investors, ‘think scared’ by making the idea a safe bet and ‘think stupid’ by making it easy to understand and invest in.


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