How to convince investors that your business is ready to scale up
Do you have the right team in place?
Are your customers coming to you?
Do you have a revenue?
Can you predict your profits?
Are you able to control your costs?
If the answer to all of the above questions was a “Yes”, Congratulations, your startup is ready to scale!
But how do you plan to convince your investor to pump in more money for your expansion plans?
When it comes to growing a business, you need new technology, tools, systems, and more manpower to sustain growth. Just like it is important to get comfortable with using a basic formula to solve easy algebra problems before you jump onto the complex ones, being comfortable with the current flow of the business is vital before you think about scaling.
Growth symbolizes success, but diving into expansion strategy before you start making profits from the current business model doesn't work with investors anymore. Real money, realistic goals, and metrics are necessary components to turn your expansion plans into reality.
After doing some serious soul searching - analyzing both fundamental performance metrics and quantifiable factors, if you think that your business is ready to make the leap, then this guide will help you convince your investor to invest in your expansion plans.
Show a Growth Story
Were you able to meet all the goals and targets set for the financial year? Most entrepreneurs find it difficult to justify why certain goals that they've laid out on their business plan were not met. When it comes to talking your investors into writing another cheque, it is important to prove that you can meet defined objectives - both internal and external. This will not only build their confidence in your organization's ability to expand but also in your ability to scale successfully.
In 2012, Roadtrippers - a road trip planner, was given a target by its investors to attract half a million users per month and to hold those numbers for two months. While the company's founder, James Fisher, thought that it would take them a year to meet the goal, Roadtrippers was able to do so in less than two months.
"That was a clear indicator to us that our growth was warranted," he says. "When you can show a growth story, it warms investors and gives you a little stability in terms of confidence that goals will be met from there."
Show that Customers have Faith in your Brand
Do you have faith in your brand? Do your customers have faith in your brand?
Make your investor think like a customer. Ask him would he or does he buy your product?
In short, your job is to show that your customers are already in love with your product, and now is the time to offer them a “Smart” version of your product/service.
While customers often cannot predict what they want from you in the second round, it is our job to understand their problems, what they are trying to do, what they need to do, to be able to live a relatively comfortable life. Once you have all the information that you need to develop a better product, it's your job as a business or a brand to convince your investor that this small shift can make meaningful progress toward their goals.
By and large, it is already difficult to grow in a competitive environment, Therefore, it is imperative to explain the value proposition for your product. Successful entrepreneurs always have enough information and data to prove the worth of their decisions. Customer interviews, feedback forms, and other sources of data are just enough (valid) information to get close to the goals.
Additionally, if you want to expand your operations, make sure that you look at your competitors and see what all marketplaces are currently selling on. For example: If your competitor is selling on Amazon, and you are not, then that's a missed opportunity that you have to leverage on before other new players do. There are many tools and software(s) that can help you determine how you stack up against your competition and how you can easily make improvements.
Show Profitability and Monetary Indications
Profitability is a milestone and not a destination. Having a strong cash flow and repeated customers are good indicators for scaling up. Don’t just use your current cash flow to spruce up the existing model, but to develop new products and to create new opportunities. Predictions are extremely valuable in creating products that will meet future demands. A business model that's generating profit can help you push toward the goals you’ve set for your business.
Your passion and personal conviction are necessary to turn a great idea into a scalable business. The best time to make the pitch for expansion is after you have the business plan in place. To make your effort more effective, make sure you understand what exactly your investors are looking for, and what you need to focus on to prove that your expansion plans will benefit both company and the customers.