Play the Traction Card
You must be ultra prepared when you are pitching to investors. However, being prepared means more than just being prepared for the meeting. You must prepare your business to a level that gives investors confidence in you and your team, shows a market for your product, and indicates that your business can scale to a level that will give an appropriate return for investors. You must always remember that top level investors will test you by asking awkward questions. They will push you and observe your reaction. They will be observing not only what you say but how you act. The buzzword that you should always remember in this situation is confidence. The best way to convey confidence is to have your homework done and have a business that is getting some good traction.
I cannot over emphasis how important traction is. It’s a critical foundation for you to advocate your business plan to potential investors. If you don’t have traction it’s very hard to argue your point.
Here are some demo questions and answers that you should be prepared for. They show the importance of traction as a base to support your plans. I have picked the more difficult questions that many entrepreneurs come unstuck by. These are real questions that I have encountered as an entrepreneur.
1) Question: Your team is not very experienced, I don’t know if you can deliver. Is there anything that will give us confidence in your team?
Answer: Since we began the business we have achieved $X sales with a relatively low marketing budget. In the last three months, we have been profitable, and as a result, the business is now self sufficient and we are paying ourselves. This business is already a success and we have shown a high degree of competence in achieving this success. We want to carry on our success and scale the business. We believe that our results speak for themselves. We understand that there are some gaps in our experience. However, our experience with this business so far demonstrates our capabilities as entrepreneurs.
Note: Use your past results as a means to advocate your competence. You do need to have achieved positive results in your business. If you haven’t got any traction then you will have a hard time answering this question. Rember, never talk yourself down.
2) Question: I don’t think your projections are realistic, did I miss something?
Answer: Our projections are based on conversion rates that we are actually achieving. These conversion rates can be maintained as we scale. We make $X on every $Y spent on Google AdWords. We have used Googles Traffic Estimator to show that this can be maintained as we ramp up our PPC spend.
Note: You show that your projections are being achieved in the real world. This makes it very hard for a potential investor to shoot them down. It’s very hard to argue against reality. I understand that organic web traffic is the best way to attract visitors. However, Pay Per Click (PPC) gives a tangible matrix that can be measured. It’s easier to present as part of a plan.
3) Question: Your competitors’ products are much better than your’s. Why would anyone want to use your product?
Answer: Our product meets the needs of X niche much better than our competitors’ products. This is the reason that we have generated word of mouth and made some early stage sales. You should read this review from reviewofyourproduct.com. It answers your question quite well. Also, here are some quotes from our current customers.
Note: It’s always good to introduce independent third party references for your product. Reviews in industry magazines, websites and blogs help dramatically in backing up your point. Also, it’s a good idea to have quotes from actual customers in this situation.
4) Question: Regarding the international market. I don’t see any infrastructure in place that shows you can make this work. How are you going to sell internationally?
Answer: A substantial number of our early customers are international. They have found us through our website. Also, we have noticed that once we get a customer in a region many more follow afterwards. This shows that our product generates a good degree of word of mouth. Look, we are already selling worldwide and this model works for us. There is a lot of room within this model to scale. We intend to do this first before we apply other marketing methodologies.
Note: Again you rely on your traction to back up your point. Without it, it’s very difficult to put forward a convincing argument.
5) Question: You have no sales staff I am not happy with your business model. Can you convince me otherwise?
Answer: When we started out we couldn’t afford to put sales staff on the road. Instead we developed a business model based on Internet marketing. We focused on creating a product that generates word of mouth. To put it another way, our customers are our sales staff. Because we have worked hard on constantly improving or website sales and marketing engine, we have made it easy for people to spread digital word of mouth. Again, this model is working for us. We just need to scale it.
Note: If your current model is not giving results then investors won’t back it. You need to base your assumptions on real results. This is the best way to show that your planned model can work.
6) Question: I have looked at the Key Financial Indicators for your sector. Your assumptions are totally out of whack. Why should I believe them?
Answer: I have also looked at the Key Financial Indicators for our sector. However, the difference between us and the average business in our sector is that our business model is much more streamlined. As a result, our assumptions are different to the Key Financial Indicators. Be rest assured, our projections are based on actual results that we are achieving right now.
Note: Again, this point is almost impossible to argue without being able to show real word results. As you can see, traction is the glue that ties your business plan together when under inspection from external investors.
You see when faced with either Venture Capitalists or Business Angels you really require traction in order to put forward a good case.
