Friday, May 9, 2008/
Getting start-up capital is one thing. But how do you go back to investors, cap in hand, and ask for more money when times get tough. GAIL GERONIMOS
I don’t need to tell you how hard it is to raise equity capital. So when you get the money you have done a mighty job and deserve congratulations.
Now to make it all work…
I’m advising a team who managed to raise just over $1.7 million from investors. These entrepreneurs are smart, they know how to play the game and they work like there’s no tomorrow.
They are the sort of team that investors love to work with.
But there are dark clouds overhead. They have just two months left in terms of cash, no hope of any sales within about four months and face the prospect of sacking half the team.
How did it happen?
There are a number of factors.
First, there are problems with the product. The customers found the service difficult to use with a couple of key features that needed to be fixed before there is any chance of good sales. That meant going back to the developers and spending more money that was not in the budget.
The marketing strategies did not pan out. The advertising fell flat and there was no real focus on actually making sales. Lots of impressive marketing strategies (that aren’t working) but little attention to getting the sale.
Why do entrepreneurs hate sales? Well, perhaps they don’t hate sales but they sure as hell don’t embrace sales. When you’re getting started make sure that you have a clear, tested and documented sales PROCESS in place.
A sales process involves these five elements – getting leads, nurturing those leads, building the relationship, making the sale, and maintaining the relationship. Most companies focus on just one step – making the sale.
If you don’t build a strong relationship with your customers then they will desert you at a whim.
I have seen companies that have very low end prices ($100/sale) build strong customer relationships and still make great profit. Building relationships is not necessarily an expensive exercise.
Back to the entrepreneurs…
The highest priority now is to raise more capital from the investors. That’s the only place where this team can get the money they need in the time they have. We have spent the last two meetings talking about the approach to the investors.
This is tricky. How do you keep the confidence of the investors when it has gone pear shaped?
The key here is to lay out a plan to fix the problems. Don’t carry on about all your troubles and problems. Get advice, explain what went wrong, eat humble pie – but most of all tell them how you plan to fix it. Set out your plan in a few clear steps – give your investors a sense of comfort that you’ve learnt lots, you’ve looked for new ideas and you know what to do to fix things.
This is a critical time and the future of the business rests in a few key meetings. If your investors don’t believe that you can do the job then you will not be around to share in the champagne.
Investors will act to protect their investment. That does not necessarily mean protecting you or your business.
If this happens to you go and get advice from people who have been faced with these situations. You’ll be surprised how much better you’ll feel and how much information that you get. Don’t be afraid to talk about your problems.
This happens often in the land of entrepreneurs. So people know how to handle it.
Don’t panic, get advice, keep the investors feeling comfortable, and find the answers.
Till next week…
Gail Geronimos, is the founder of Achaeus, which helps entrepreneurs develop their businesses and she has just started a new site www.pitchingtoinvestors.com with tools and tips about how to develop killer presentations to raise capital.
To read more Gail Geronimos blogs, click here.