5 Destructive Mistakes Startup Entrepreneurs Make When Pursuing Investors

MJ Gottlieb, Author, How to Ruin a Business Without Really Trying

5 Destructive Mistakes Startup Entrepreneurs Make When Pursuing Investors

Most start-ups need to secure a small initial investment (seed capital) in order to have the resources in place to get their companies off the ground. Many get their seed capital in the form of ‘friends and family money’ which I think is always a very good idea for a few reasons. One, because seed money is normally too small to entice a more sophisticated investor to get involved, and secondly, you have a much better chance of securing an investment from people who are already routing for your success.

For those of you who may be pursuing a more significant investment, the game is quite a bit different. Though there are many things I believe you need to do right, I think it is more important to highlight some of the major mistakes that many entrepreneurs make that can easily be avoided.

Here are my top 5 mistakes startups entrepreneurs make when pursuing an investment:

1. You Are Just Looking For The Money

Many startup entrepreneurs look for anyone who has the money in their wallets to give them what they need.  The truth is, you need to be as careful picking your investor as your investor is about picking you. This is why I dedicated an entire section in my book How To Ruin A Business Without Really Trying on the different types of investors so you can have the knowledge to select the one who best suits your particular needs. As they say, one man’s trash is another man’s poison (and vice-versa).

You must do your due diligence and really investigate the person, company or institution to make a good judgment as to whether they would be a good fit. You also have to look long term. If you are not offering a good enough incentive for them to invest, odds are you do not really care about their potential loss, only your potential gain. For this reason, you do not really care about them. They will see right through that.

2. You can’t provide differentiation

When creating a product and/or service you must be able to explain what value your product and/or service has that will make your competitors' customers jump ship and come over to you. You need to explain your ‘why’ in a very clear and succinct way and be able to put yourself in the shoes of your customer and look at the situation from their perspective.

If your differentiation point is price, is it enough to make the switch?

If your turnaround time is quicker, is it quick enough to make a difference?

Whatever your differentiation points may be you need to give yourself an honest answer to these questions. If you are too close to your own product I would suggest going to people in your market and getting feedback from them to make sure that what you are offering reflects what the market needs. This practice of working backwards from the perspective of your customer is something I talk about regularly as it is one of the most important actions companies need to take when creating a product or service.

Remember, it is often a pain in the a** for your potential customers to switch to another brand, supplier and/or service so you need to make sure you have a compelling enough differentiation point and create enough value to make it happen.

3. Brand Messaging Conflict

You must remember that you are a reflection of your brand and your brand is a reflection of you. I have found that a seasoned, sophisticated investor always finds a necessity to get to know who they are getting into bed with. There is always a reason why someone hides behind his or her brand and none of the reasons I have found are good ones.

You and your brand must be fully in sync and convey the same message.  Steve Jobs' message was complete, easy-to-use hardware integration. Sam Walton was as much a penny-pincher in his own life as his stores are today. You would expect Wal Mart’s offices to be rather plush given the behemoth that it is, however it is quite the opposite. No lavish offices, no lavish expense accounts, everything exemplifies The Wal Mart way. Sam Walton wouldn’t have it any other way.

4. Personality Issues

The great thing about having money is that they don’t need to deal with a**holes anymore. On the reverse side of that coin, investors not only don’t mind, but also actually enjoy spending money with people who they have a good time with. 

Most investors are set financially from the standpoint that they don’t need to do your deal to stay afloat. For that reason, they are in it more for the action and the game. If you are a downer, that’s actually OK, as a lot of founders are introverts and hard to get, however if that is the case you will need to get someone in your company who can communicate properly and is easy to deal with.

If you are on your own, then my suggestion is to cheer up and work on your people skills in order to give yourself a much better chance to secure the deal.

5. Failure To Do Your Homework

Much like you must investigate your target market and brand from the perspective of your customer, you must do your due diligence and read up on what your investors want and what they are looking for. You don’t have to ask them to get this information.

Do your research and see who they are doing business with and see if you fit in that wheelhouse. You should also research and see who they are not doing business with as that is equally important so you don’t waste their time or yours. Another thing that can save a lot of time (and money) is to ask the investor up front if they have specific criteria for investment… You will find they often do.

Remember, don’t count your investors money and think they will invest because they can afford it. Most investors have worked their behinds off to get into the position they are in and for that reason it is that much harder to let that money go unless you can convince them the potential reward outweighs the risk.

I wish you the best of luck in your pursuits, and remember to not only work hard but also work smart and, as always, HUSTLE HARD!

About the Author

MJ Gottlieb is a serial entrepreneur, having owned and operated six businesses over the last 23 years. He is currently the co-owner of Hustle Branding, (a division of The N2ITIV Group, Inc.), a strategic consulting firm specializing in the implementation of creative business strategies to help aspiring entrepreneurs and small businesses increase their brand awareness and monetize their business. MJ’s expertise focuses on five principle areas: start-up development, corporate strategy, brand management/licensing, conceptualization and implementation of product launches, and helping start-ups to create strategic alliances to help fund their growth.