Getting an idea funded and off the ground is one of the biggest challenges startup entrepreneurs face. It’s not enough just to have a million-dollar idea, you need to be prepared for and knowledgeable about all the variables that banks, angel investors, venture capital firms, and funding and grant organizations need to know.
Further, you need to make your product compelling and understand how to strategically sell your idea and position it as an innovation. While some startup ideas may require a small amount of funding that could be acquired through “bootstrapping”, crowdsourcing, or micro-lending, most ventures will require a substantial amount of money in order to gain traction and take off.
In Michigan, there is a high level of collaboration between investor and entrepreneurs which is inspiring greater economic growth than other states. In fact, Michigan is ranked number one for the amount of money we invest in research.
Investors are out there, but before pursuing the funding you need, go through the following ten steps in order to set yourself up for success.
1. Research Your Market & Competition
Where does your product fit? Once your startup idea is well-developed, it’s crucial to find out if and where it has a place in the market. Do your research, figure out what industry your product falls into and gain visibility over the competitive landscape. Identify your top competitors and figure out the root of their success—innovation, high-quality materials, excellent customer services, industry expertise, etc. Then figure out how your product can be better than the competition through a SWOT analysis. During research, resources like the Southfield Business Catalyst can connect you with data on the business climate, industry trends, customers, competition, and more.
2. Gather Legal Information
Is your product unique? Determine if your product is patentable and can be produced without infringement. Start by doing a preliminary patent search then look into regulatory issues and legal steps to take. You’ll also want to do a trademark search when deciding on what to name your product and/or company. Legal issues can cost a lot of money, so it’s important that you ensure your product will not cross any legal boundaries.
3. Understand Production Details
How will you build your product? Getting a general sense of the production process and involvement is a big part of funding. You’ll need to know the intricacies of your invention and whether it will require specialized materials or unique manufacturing techniques.
4. Identify Your Audience
Who will buy your product? Establish your target audience in as much detail as possible, including specific regions and demographics such as gender, age, ethnicity, profession, family structure, etc. It’s helpful to run some form of focus group testing on your product to see if your audience is indeed interested and inclined to buy.
5. Establish a Powerful Message
How will you sell your product? It important to have a clear story that maintains consistency across all communications in order to establish a powerful brand message. Your audience and investors want to know why you are in business (your mission), how your idea supports your mission (your approach), and what unique benefits your product will offer (your difference).
6. Build a Prototype
What will your product look like? Your product design should be developed from sketches, to a virtual prototype/CAD, to a 3D physical prototype. It’s easier to sell an idea when you have something investors can touch and experience. You may need to engage a prototype designer, engineer, or manufacturer who can help develop your design using 3-D printing or other materials to produce a model. Incubators and accelerators like the LTU Collaboratory can help you develop and validate your design.
7. Create a Sell Sheet
Why should someone invest in your idea? After researching and defining your market, legal assets, production details, audience, and message, you should distill it down into a one- or two-page document that outlines all key details. These details might include: The problem your product solves, your products feature and benefits, your product’s market, and the legal status on your invention (patent pending, trademark, etc.). You should be equipped with a sell sheet anytime you are engaging a prospect investor.
8. Find the Right Prospects
Who should you ask for funding? Beyond doing your homework about your business, you need to make sure you are talking to the right people. Start by compiling a list of 30-50 prospects by utilizing online resources about the investment community in your region like the Michigan Venture Capital Association Landscape Guide and Landscape Map.
9. Look for Opportunities
How will you get in front of investors? There are lots of events and opportunities to connect with investors and other entrepreneurs across Southeast Michigan.
Events like the Annual Collaboration for Entrepreneurship bring together hundreds of local entrepreneurs, investors, and support professionals in the Great Lakes region to network, participate in breakout sessions, and compete in the ACE Challenge. You can also find seminars and round-table discussion about trends in technology and the startup world, such at the LTU Collaboratory’s frequent “Tech Tuesday” meetings and workshops.
Even if you don’t establish any leads at these events, practicing pitching your idea will help you gather feedback and continue to refine your story and sell sheet for future opportunities.
10. Know How to Negotiate
How will you secure the capital you need to succeed? The key to a good negotiation is knowing all the costs associated with starting your business venture and the numbers behind them. You should also draft the investment terms that are non-negotiable. Once you have financials and terms established, it all comes down to being able to sell your idea with confidence, backed by everything you’ve acquired in steps 1-9.
Need help navigating some of these steps? The Michigan Economic Development Corporation has a network of SmartZones across Michigan focused on helping entrepreneurs develop technology and bring their ideas to market.