Starting a business can be difficult. As a matter of fact, an overwhelming majority of new businesses that start every year eventually go out of business within a short period of time. The question then becomes, how can I start a business and increase the likelihood of my success?
Whether you're starting a new business or you're trying to pitch a new idea to investors and new customers, there are a few things you should focus on to increase your success.
In my Amazon bestselling book, “Start Me Up! The No-Business-Plan Business Plan” (you can grab a signed copy for free plus S&H here: https://free.StartMeUpBook.com), I share four focus areas every new business owner should know to increase the likelihood of a profitable business.
What I found in my experience pitching tons of venture capital funds, angel investors and customers, is there are three additional areas of focus that lead to profitability.
1. What problem does my idea or service solve?
Your ability to identify the problem your business solves will improve the chances of someone investing in your idea, buying your product or service and becoming a customer. People spend money for two reasons: to get a desired result or to solve a problem. In many cases, those two things are related.
You don't spend money because of low prices. You generally spend money because there's a problem you want solved. There are obvious exceptions to this general rule. However, an overwhelming majority of people who spend their money have a problem they have either consciously or subconsciously identified. That's why they're giving you their money in exchange for your solution.
A lot of struggling businesses haven't adequately and eloquently identified the need of the customer, the desire of the customer, and the problem the customer has that really needs to be solved. If you can eloquently identify that problem and identify the market in which that problem exists and how your solution alleviates that customer's concern or problem, the likelihood of you getting investors increases as does the likelihood of you getting a stable influx of customers.
2. What's the cost of acquiring that customer?
I had a recent conversation with a startup who had a clothing line and related app. They were wondering how to get their app in front of the world. I asked them, "How much is it going to cost you to get in front of the right customer?" They didn’t know the answer and as a result, their business didn't take off.
Reality Check: If it costs $5 to get a new customer but your average sale is only $1, you will lose money on every new customer you acquire. This is why a lot of new companies and startups quickly go out of business. It's not enough to get a customer. What's important is how quickly and cost effectively I can get a new customer.
Ten years ago, all a new startup had to do was either get on Shark Tank, The Today Show or Good Morning America, pitch their deal and then they'd have an influx of orders. That's great, but that's not a long-term strategy.
A longer-term strategy is understanding how much did it cost for me to get my first customer and what's their lifetime value to my business and my company? And how much can I sell to them so every transaction is profitable? You must know the customer acquisition costs.
3. Know your numbers, how much money you need to raise and why
People come to me because they need help getting a business loan, investment funding and/or new customers. When I ask for basic financial information, they either don’t know their numbers or aren’t sure of what they will use the investment for.
Reality Check: If you think you need to raise $100,000 for your startup, there's a very good chance you probably need to raise at least 10 times as much. A lot of startups don't know exactly what they need the money for, nor know how they will spend the funds.
Here's a secret: The investor's not giving you money because your idea's amazing. The investor is giving you money because they want to make money.
The more comfort you provide to the investor, the better chance you have of them investing in you if you can identify what they actually need, what they desire, and what they're looking for. The investor also wants to know that you're comfortable with your numbers. You don't have to be a CPA or a financial expert, but you should know some basic metrics of your business, your industry, and what you plan to use the money for.
If you want to increase the likelihood of getting investors, customers and winning business competitions, focus on these three tips.
Remember that bonus idea about $25,000? Well, Bank of America is working with Mastercard on the Grow Your Biz Contest* giving small business owners across the nation the opportunity to take their business to the next level. For your chance to pitch your business to the Grow Your Biz Panel in New York on Nov. 8 and win $25,000 to grow your business, all you need to do is answer one simple question – “How will I grow my small business?” in a video submission up to 1-minute long. If you are up for the challenge, here are some video tips for your submission, which should be useful for any video needs your business may have. Are you ready to grow your business? To Enter and learn more, visit www.growyourbizcontest.com.
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About Ebong Eka
Ebong Eka is no stranger to the world of personal finance. As a certified public accountant and former professional basketball player he offers a fresh perspective to small business planning and executing. With over fifteen years of accounting, tax & small business experience with firms like PricewaterhouseCoopers, Deloitte & Touche and CohnReznick, Ebong provides practical money solutions tailored to the everyday person, the aspiring entrepreneur or the small business owner.
Ebong is the founder of EKAnomics, a sales, pricing and leadership firm. He is also the founder of Ericorp Consulting, Inc., a tax and management consulting firm. Ebong is the author of “Start Me Up! The-No-Business-Plan, Business Plan.”
Ebong is also the founder of The $250 Tax Pro, which provides tax preparation and consulting services in the Washington, DC area.
Bank of America, N.A. engages with Ebong Eka to provide informational materials for your discussion or review purposes only. Ebong Eka is a registered trademark, used pursuant to license. The third parties within articles are used under license from Ebong Eka. Consult your financial, legal and accounting advisors, as neither Bank of America, its affiliates, nor their employees provide legal, accounting and tax advice.
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