5 Risks Startups Need to Understand When They Are Looking for Investors
Business owners face legitimate challenges as they start a new company; they must juggle various issues from employees to taxes to short- and long-term plans and more. In addition, you need to weigh different risks and determine how you will handle them and when - prioritizing your time. Despite the pending risks, you have started a business because you love the independence of running your own company, pursuing your passion, supporting your family and caring for your employees. Before you open your doors, consider the following risks. You'll want to fully educate your investors on these risks, or even better, find investors that already have an understanding and experience with these business risks...
Risk #1 - Seeing the Big Picture While Managing the Details
Business owners need to successfully walk a fine line between grasping the big picture and managing the details.
Risk #2 - Dealing with Finances
Prior to starting your business, you will need to draft a solid business plan so that you know how much money you need each step of the way. Along with family, friends, grants, traditional loans and angel investors, a new entrepreneur can take advantage of crowdfunding to raise money for the business.
You can minimize your financial risks by investing in a solid asset protection strategy, which can provide protection in the event of a lawsuit, help you reduce taxes and safeguard the business for you to pass it on to your heirs. In practical terms, the American Association for Asset Protection reports that these costs range from $1,000 to $5,000, depending on the size of your company. Business owners should explain the short- and long-term need for finances when explaining their need for funding to investors.
Risk #3 - Knowing the Market
Whether you have a service to offer or a product to sell, you will need to know the market before you start your business. Consider key factors, such as customer demand, competition, product development, advertising, budgeting constraints and timeliness of your product/service. Business owners need to help investors understand market nuances so that they are on board with financial needs.
Risk #4 - Defining Product and Service
You will need to determine if you are selling a product or a service. Answer the questions of what your product does, what it offers and what problem it solves. People will be more likely to invest in your business and your product if you can clearly explain how each one of these items benefits them. In addition, you will need to attract customers, and you must have a clear summary of your product in order to develop an effective sales strategy. Business owners can provide written definitions of products and services in order to help investors understand exactly what the company does.
Risk #5 - Developing a Cohesive Team
As an entrepreneur, you likely have a large vision and see the big picture. However, managing details might frustrate you because you simply don’t have the time or patience for it.
Enter your team. You will need others with strengths that balance your weaknesses. Team members who complement you will help you develop a well-rounded approach, resulting in strong business growth. In addition to skills and talent, look for loyal employees with strong values and integrity who will support you through the upcoming challenges. Business owners can strategize with investors on the types of team members they need to optimize growth.