Another plan arrives in the InBox. Take a look. Never heard of these people before but there is no cover note in the email. What are they looking for and why? I have ten minutes before I have to leave for a meeting so open the attachment and have a look. So far the entrepreneur is lucky. His proposal is being read... now to categorise the applicant... what box will they call into?
The third in my series about building an investment proposition is about presenting your solution...
Proving your expertise (and therefore gaining confidence of Investors, Business Angels, Venture Capitalists and even employees) requires not only a deep knowledge of a problem but also the understanding of an effective solution. There are five key attributes which mark an effective solution and being able to articulate them succinctly demonstrates your ability as a founder and CEO of a new company or group within a larger company. The five attributes are: Possible, Performance, Protectable, Presentable and Profitable. Let’s examine each in more detail:
- Possible. Is it possible to create the solution? Of the hundreds of potential solutions I have seen around 10% would require a change in the laws of physics as we currently know them. Many more are technically hard (if not impossible) to implement. Both of these could be reasons why your solution is not currently available. So how do you demonstrate that it is possible for you to solve the problem? The answer: Create a prototype. A prototype is a “cardboard, sticky tape and string” demonstration of the principles of the solution. Further research and development will create the minimally viable product (often known as the MVP). This can then be sold to the first customers. Version 2 is generally the maximally sellable product (often known as the MSP) which has the minimum features added to attract the greatest sales.
- Performance. Does this new solution perform 10 times better than all the current solutions to the problem you have articulated? Being 10 times better gives you a margin for error and a very good reason why people should convert from the current solution to yours.
- Protectable. How will you prevent other people copying your solution? If your solution is really as good as you think there will be many people who wish to cash in on the potential stream of customers who will come running to your door. There are three ways of protecting your solution: trade secrets, patent protection and prime mover advantage. A comparison of these will be the topic of another blog.
- Presentable. Is it possible to describe your solution in one simple sentence? Or show somebody the solution and they immediately understand how it is going to benefit them? The easier it is for a customer to immediately grasp the enormous benefits of your solution the more likely you are to be successful.
- Profitable. At the end of the day you need to be able to generate enough revenue from selling the solution to cover the salaries of everybody in your company, any returns to investors, buying raw materials, further product development, fulfilment and delivery, et cetera. The first calculation of the likely profitability can be done on the back of an envelope. If the costs are more than two thirds of potential income you are likely to have a problem in the future…
So the Solution Slide of your presentation to investors (of time and/or money) in your company needs to provide a solution which has all these five attributes. By checking these five attributes and ensuring that you have covered all of them have gone a long way to demonstrating the level of your expertise and understanding of the potential of your company.
Not sure if your idea is a solution or not? Then contact me and/or attend one of my workshops and/or post a comment below.