May 28, 2013
4 Mistakes Entrepreneurs Make When Pitching For Capital
I see it every week when watching my favorite reality show, Shark Tank. I see it every year as a judge of business plan competitions, such as the newly christened Miller Lite Tap the Future (formerly the MillerCoors Urban Enterprise Series). And I saw it at the most recent Elevator Pitch Competition at the Black Enterprise Entrepreneurs Conference in Columbus, Ohio, a couple of weeks ago:
Promising, viable business ideas. Smart, dedicated, and passionate entrepreneurs. Horrible business pitches. I mean horrible.
Well, let me back up a bit–they weren’t all horrible. In fact, some of them, including that of eventual Black Enterprise Elevator Pitch Contest winner Precious Williams of Curvy Girlz, a lingerie line for full-figured women, were quite good. What causes the bad ones to stand out is that they were due to avoidable, yet all too common, mistakes made by entrepreneurs who are pitching their business to potential investors and others for needed capital and other support. This is especially true for many African American entrepreneurs, who often have had little or no experience interacting with people capable of investing thousands, much less millions, of dollars.
That said, if you want to succeed as an entrepreneur, you must accept the fact that raising capital, i.e. talking people into investing in your business, is a necessary and valuable skill, just as important as branding, human resources, operations and financial management. If you don’t focus on developing it, you will literally leave millions of dollars on the table, even if your business is absolutely viable and you have all the passion and qualifications needed to make it a success.
The good news is that there are plenty of resources online to help you to understand what goes into a good pitch and what to avoid; just search phrases such as “How to pitch to investors.” In the meantime, here are just a few of the mistakes you need to avoid when pitching for dollars, whether in business plan or elevator pitch competitions, to angel investors, a venture capitalist or your rich Uncle Bob Johnson (You wish! Actually, I do too.):
Leading your presentation with your I-Have-A-Dream speech. We know: You want to create the jobs needed to get at-risk kids off the street, finance the homeless ministry of your church, fund scholarships for deserving students and give back to the community. Isn’t that nice. Except that you can’t do any of that if you don’t make any money. Which is the point of you getting the opportunity to sell your idea to investors. When pitching you are on the clock; you don’t have time to do your Mother Teresa/Nelson Mandela routine. (Also spare us the story of how you got this business idea in a vision from God when you were nine years old. It’s not that we don’t believe you. It’s just not relevant.) Always lead with the whats, the hows and the whens: what your business concept is, how it makes money and can grow, and when it will break even and turn a profit. Also, how much money are you asking for, what you plan to use it for and what results you will achieve as a result. Save the why–your personal motivation– for later, or until you are asked.
Focusing on what investors can do for you and your business, instead of what you will do for them. This is not the time to talk about how a cash infusion from them will keep you from losing your house, allow you to put the kids back into private school and prove your mother-in-law was wrong about you. Heed the wisdom of Black Enterprise Founder Earl Graves Sr.: “Sell to their needs–not from yours.” Focus on how they will profit from their relationship with you–beginning with their getting richer as a result of investing in your idea. Your job is not to show how you will make money and achieve your hopes and dreams with their help, but how they will make money from their investment in you. Like all effective sales efforts, your pitch should be focused on helping investors to answer the all-important question: “What’s in it for me?”
Not researching investors thoroughly before your pitch. Speaking of their needs, you should know them long before you are in the same room with them trying to talk them into investing in your idea. You should know things like what kinds of businesses they typically invest in, what amounts they tend to invest, and what they typically expect in return. You won’t be able to get all the info you need from an internet search engine; you’ll have to get to know the small business investment community, and let them get to know you. Engaging with groups such as the National Minority Angel Network and events such as the Black Enterprise Entrepreneurs Conference is a start.
Pitching and quitting. You enter a business plan or elevator pitch competition, or gain the audience of an angel investor–and you get ripped apart. Maybe stage fright got to you. Or you missed a fatal calculation in your financials. Or you turned your audience off by crossing from passionate to combative. Or maybe the investors just didn’t understand your idea. Unfortunately, bombing, or even merely failing to get the desired capital investment, is enough to cause 99 out of 100 entrepreneurs to never pitch again. This is the most costly mistake made by entrepreneurs unaccustomed to raising capital. What you gain by pitching is often worth much more than the capital infusion you’re seeking.
First, smart entrepreneurs know that the real prize is the feedback, especially the negative feedback. There’s nothing like having a panel of experienced entrepreneurs and experts helping you to identify or confirm your potential for profit and growth, as well as point out the real vulnerabilities and weak spots that could send your business–and maybe your family’s life savings–up in flames. (If you had to pay for it, you couldn’t afford to.) I can’t tell you how many entrepreneurs I know whose business ideas got slaughtered in a pitch competition, and who went back and revamped to address the criticisms, and emerged with highly viable businesses capable of attracting capital and successfully competing in the marketplace. Second, pitching regularly gives you a chance to build relationships with angel investors, bankers, venture capitalists and others who comprise a network that can be extremely valuable to you in the future. The more you show up and follow through, the better known and more credible you will become and the more you will learn that will help position you for opportunities, whether for your current venture or future ones. Finally, practice really does make perfect, assuming you are approaching each pitch as learning opportunity. (By the way, few things make you more attractive to an investor than showing yourself to be coachable, flexible and open to changes to your business model.) The more you pitch–assuming you approach each experience as a chance to improve your business and as an entrepreneur–the better you get at it. After all, when all is said and done, that’s your job as a business owner: to pitch the value and viability of your company to investors, as well as to potential employees, customers, partners, vendors, your community and other stakeholders.
So what if you stunk up the joint in that pitch competition? Have a good cry if you must (but, please, not in front of the judges or investors, and certainly not on stage or national television), take a break from it all, and tend to your bruised ego. Then review the feedback, get the lessons, upgrade your business model–or scrap it and come up with a new one–and keep on pitching.
Black Enterprise Executive Editor-At-Large Alfred Edmond Jr. is an award-winning business and financial journalist, media executive, entrepreneurship expert, Â personal growth/relationships coach, and co-founder ofÂ Grown Zone,Â a multimedia initiative focused on personalÂ growth and healthy decision-making. This blog is dedicated to his thoughts about money, entrepreneurship, leadership and mentorship. Follow him on Twitter atÂ @AlfredEdmondJr.