Building a successful digital startup has quite a bit in common with the paradox many teens face when they’re responsible for buying their first car. You’ll need a vehicle to get to work but you need to work to earn enough to buy a car. In the same vein, you’ll likely face a variety of these kinds of challenges at several points in a digital product’s lifecycle, especially in its early years. Communicating how you plan to address each identified scenario and other potential challenges will be key while going through the motions with investors.
As much as you plan, you’ll still run into the occasional conundrum and that’s ok – demonstrating flexibility and problem solving during these times is great for personal development. Plus, it’s something investors like to see as they’re quite familiar with the tribulations involved in going from idea to viable business. With that in mind, we’re going to discuss some of the meta details that need to be present to gain investor confidence. It’s much more than just the hard numbers!
Prepare your pitch deck and financials for your digital startup
Of course, the hard numbers are still a big part of it. Many digital startups tend to lose money at first, sometimes for years, before they go into the black. The most important part is that you can sensibly lay out your plan. The idea is that your business is kind of like a slingshot: first, you pull your ammo away from the target before launching it at the appropriate speed and trajectory.
Further, don’t expect investors to always share your same enthusiasm about the product itself – while some prospective stakeholders might get pumped to be a part of your idea, financially savvy individuals will be more interested in its earning potential and how you plan to get there.
Make sure that you put together something resembling a modern pitch deck – most say 15 slides of dense (but readable) information is the goal and the more visual, the better. In your deck, financials need to be detailed accordingly. Even though some stones can’t be overturned until they’re within reach, it will be important to communicate your strategy for “unknowns” either in the deck or supplemental material, depending on the potential impact of the perceived issue on your business’s early days.
For more insight into building pitch decks for digital startups or financials, visit the links above.
7 things investors look for in a digital startup
You might not be able to pull off a Spotify-level feat and grow into a cultural icon despite posting 12 years of zero profit but you need to be honest about your plans and expectations at various plateaus. The following items will help give more detail to your strategy by painting a more vivid picture of how all the different elements come together to form a cohesive image.
1.) Your past funding attempts
Did you approach an investor early on, as in when you were still in the cliché “napkin sketch” days? If you went this route and got slaughtered, don’t let this shake you too much as it’s par for the course. Understand that some investors are like American Idol judges who see far more people who can’t sing than those with well-tuned pipes.
Even though past attempts can feel embarrassing – maybe you had a Kickstarter that fell way short of its goal or was removed from the platform for not adhering to their rather strict rules – they’re a good learning lesson for you and your business as well as helpful for potential investors. You should bring up past blunders and be honest about any feedback you received and how you’ve addressed it. In a world where success is largely dependent on your ability to adapt to feedback, this shows you at least have the potential to hang in the digital startup space, if not excel.
It’s like making a map that you couldn’t finish because you screwed up some critical reference point early on, forcing you to restart. It helps them see where you’ve been to better understand what you need to move forward and why.
2.) Your team
Batman and Robin.
The above are all successful entities, largely because they went into business with at least a second set of eyes. Even for entrepreneurs with a diverse set of well-developed talents, going it alone is mathematically unsound. You need a team.
Robin aside, if Batman didn’t have Alfred and other connections (plus, you know, considerable wealth) his existence would be too much of a contrivance, even for fiction. Investors want to know about all the people you have working alongside you from individuals who might just be spotting you with a bit of help in the interim, core members of your team, and your relationship with other necessary pieces to the puzzle such as vendors.
Knowing how you’ve managed to create roles and plan to sustain or dissolve them is useful for investors to determine the integrity of your support network. One thing that tends to rattle most investors is when you seemingly don’t have support because you want a bigger piece of the profits. It’s great to be financially motivated in addition to being passionate but when it’s to the point where you’re like a car with three tires that wants to be a race car, your notions of success probably won’t compute with them.
If you are the hypothetical, three-tire car then make sure to explain the situation. Maybe that one tire was a spare, like a freelance designer who put together some concept pieces, and it’s waiting for a better, permanent replacement. When there’s an obvious deficit, make sure to explain your intended solutions for these glaring issues.
3.) The right industry and the right audience
Who is the product for? Outside of some widely-appealing platform (i.e., Facebook, Amazon, etc.), you need to define who will want to buy into the product or service offered by your digital startup.
