Winning investors’ confidence is critical for gathering funds to start or grow your business. You will need to convince investors to share your passions, while credibly conveying your ability to deliver on your vision. That means having a clear assessment of your opportunities and laying out a plan that shows you know how to deliver on them. If investors are to trust you with their funds, you will need to show you have the plans and ability to make your vision a reality. Investors will look at a variety of factors when evaluating your company. One of the most crucial will be your marketing plan: it reflects on you and your management team; it provides your assessment of the opportunities; and it provides the roadmap to achieve your opportunities and the metrics to judge your progress.
A solid marketing plan is critical to winning investors’ attention and money. You will need to show that you understand the market for your product or service. Your marketing plan needs to communicate that there is a market for your product or service and that it offers profit potential. Investors want to be able to see how they can earn a return on their investment. Your plan should clearly explain who will buy your product and why they will be willing to part with their hard-earned money to buy it. Take the time to explain in great detail who your customers are, why they need your product or service, and how you intend to meet their needs.
Your marketing plan should also provide a clear explanation of the competitive environment: your strengths and those of your competitors. Investors want to know that you really understand your competition and how your business will distinguish itself. Stating that you have no competitors is often a red flag to investors: remember that your market will be affected by competitors outside the narrow niche you may define. Take the time to really explain the competitive landscape and you’ll earn the attention and confidence of prospective investors.
Investors like to see strong gross margins in the businesses they invest in. Your marketing plan should explain your pricing structure and estimated gross margins and volume. Be sure to indicate how your pricing structure compares to others’ in the industry. Be prepared to explain your pricing structure if pricing is set at a premium or significantly lower than others’ in the market place.
Since you are asking for a financial investment, the plan should also detail how much you intend to spend on marketing. Your requirements will depend on your industry, the pace of growth you commit to, and the type of business you are in. But you might be interested in these statistics. According to SCORE, some startups spend up to 50 percent of their initial investment on marketing and advertising just to get their company noticed. A general recommendation by the Small Business Administration is for businesses with annual revenue of $5 million dollars or less spend 7 to 8 percent of their budget on marketing efforts and a 2011 CMO Survey indicated that companies spend approximately 10 percent of their overall budget on marketing.
If at all possible, try to include an estimated Return on Investment (ROI) for your marketing efforts in the marketing plan. Use case studies and past experience, published industry guides and other resources to estimate your ROI. A comprehensive plan should also have measurable goals and offer some guidelines to correct the direction of a campaign during execution if something is not working as planned. A variety of marketing ROI calculators are available online that can be used to estimate the return on investment for your marketing campaign.
You should also be prepared to back up your numbers. Potential investors will want to know how you intend to capture the percentage of the market and any of the financial information you feature in your marketing plan.
Taking the time upfront to develop a clear marketing plan will make it easier for investors to see the opportunity your business offers and increase your chances of securing the capital you need to get your business off the ground or expand.
Name: John Callaghan
About: John Callaghan, co-founder of iCrowd, has a long history of involvement in small, growing companies. As a portfolio manager, security analyst, and founder of NovaRx Investors, Inc., an investment and consulting company focusing on early stage businesses, he developed specialties in emerging growth companies in the Health Care and Technology industries.