When we interview entrepreneurs for our entrepreneurship education and advising programs, we ask them about their biggest challenge in starting their business. The answer is almost always funding. We hear, “If I had the funding, I could start this business.” We know very well that finding funding for a business is a big challenge, especially in the early stages of business development.
But if you start seeking funding before you’re ready, you’re likely to waste a lot of time, encounter much disappointment and maybe even get burned out on your business. Before you go down that path, here are a few questions you should ask yourself to determine if you’re ready to raise money for your business.
Are you committed to the business?
Is this a thing you can’t not do? If you aren’t inspired by your business idea and vision, it’s difficult to convince others to be a part of it. Not to mention, it doesn’t feel good to enter into obligations with funders if you’re unsure you want to spend your time and effort on developing the business.
Do you understand your market?
At the core of your business, you are providing a product or service designed to solve a specific problem for a particular audience. If you don’t deeply understand your audience, it’s difficult to create a sustainable business selling your product or service.
Have you validated your business model?
Having some sales shows there is demand for your solution. If your solution requires more capital to build and go to market, such as a physical product or technology platform, you can validate your business model through pre-orders or letters of intent to purchase the product when it becomes available.
Do you have a plan for growing the business?
Whether it’s in a traditional business plan format or pitch deck, you will need to demonstrate to funders that you have a clear plan for how the business will operate and become financially sustainable. This shows that you have thought the business idea through, and have established goals and measurements of success.
Do you know what you need the money for?
Funders want to know how the money is going to be used – research and development, marketing, hiring, legal fees, creating infrastructure, or something else. They are looking at whether those expenses are likely to grow the business; if that’s enough or too much funding at this stage of the business; and if more funding is needed in the future to meet business goals.
Are you ready to put your plan into action?
Funders want to see that you have the skills, motivation, and accountability to execute your plan. At the same time, they want to know that you are self-aware enough to see when you need additional support and are open to asking for and receiving feedback and assistance.
So, before you rush out to raise money for your new business, take the steps to understand your market, test your idea, and put in place a plan for success.