Even if you plan to offer something for “everyone” this likely won’t be the case for your MVP. The reason we and other reputable digital product agencies start with a highly-refined derivate of your vision is multifaceted – it’s a function of time, money, and having something you can control. Launching with a bunch of features often exponentially increases the load on your development and QA teams which translates to a slow turnaround time in solving the most pressing issues after an app goes live that often cause early adopters to walk away and not look back. Not to mention it drastically reduces their ability to mitigate smaller but significant issues.
This is why we run a Design Sprint for virtually all of our clients. It’s important to think in the context of what’s possible, starting with an MVP. Your first iteration needs to be in front of the correct audience for the industry you plan to serve or it’s likely to fail.
The idea of traction is a composite of all factors with a heavy focus on where you’re at in the process. Usually, you demonstrate traction through a validation process, such as a survey that’s been distributed to your expected audience.
This can be a little tricky as sometimes you might have to be a little vague, especially when your product is truly innovative. Ultimately, detailing your digital startup’s products or services to your audience without going overboard by constructing a series of questions that can truly explore an intended user’s feelings about your idea from multiple angles scores you the best possible data. Your data needs to definitively show an outsider, “Yes, there is potential in this idea,” without using leading questions to get the responses you want.
5.) Your advantage over the competition
Every so often a digital product comes out that’s the first of its kind. In these cases, it might be easy to say that you don’t have competition and therefore your advantage is infinite but that’s, well, silly.
Usually, innovative digital products compete with less sophisticated solutions in their early days. If you’ve gone through the links we’ve provided thus far, then you should have noticed the Henry Ford quote we used in our post about ‘understanding proposals.’ Ford’s first car didn’t have other cars to compete with, so its competitor was the horse. You need to think in terms of why people would switch to your solution and expect them to harbor the attitude that “the old way works just fine” even when your solution blows the old way out of the water. Think of how people have generally initially rejected new and improved things throughout history. When you have no competition, you might well be facing a widespread, change-management problem that is time-consuming to solve.
If your innovative product performs as well (or better) than you expected, it’s only a matter of time before competition emerges. As such, you need to formulate a strategy to exist and grow alongside competitors that will eventually emerge.
In the more likely case where you have direct competition already thriving on the market, investors need to know what you’ll do better or differently. This needs to tie into the rest of your plan – if you were literally painting a picture of your plan, this “competitive edge” element would be a significant fixture in your design, if not the centerpiece.
6. The product vision and roadmap
When you’re able to think in terms of MVP development and the rapid, iterative cycle that follows, it’s easier to formulate a solid roadmap. Typically, you’ll want to have your idea broken into executable chunks for the next several years. Every new feature or change alters user behavior, sometimes for the better but almost always in a way that’s best described as just “different.”
Just like your MVP, there are things you can’t conclusively test until your product or service is running amok in the real world. Investors want to know your plan but they need to know how you’re going to test and adapt at each point. Like we stated in the point above, most segments of people are inherently highly resistant to change so make sure your understanding of this comes through when discussing your roadmap with investors.
7. The “X factor”
You’ve probably met certain people throughout your life who don’t vibe with you or vice versa. There are all kinds of factors that can contribute to us not liking someone or them not liking us just because of some je ne sais quoi. Sometimes, we don’t like people or they don’t like us because of some minor detail that’s “there” but hard to quantify or even qualify.
In some cases, these issues will resolve in time but you need to recognize these situations as impasses. If someone has their bags packed and ticket at the ready to board a plane but don’t get on, don’t go down some rabbit hole trying to figure out “why” so you can fix it. Walk away from these issues and focus on your contingency plans rather than try to force something that’s not shaking out.
Blue Label Labs can help you gather and organize data in an investor-friendly format
Many of the customers we serve need a little help to tailor all the technical details into a digestible configuration for investors. As a true digital product agency, we do so much more than simply design and build your product: we help you explore every nook and cranny to gain a comprehensive understanding of everything that goes in and out of your digital business. And yes, sometimes we turn away people with good ideas when their vision doesn’t demonstrate long-term sustainability.
For more information about our process, feel free to explore our site or get in touch if you’re ready to take the steps to get your digital startup off the ground!
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