The views and opinions expressed on this podcast are for informational purposes only, and solely those of the podcast participants, contributors, and guests, and do not constitute an endorsement by or necessarily represent the views of The Hartford or its affiliates.
You’re listening to the Small Biz Ahead podcast, brought to you by The Hartford.
This podcast is brought to you by The Hartford. When the unexpected strikes, The Hartford strikes back for over 1 million small business customers with property, liability, and workers compensation insurance. Check out The Hartford’s small business insurance at TheHartford.com.
Hey everybody, this is Gene Marks and welcome to my weekly Hartford Small Biz Ahead podcast. Thanks so much for joining me. Today’s topic, or this week’s topic is about pitching your idea to an investor. How do you pitch your idea to an investor? Now, I know you’ve seen Shark Tank and I get it, but that’s TV and that’s entertainment. Maybe you’ve read some articles. I’m pitching ideas to investors. I get lots of small business owners, startups, entrepreneurs, pitching ideas to me all the time. And I have to tell you, after being in business for a number of years and dealing with a lot of profitable businesses, I’m talking about clients, not just my own. I have learned a few things, and I tell you, if you are gonna pitch an idea from me, there are like five things that you really need to be doing when you pitch an idea to an investor.
Now, first of all, I do wanna say, before I even list those five things out, there is a difference between an idea and a business. I mean, I meet a lot of people that come to me with ideas and that’s great, but there’s ideas and there’s actually making an actual business. Actually executing on those ideas. So don’t just think if you’re like, “Hey, I have a great idea for this, a flip up toilet seat with a pedal.” I mean, what a great thing to do. If you have something like that, that’s fine, but there’s a lot of questions that needs to be answered, and I’m gonna get to that in a minute. You can’t just come up with an idea and say, “yeah, fund me based on that.” You have to have a business plan. You really have to have some specific data to back up what your idea is, as well as being able to answer some questions to how you’re going to launch and make this business profitable.
So let me give you the five things that I like to see, like to hear from a potential entrepreneur when they’re asking me to invest in a business. Number one, when somebody comes to me with an idea, I need to know if there’s a market for that idea. I mean, I need research, I need data. Even if it’s an existing store or something, I wanna know that it’s in a location where there’s a lot of traffic. I wanna know if somebody comes to me and says this is something that I think the world really could use. It might sound interesting. Am I good? But have you done your research? Have you surveyed people? Can you tell me that you’ve talked to a thousand different consumers or 200 businesses? And show me data that says, yeah, if this was presented to them, they would buy it, they would be interested in it.
Very, very important to make sure that you identify your market and the size of the market. If it’s super niche or it’s super specialized, it may not be worthy of the investment. So show me the market backed up by data. That’s number one. Number two, I like ideas that take existing things and just make them better. You don’t have to create something from scratch. In fact, humans have been around for quite a long time. I think most businesses have been created with the exception of like an Uber. So, okay, there are gonna be some of those that are gonna be outliers, but for the most part, when you’re starting a business, the best thing to do is to take an existing thing that’s going on right now and say, here’s how it would make it better. Maybe it’s a better design of a product.
Maybe it’s shirts or jeans or coats, accessories that are being sold. And you could say, I realize those are being sold now, but this is my design for it and it’s that much better. That’s why I want to go into that business. Or maybe, if you wanna sell something online, you’ve got a way to sell it better because your e-commerce experience is that much more customer friendly. Or maybe you’re opening up a restaurant and you’re gonna show to me your people are gonna come to my restaurant because my food will be better and this is why my food will be better. Or maybe you’re opening up a landscaping service. Yeah, there’s plenty of landscaping services out there. Show me why your landscaping service is gonna be better than what the competition is. I’m in.
