Most investors have experience of putting money into a project that looks and sounds very promising, but which ultimately fails because customers don’t actually buy the product (or service), at least not at the anticipated price. Creating business models that sound plausible is relatively easy, but how do we convince investors that customers will actually buy?
Here are the top five forms of evidence I believe help to convince investors that a company can achieve its sales targets…
1 – Sale
- Actually having successfully sold the product will demonstrate unequivocally that customers are prepared to pay, and that the company knows how to sell to them.
- Investors will want to make sure there are other customers like those that have already bought.
- Even if the sale is a paid evaluation or pilot programme, it is still hugely significant.
2 – Purchase Order
- Where the sale can’t take place until investment is received to complete the product, a purchase order or advance sale is the next best thing.
3 – Letter of Intent
- A letter of intent (or letter of support) is not contractually binding but still provides a strong indication of customer interest.
4 – Market Research
- For consumer and high volume business to business products, market research can give very strong indications of buying propensity for different price points.
- For all markets, research can help build a strong understanding of market structure, segments, and sentiment which enhances credibility.
5 – Target List
- The business plan should be describe in some detail who the customer will be – either by classification or name.
- Detail is more important for early sales – and for B2B offerings where the number of sales may be relatively small target customers should be named explicitly.
- As the business plan shows growth in sales, the target list should make clear why the numbers grow – new segments, channels, geographies?
These may sound like really obvious things to make sure you tell potential investors, but all too often I find they are only mentioned when investors start expressing concerns. On a number of occasions on TV show “Dragons Den” we’ve seen entrepreneurs apparently lose nearly all interest from the Dragons, then mention as an aside at the last minute “I have an order for 100,000 from company X” – completely changing the tone of the conversation. I’ve seen that happen in conversations I have been part of too, so I don’t think it’s just a TV show phenomenon.
If there is evidence behind sales figures, I think it is important to lead with it and cast its positive light over the conversation from the start.