During the Fall and Spring semesters I teach entrepreneurship classes at Le Moyne College as an adjunct professor. My lectures for this week are covering the most basic questions regarding target markets and solving real problems, needs, and wants. At the same time, I'm also in the process of helping our 2018 StartFast companies raise their next round of capital. What's interesting about these two events happening simultaneously, is that it truly highlights the importance of the fundamentals. A number of potential investors are getting hung-up on the exact same questions I talk about in my intro to entrepreneurship class. That's because it's not enough just to have a great team and traction. Investors are people too. We have our biases and are prone to heuristics. What might seem to you like an obvious home run idea can often be met with stone cold skepticism. The truth is unless you can objectively prove answers to basic questions with data, they aren't going to pull out their checkbook.
I do not claim this to be a comprehensive list but below are 8 fundamental questions every entrepreneur raising capital should have objective, data based answers to:
What is the specific target customer base?Are you solving a "need to have" problem/need/want for them?How are your customers currently solving this problem?How do you know you can deliver value to them?Why does this opportunity exist now?Why is your team the one that is going to win?What is the repeatable sales process?How do you quantify the market opportunity?
When I say data based answers I do not mean just cherrypicking information from secondary sources. Those a required too but they are not sufficient. This is not a college business plan assignment it's an investor pitch. Investors want to see statistically significant primary sourced market data that you've collected first-hand. That means 100's of customer interactions from which you can see patterns and draw insights. It means removing as much bias as possible and asking questions which will provide you with objective answers.
Entrepreneurs are always very quick to add a flavored spin to their communications. Investors however are not interested in how you see the world they are interested in how the world sees you because that is ultimately what will determine your potential for success.
This is another reason why Customer Discovery is so very important. It is the foundation upon which you are building your business. Without that information your business stands as a house of cards waiting to fall over. Yes, sales traction is the ultimate validation but, it is still just a measure of past success. Unless you have a compelling story to explain that traction, to demonstrate that traction is predictable, then selling most investors will be difficult.
So here's how to approach that list. Your first job is to be able to answer each of those 8 questions using mostly quantitative data from primary and secondary sources. For example: "What is the specific target customer base?" A compelling answer could be: "We spoke with 100 potential customers and found that the 60% who expressed having this problem, and were in search for a solution, all fit the following profile ... "
Your second job is to be able to explain why this is the case. What is the background context to this story? Continuing the same example: "Based on our conversations and this latest industry report, we believe this to be the case because customers fitting this profile all have a particular characteristic, or are facing the same challenges in the marketplace, which are causing this problem to occur. The current solutions to this problem are all either targeting different markets, focused on different or broader problems, or are just simply the best solution that customers could cobble together by themselves."
Do you see how the storyline begins to unfold? That is what you are aiming for. You've objectively shown not how you see the world but how the world sees you. You are not pushing a solution for which no problem exists. You identified a market problem for which no valuable solution exists and formed a company to solve it. You are going to be successful not because your product has the best features and the best price but because you have your finger on the pulse of this market better than anyone else.