There’s clearly a market for landscaping services and clearly people will be hiring a landscaper if they do a better job than the other landscapers out there. So show me, take something existing and make it better. That to me, attracts me as an investor. Number three, you need to have experience. I can’t just have somebody who’s an accountant say they’re gonna open up an amusement park or you know, somebody that’s a customer service agent and is all of a sudden gonna go into the pool business. I mean I need to get a handle that you have some experience in the business that you’re starting up. So before you start up a business, it might make sense for you to work in a similar business for a number of years.
Because if you come to me and say, “Hey, I’ve been working for this landscaping company for the past five or six years, I’m gonna start my own landscaping company because I’m gonna do it better.” Then I’m like, “Hey, this person’s got some experience working in this industry. I can put some money behind them.” If you don’t have any experience, it really is off-putting to an investor. Number four, you of course have to put together a business plan and a forecast with reasonable numbers. Don’t show me that you’re gonna double sales in six months and triple them nine months later. They’ve gotta be reasonable numbers when you put together a forecast and most importantly show me the ROI. If you’re asking me to invest $10,000 in your business, I can take that $10,000 and put it in stocks or in a certificate of deposit and at least make 4% on that.
Show me how my $10,000 is gonna return back to me. 20%, 30%, 40% because I’m taking some risk by giving you that in money. So that’s what your forecast should show. It should have reasonable assumptions, reasonable growth, reasonable numbers and prove out the ROI to the investor that’s putting money into your business. And finally, you have gotta be contributing capital to the business. Either it’s money or it’s time, because those are the two forms of capital. I’m not gonna invest in your business. If you’re working somewhere full-time and you’re saying, yeah, I’m gonna devote time to this business and my off hours or on the weekends, that’s not a business to me, that’s a hobby. What I wanna hear is that somebody is quitting their job and starting their business and this is gonna be their thing, man, they’re devoting 80 hours a week to this business.
You might not have any money in the bank, but you’ve got time. That’s your capital. So yeah, I might invest in you if you’re gonna show me that you’re gonna put some skin in the game by taking risk of your time and putting it towards this new venture rather than staying at a salary job and maybe doing something on the side. So number one, identify a market with data. Number two, take an existing business or an idea and just make it better. That’s attractive to me. Number three, get experience. I don’t want to invest in somebody that’s never done this before. Number four, have a reasonable, solid, approachable forecast that shows me the return on investment that I’ll get if I invest money in your business. And number five, you gotta contribute capital, either money or most likely time because you can get investors that’ll contribute the money.
They don’t have the time. Your capital is your time. So prove it. By putting that in there, you’ll attract more people that way. Again, like I said at the very beginning, there is a difference between just an idea and a business. Okay? So just coming up with an idea and going to investors for money, that’s usually not the way to do it. You have to have an actual business plan and how you’re gonna execute on that idea. And one final thing I didn’t mention at all in this is that many investors look to see some kind of a track record. So if you’re gonna come for investment, it does really help that you’ve been operating the business maybe for the past year or so and you need the money to grow. If you can show that the business is up and running, maybe you’ve got an employer or two, maybe you’ve got some products going and then you need financing so that you can use it for marketing and development or capital equipment, but you’ve got an existing business that you’re gonna build off of, that also is very, very attractive and just from a straight, straight startup.
So I hope this helps. That is what I look for when people are pitching to investors and obviously investors look for different things. So you should be getting your input and ideas from a whole bunch of different people that invest money in businesses. But that’s how to pitch your idea to an investor. My name is Gene Marks. You have been listening to my weekly Hartford Small Biz Ahead podcast. If you need any advice or tips or help in running your business, please visit us at SmallBizAhead.com or SBA.TheHartford.com. I will be back next week with some more thoughts to help you run and manage your business. We’ll see you then. Take care.
Download Our Free eBooks
- Ultimate Guide to Business Credit Cards: The Small Business Owner’s Handbook
- How to Keep Customers Coming Back for More—Customer Retention Strategies
- How to Safeguard Your Small Business From Data Breaches
- 21 Days to Be a More Productive Small Business Owner
- Opportunity Knocks: How to Find—and Pursue—a Business Idea That’s Right for You
- 99 New Small Business Ideas