It’s fascinating to see how different founders approach the idea of growing a business. Too often, they have no concept of thinking big and yet, this is one of the first things investors look for.
Investors need a multiple return on an investment to make their portfolio profitable, to justify investing in an illiquid asset and account for the businesses that will fail. That means you need to show them that you have big plans to grow your idea.
Here are a few questions you can ask yourself to help understand that mindset.
What is it that you want to do?
Whenever you’re starting out and making a plan, you need a clear idea of your ultimate aim. Then you can work out how much money you need to get there.
What do you want as a human and what do you want from your business? These are really important basics that a lot of people forget.
The next thing is, can you convince people that you’re going to do that big thing?
Part of that is being able to identify the weaknesses in your business, so you can explain what funding the business needs in a convincing way.
Founders often frame that conversation in the wrong way. For example, they might think the business is about the design and taste of a food product, when it’s really about understanding the supply chain and logistics.
If you can see that your problem is not having the tooling to make stock and get it to suppliers quickly, then you’re identifying a very specific thing that needs to be sorted out.
You need to be able to say to investors, “We’ve figured out where the problem is – I need a hundred grand to do this specific thing, so that I can address the problem and grow the business”. If you can, then you’ll be in a much stronger position to get funding.
Taking this approach means you can grow the business in a meaningful way. Why? Because you’ve figured out where the problem is. Because you know that the funding will address this, bring in more revenue and allow you to scale quickly.
Is your business just treading water?
Too many founders get caught up in talking about their runway. You’re supposed to be growing a business, not counting the days until your money runs out.
If you don’t realise you’re treading water, then you’re in trouble. You need to recognise what’s happening, so you can break the cycle.
The key with this stuff is to think sideways. For example, if you’re in an industry that relies on selling people’s time to make more profit, like a marketing agency, there’s usually a cap on the level to which you can scale. But what if you find another way to deliver the work that cuts down how much time it takes?
Design a tool to automate the process, create a model that resells your existing work – there are always opportunities there if you’re willing to find them.
How will you get to your endpoint?
Are you building a business for the lifestyle or do you dream of a bigger exit that involves venture capital or even an IPO? Start with the end point and work back in stages to figure out how to get there.
Remember, the best investors are the most relevant ones. An entrepreneur that has visions of building their business to £1-2 million in turnover to create a great lifestyle for themselves is a different investment proposition to one that’s aiming for VC involvement.
If your version of thinking big is getting to that £1 million point in five years, I’d say that’s great. Know that’s your endpoint and, when you reach your destination, just stop.
But if you’re thinking in terms of VC investment, you’ll need to be projecting much bigger. Your valuation near an exit has to be around £100 million. That’s a huge difference and it won’t happen if you’re stuck in a rut or you can’t prove that you’ve broken that cycle.
Of course there are always risks involved in going for the bigger goals, but there’s a friendlier way of looking at risk. Think of it in terms of: the more risks you take, the more opportunities you make. That way, you have a greater chance of success and the failures will help you build resilience along the way.
Mark is a cofounder of Simpleweb, who support new startups through small seed investments and forming innovative partnerships.