Think Like A Financier

As an​ entrepreneur you know that laser-like focus is​ what it​ takes to​ create something from nothing. Your relentless persistence often turns a​ "no" into a​ "maybe" and a​ "maybe" into a​ "yes." Your ability to​ repeatedly muster the guts to​ take outrageous risks and ignore reality has been key to​ your success.

But that's not enough when it​ comes to​ funding for your business. in​ fact, you often need to​ reverse your mindset and demonstrate your ability to​ be very realistic very quickly.

I'd love to​ tell you that financiers are eager supporters of​ entrepreneurs and can't wait to​ write you a​ fat check. But this often isn't the case. Cynicism and skepticism reign supreme. It's hard to​ get a​ read on what those sitting across from you are really thinking. Remember the scene in​ Annie Hall when Woody Allen's character is​ saying one thing to​ Diane Keaton's character and thinking another. I am often in​ meetings where the financiers are saying one thing but their faces show something else. Once the meeting is​ over and the entrepreneurs are gone, they verbalize what their expressions meant.

If you want to​ get the best terms from the best sources, you must be able to​ think like a​ financier. Consider it​ an​ exercise in​ controlled schizophrenia. Heck, it's better to​ walk a​ few miles on a​ polished marbled floor than to​ be tossed out on your butt on one. Why not skip the pain of​ your hind quarters smacking on cold stone?

Here's how the most difficult financiers will screen for market size, competition, and marketing and sales strategy. in​ the following scenarios, I list the questions you're likely to​ be asked and translate what the financier is​ probably thinking. I also include what the financiers will do to​ follow up on your answers. Better to​ be prepared than to​ be blindsided.

Financier Issue No. 1: Tiny Market Size

1. What's the size of​ the primary market you'll sell to? Secondary? Tertiary? State the projected growth rates of​ each today, tomorrow, and over the next three years.

Translation: That'll stump them!

2. Why did you select these markets, and why in​ this order? What makes you think you can penetrate them?

Translation: What makes you so special?

3. You say you're solving painful problems for your potential customer. What is​ the prevailing industry business model? What are the projected switching costs for the customer?

Translation: Bring it​ on, kid.

4. What is​ the selling cycle? What proof do you have? Do you have a​ long selling cycle for a​ premium product and a​ 50% shorter cycle for a​ "starter" or​ lower-end product? How is​ each relationship established? Sustained?

5. Who are the key purchasing decision influencers? What's the average selling price? What are their budgets? When do they need to​ formally cost-justify a​ purchase? How do they do this?

What happens next: The financier will have an​ associate or​ intern research and verify the market sizes that you stated. They'll also have them scan relevant blogs and collect industry news articles relevant to​ the available market.

Financier Issue No. 2: Tons of​ Direct Competition

1. What's your competitive analysis: today, tomorrow, for the next three years?

Translation: All right, let's get this over with. Yawn.

2. Which competitor was in​ the market first? What are they doing wrong? Where are they vulnerable? What's their business model? How is​ it​ broken? How is​ yours better?

Translation: They better have a​ quadrant! I want a​ competitive quadrant!

3. What barriers to​ entry have you established? Intellectual property? Exclusive strategic alliances? What other types of​ protection do you have?

4. Rank your competitors by:

• First-mover/early-to-market advantage

• Product range, selection, and features

• Customer base, brand equity, ability to​ retain and attract new customers

• Capitalization and access to​ future capital

• Access to​ influencers, key executives, and their intellectual firepower

Translation: Heh, heh, heh.

Might that be the rosy glow fading from their cheeks?

What happens next: The financier will have an​ associate or​ intern search a​ database like VentureOne to​ identify emerging competitors. They'll also have them scan relevant blogs and collect industry news articles relevant to​ the market and product definition. Last they will confirm the competitive landscape and research existing and potential competitors.

Financier Issue No. 3: No Marketing or​ Sales Strategy

1. Who's your target customer?

2. What specifically is​ your marketing strategy?

Translation: Bet they'll miss the three key areas: marketing communications, product management, sales support, and, my favorite, lead generation/lead qualification.

3. What's your branding strategy vs. the competition's?

4. What are the details of​ your offline and online campaigns?

5. What's the cost of​ your marketing and promotional programs in​ year one, post-financing? Year two? Year three?

Translation: it​ better track to​ sales. I hate marketing spend that exceeds sale.

6. What's your sales strategy?

Translation: Please don't say direct sales only. I couldn't take that! And if​ they mention strategic partners, they better have something solid beyond the dreaded Letter of​ Intent. How about something specific, something binding?

7. Do you have distributors, intermediaries, or​ agents in​ various market channels?

8. What are your projected customer acquisition costs? Have you structured joint marketing ventures? at​ what cost? Will you have an​ affiliate program? at​ what commission rate?

Translation: I promise I will press the ejector seat button if​ you say, "Our service will be so viral we won't need to​ pay to​ acquire customers!"

6. What customer data are you capturing? How strategic is​ customer database information? How will you use it?

What happens next: The financier will have an​ associate or​ intern search news sites and blogs that may shed light on the marketing and sales strategies of​ your competitors. They'll figure out what channels they are selling through, how they are collecting a​ loyal following, how to​ potentially raid their customer base or​ how to​ assess whether customers will willingly go to​ a​ competitor.

The bottom line with a​ cynical or​ jaded financier is​ to​ be prepared. By having crisp answers to​ the above questions, and by having detailed backup in​ the event the financier wants to​ delve deeper, you'll gain respect, and, if​ not financing, then often a​ referral or​ two to​ a​ more likely financing prospect.

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