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Raising money for your startup Step 2: Convince investors your business solves a genuine problem
It has to be that it solves a big or genuine problem in the marketplace. That's the kind of thing you need to figure out right in the very beginning of your startup (or work out as you pivot), so that by the time you approach investors, you have it nailed.
Some businesses start out either by casting their net too wide or not wide enough. There is a good middle ground which you should be aiming to find.
Big problems equal big opportunities and high growth potential, so it won't benefit your business to think too "niche".
The trick to convincing investors that your business solves a genuine problem is simple: it has to. You can't trick anyone on this one. Your business needs to have a purpose - one which can be proven and one which you are passionate about.
Want to find out more? Check out our post on passion and purpose in startups: How to start a business based on your passion
So how can you find a problem which truly needs solving?
These four steps will help you as you work towards pitching for investment and raising money for your startup:
Step 1: Finding your problem
Starting a business raises a lot of questions: Where did the idea for your startup first come from? Did it come from something you noticed was missing in the world? If so, was it caused by something you wanted, or something you needed?
Step 2: Is the problem real?
Some entrepreneurs manufacture a problem in order to then solve it with their business, rather than researching or discovering an existing, genuine problem.
This approach doesn’t work for everyone. That thing you often find yourself irritated by may not necessarily be considered problematic to many other people.
Or, if it does, they may have already found a way to deal with it that you are unaware of. Problems which are small scale or fabricated, don’t often lead to high growth businesses as they don’t need to be solved. If they don’t need to be solved, there isn’t a market, so where do you think your customer base will come from?
Step 3: How big is the problem?
Now you’ve identified that there is a genuine problem which needs solving, it’s time to look at the size of that problem.
The size of the problem is linked very closely with the size of the market you will be targeting. We’ll look at in more detail in a later post. Often, the initial focus is on the market size – how many people could you potentially interest with your business, service, or product?
Instead, how about switching things around and looking at the problem first? Not only will this serve as a precursor to finding out your potential market size but it will also give you the opportunity to find your niche and focus more successfully at a later date.
If the problem isn’t big enough, the chances are you will find yourself needing to pivot and struggling to attract investment at this stage.
To find out if it’s time for your business to pivot, check out our post and if you decide it is, how to pivot.
Step 4: Find the sweet spot
There are three key questions to think about when building your business:
- What is your passion?
- What skills do you have?
- Is there a demand for this type of business, service, or product?
Where these answers overlap, is the sweet spot.
Read our full post on starting a business based on your passion here.
You can’t fool investors – they know when a business is solving a genuine problem in the marketplace. There is no way around this. What you need to do when looking for investment is to find a problem, make sure there is an unmet market need, and then make sure you can solve it.
Remember, the bigger the problem, the more potential there is for your business.