Financing a small-business idea takes skill, persistence and a little bit of luck. And how do you know if you've got those things in place for your next pitch?
Well, you get funded, and funded fast. That's as sure a sign as any.
No doubt, there are ways to better your odds. Here's how four small-business owners—all of them first-round funding success stories—sealed the deal quickly.
Prototype and Platform
Though Lisa Cash Hanson invested less than $100 in her invention, she was able to get a grant for the SnuggWugg
. The key, she said, was a well-presented prototype.
She created a plush pillow that parents place like an arch around their baby at diaper-changing time, with baby-friendly details including a cell-phone pocket from which a baby can watch a favorite show, mean that the diaper-wearing little one stays happier, more pleasantly distracted—and much less less wiggly—at changing time.
"In this case, my total investment was approximately $80," Hanson says. "I recruited my sister-in-law, who is a photographer, brought my SnuggWugg and my daughter to her house, and took some product photos."
Hanson also knew that a platform would be important. She had to show she could reach moms and dads directly, so she started the SnuggWugg blog.
"When I had all of those pieces in alignment, I contacted the MomInspired website and submitted my pitch," says Hanson, referring to a grant program run by Huggies. "A few months later I received a call from one of the heads of marketing who gave me the congratulatory call and awarded the SnuggWugg $15,000."
The takeaway: Having a strong prototype and platform in place—before approaching investors—is key to success.
Customer Testimony, Hard Data
Sometimes, even though you have a product that can be seen in action via a prototype, you still have to show investors that consumers want it and will use it.
Chris Campbell realized this first-hand. For his company, Review Trackers, Campbell knew he could build a user-dashboard to help local businesses owners bring together all the online reviews that pop up on websites such as Yelp, OpenTable and DealerRater. But how could he prove to potential investors that business owners would actually use what he made?
"We conducted interviews with at least 100 potential customers, and from these interviews we gained great insights that continue to help us fine-tune the platform and make the company much more investor-friendly," Campbell says.
He also turned to research studies "to establish the viability of our business," he says, "to market more effectively and garner support from global entrepreneurial and capital networks."
Info in hand, Campbell raised his first $100,000 in just 60 days from initial contact with potential investors to the moment the checks hit the account in the bank.
The takeaway: When the desirability of a new product isn't entirely self-evident, go to your potential customer base and bring in hard data to leverage investors' interest.
Details, Details, Details
Bob Bernstein founded Bongo Java
, a Nashville coffee shop, in 1993. A classic small business, it has since grown into a citywide network of businesses.
At the start, however, it was a single store, and Bernstein had to prove to investors that his idea—based on the coffeehouses he loved in his hometown of Chicago—could work in the country-music capital.
He thought out all the details of his presentation. "I was raising small dollars for a coffeehouse. If I went in wearing a suit and tie, people correctly should have wondered if I knew what a real coffeehouse was. If I wore ripped up shorts and a dirty t-shirt, they probably would have wondered if I understood the business side of the equation."
His choice: smart-looking jeans and a long-sleeve shirt. But then came the one question that Bernstein still believes cinched the deal: What color would he paint the walls?
"I had thought a lot about what sort of atmosphere I wanted to create," he says. "But I hadn't thought about the wall color."
So he went back to Chicago and looked at his favorite java joints. When he came back to the table, he knew his answer: white, and full of the work of local artists.
"The investor was impressed that I thought about what some would think was a small detail," Bernstein says.
And that was the story of four months from pitch to getting $80,000 in funding in 1992. His business has funded all the expansion since.
The takeaway: No detail is unimportant to the outcome of your pitch. Investors want to know that you know everything about your vision.
Leverage New Channels
The Ferreiras created MySocialCloud, a one-stop app gathering all usernames, passwords and bookmarks into one device-nondependent tool, but needed funding to make it real.
They figured, how about asking the founder of Virgin?
"We used Twitter to meet Richard Branson," Ferreira says. "Which I think is definitive of a technique that could be called innovative."
Ferreira saw a tweet from Branson inviting followers to a cocktail party in Miami if they donated $2,000 to his favorite charity, and emailed him to say she was interested. Branson replied saying he was interested in meeting with her as well. Soon, the Ferreiras were meeting the man, for real and with a prototype. Soon after that, Branson was showing off their idea to others. Investor Jerry Murdock stopped in to have a look at the duo's work. Four weeks later, they landed their first investment—just shy of a cool $1 million.
The takeaway: Don't limit yourself to conventional channels. In the social-media age, good ideas can transcend old-school outreach protocol.
Read more about raising capital
for your small business.
In addition to writing about social media and content strategy, James O'Brien blogs for Contently about business, politics, technology, and travel. He has contributed as a ghostwriter to several recent publications on the media, technology, and social change. He is a correspondent for Boston University's Research Magazine and he has written extensively as a news correspondent for The Boston Globe. He joined the caption-research team for photo-essayist Rick Smolan's new book, The Human Face of Big Data, in 2012. James blogs via Contently.com.