The Entrepreneur Insiders network is an online community where the most thoughtful and influential people in America’s startup scene contribute answers to timely questions about entrepreneurship and careers. Today’s answer to the question, “What’s the worst thing you can say to a potential investor?” is written by Alyssa Lovegrove, associate director of the Georgetown Entrepreneurship Initiative, and Jeff Reid, founding director of the Georgetown Entrepreneurship Initiative and professor at Georgetown University’s McDonough School of Business.
Pitching investors is an unavoidable part of the entrepreneurial journey. Few startups advance beyond the early stages without the support of critical allies–those investors and strategic partners who can open doors, give you necessary guidance, and provide funding.
So how do you get them on board with your idea? Unfortunately, there is no exact recipe for success, but there are a handful of phrases you may wish to avoid if you want potential investors to take a serious look at your business:
“I’ve got this great app.”
Very few apps make money, and investors know that. Why? Many of them are free to the user and don’t actually create value for anyone–unless the audience interacting with the app is both enormous and using the app on a very frequent basis, which is pretty rare. Think about it. Most of us only have a few apps that we use regularly. That’s why you need such a huge marketing budget to actually break though.
Ask yourself whether it’s your app that is solving a problem or the product or service to which the app is connected. Uber, for example, has an app you can download, but you do so to use the actual transportation service.
See also: 4 Questions You Should Ask Yourself Before Meeting With an Investor
“We don’t really have any competitors.”
Not true. You are always competing with another solution, even if it’s not identical. And if not, the problem you’ve chosen isn’t a problem worth solving. If you claim to have no competitors, then investors will conclude that you haven’t done enough research on the competitive landscape, or you haven’t spent enough time with potential customers to know how they handle that task or solve that problem today.
All startups are potentially offering something different and better than what was there before. Otherwise, there would be no reason to enter the market. Use your competitor slide as an opportunity to explain how you are better, or why this hasn’t been done in this same way until now.
“I guarantee this will work.”
No new business opportunity is without risk. Acknowledge those risks up front–do not ignore them. It will help you develop a more robust strategy. A shrewd investor will look to see how you will respond to those risks and at your ability to anticipate and prepare for what might not go as planned.
“If we capture just 1% of this market, this will be huge.”
If 1% of your target market is that big, then you haven’t actually defined your target customer. In all likelihood, you are really aiming for a particular slice of that bigger market where the customer has a specific set of needs. If you can identify who that customer is, then you will dominate that niche.
A dominant position in any category is more defensible than a tiny piece of a big opportunity. And it’s a better basis on which to grow–knowing how you add value, and for whom, will give you many more clues as to other verticals you can successfully enter.
Hockey stick growth charts are not helpful. The difference between a business proposal and a fantasy is a clear launch plan. What assumptions are you making to justify that growth? What evidence do you have that those assumptions are valid? You need to be able to describe the scenario in which that growth occurs.
“We’re just focusing on revenues.”
You may not be profitable from the start, but you should have a clear narrative describing how you get there–and the sooner, the better. Will you become more profitable as you grow, and if so, how? Is the rate of return increasing or just the absolute amount of profit? If the only way to grow is to spend more on sales, and your cost of acquiring new customers isn’t gradually diminishing, then you haven’t yet figured out the business model. Don’t grow for the sake of it. Figure out what level of revenue is needed to generate an attractive and sustainable profit.
“I’m not putting in any money–my investment is sweat equity.”
To you, that might sound like a big contribution. To the investor, it simply means that you can walk away at any time–or at least as soon as it gets tough–without serious financial consequences. If people are investing their money, then they also want the founder to have skin in the game. By suggesting you aren’t putting money at risk (or haven’t done so already), you will struggle to build confidence among potential investors.
“The first $100,000 will pay my salary.”
Investors won’t take money from their pocket and put it into yours until you demonstrate that you can create–or have already created–a lot of value for them. And even then, they won’t want to pay you a big salary. They will expect you to be remunerated though the profits and the valuation you produce so that you’re focused on results.
They will pay you enough to pay the rent because they don’t want you to bail, but they won’t pay you a great deal more.
“I prefer to be my own boss.”
No one succeeds on their own. You need to build a shared sense of mission. And no one likes to work for someone who thinks they can do it on their own. Your investors are thought partners who have that healthy bit of distance from the day-to-day operations to be objective, but they have to believe you’re interested in their input and guidance.
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