More than 82 percent of startups are self-financed in when they starting out, and this is one of the main reasons why less than 50 percent of them survive the first five years in the market and less than 30 percent are still in business after ten years. Of course, it’s possible to obtain external funding for your small business, but only if you have a clear idea what you want to do and know how to express it.
Here is a list of actionable tips that can improve the chances of obtaining funding for your startup:
Knows the Market
Before you embark on a path towards realization of your idea, you need to learn more about your target market. Some business fields are growing faster than others, and most of the successful startups take advantage of the current trends to get established in their own niche. For example, drones (a $127 billion globally) or virtual reality (estimated 24.5 billion by 2020) are good examples of booming industries with exciting potentials, while mobile app development is probably already too saturated for new players to gain a foothold quickly. It is also recommended to research the level of competition, especially in the local market.
Innovative business ideas are typically more popular with customers, as well as investors. It’s much easier to pitch a project that brings some unique benefits to the table, which is how services like Airbnb and Snapchat went from complete anonymity to global popularity and multi-billion market valuation in just a few years. However, there is an exception for this rule – services that have been proven successful in some markets can be ‘imported’ by translating them to local language and making other adjustments that would appeal to local customers.
Detailed Business Plan
You should keep in mind that around 550,000 new companies are founded just in the U.S. every year, so to stand out you need a professionally written business plan. In this document, you should outline the necessary development phases, with exact calculations of expenses and revenues for each phase. The business plan will guide practical work and decision making, but it’s also used by investors to appraise your startup and its operational capacities. If you don’t know how to formulate your vision, you should consider hiring business plan consultants to help you.
Ensure Short ROI Period
Return on investment (ROI) is a key parameter that describes the time needed to recoup the initial expenses needed to start the business. Most startups aim to achieve this within the first 12 months of operations, but in some industries, it takes considerably longer due to high entry costs, low-profit margins or other reasons. Potential investors are aware that 75 percent of startups that receive venture funding are unable to return it, and they will expect to see some tangible evidence that the estimations are realistic.
Building Your Brand
Startup owners should be proactive when it comes to contact with investors, or all other preparations could go to waste. Attending business conferences in the vicinity and joining startup incubators are good ways to gain access to valuable information and make your own brand more visible to possible partners. Online channels shouldn’t be underestimated either since there are numerous platforms dedicated to this type of interaction where making the first contact is very simple.