Stephen is the CEO of Predictive ROI and the host of the Onward Nation podcast. He is the author of two bestselling books, speaker, trainer, and his digital marketing insights have been featured in SUCCESS, Entrepreneur, The Washington Post, Forbes, Inc. Magazine, and other media.
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Good Morning Onward Nation…welcome to Episode 367…I’m Stephen Woessner. Before we dig deep into today’s solocast and the lesson I prepared for you — I want to take a minute to say thank you!
Thank you because as we rapidly close in on our 400th episode — amazing — 400!!! — we are experiencing another level of growth.
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Okay, just wanted to begin today’s lesson by expressing some gratitude. So now let’s jump into what we are going to cover today. And that topic is cash or capital you can apply toward the growth of your business — but more specifically — if you are considering outside investment as part of your growth strategy — what’s the recipe — what steps must you take in order to make your team and business attractive to investors so you go from invisible to investible, as my good friends Judy Robinett and John Livesay shared last week during Episode 362.
Judy and John shared some excellent insights and very specific tactical steps, which I am going to summarize for you here — but I am also going to share some additional context about approaching investors because I understand first-hand how intimidating the process can feel like — especially when you are on the outside looking in, don’t know the players, how no idea what your message ought to be, and then fear creates this feeling of being trapped.
And that is exactly what happened to me. In August of 1999, several business partners and I founded a company called FortifiedNutrition.com, back when everyone had a dot com company, taking the companies public, and cashing in once the IPO soared to record levels.
So as the tech and product distribution sides of our business were being built out by my co-founders, I was in charge of attracting investors. And I was terrible at it and it really showed.
My prospecting consisted of aimlessly wandering around the Internet to find venture capital firms who were typically located in the valley, then emailing them our PowerPoint overview of the business (and wow was it horrific!) and then receiving lots of thanks but no thanks emails.
But finally, we made our way in front of a couple of investors and our initial ask was $7 million for 20 percent of our business. Yes, $7 million. We had placed a valuation of our business at $35 million — but wait — here’s the best part — we had not made one single sale at the point of the ask.
Yep, we felt confident our company was worth $35 million even though we had zero sales. Good grief!
Now, you have probably seen some of those ill-fated pitches on Shark Tank, right? When the business owner has zero sales and then tries to justify a ridiculous valuation to the Sharks.
Yep, that was me, Onward Nation. My team and I in a conference room — as I floundered my way through my pitch.
Plus, I had very inconsistent valuation numbers. The valuation I had put together for Ernst & Young’s review a couple of weeks earlier was only — HA — only — $10 million.
Yeah, I had missed the inconsistency — I failed to see the problem of $10 million a couple weeks ago, and now that I am in front of investors, yeah, let’s go with $35 million.
Thankfully, the investors we were presenting to saw something in us — some glimmer of hope — that with the right mentorship — we could build something valuable. They took us under their wing, mentored us, shortened our learning curve through powerful education, and ultimately invested in us at a $3 million valuation — not $35 million — and it wasn’t until we had six months of growing sales under our belt.
So why am I sharing this painful and embarrassing story with you?
Because all of the pain, suffering, and time lost in countless meetings, phone calls, and emails could have been avoided if I would have had a system — a process — a recipe to follow. Which I have now learned as a result of spending hours with Judy Robinett and John Livesay during our episodes as well as outside of the show.
They are brilliant subject matter experts — they really know their stuff — but beyond that — they are generous with sharing their expertise. So if you have listened to and studied Episodes 329, 360, and 362 — I highly encourage you to add them to your list of vital priorities — you will be glad that you did.
So let’s dig into the ingredients to a “Getting Funded Recipe” that I wish I had had for attracting investors back in the days of FortifiedNutrition.com.
Ingredient #1: kick fear to the curb
Judy and I talked a lot about fear during Episode 329 and how it can rise up and attempt to keep her trapped. And it isn’t because she doesn’t know what she is doing — my goodness, no. Judy is one of the most connected — deeply networked people I have ever met. She is an in-demand global thought leader, plugged into the investment community, sits on the right boards, knows all the right players, and even attended two business and networking events at The White House this year.
Yeah, Judy has a titanium Rolodex.
Yet despite all of that — there is fear. So Judy has to force herself to kick fear to the curb, where it belongs, and push past it!
Why is getting past the fear important?
Because if you don’t, I guarantee you the first excuse you will tell yourself as to why investors have not knocked down your door with briefcases full of money with your name on it is because “No one is investing — there isn’t any money available — or — investors don’t want to invest in a company like mine.”
You need to know — thoughts like that are simply the Imposter Syndrome trying to rise up and keep you from your destiny.
Because here is the reality — Judy shared some estimates she collected from Credit Suisse — that by 2019 there will be over $329 trillion in household wealth worldwide.
$329 trillion, Onward Nation.
More specifically, within the venture capital and angel investor communities, there are estimates of $70 billion sitting on the sidelines and that is likely on the light side.
So to Judy’s point — there is not a lack of capital. In fact, it is the complete opposite — there is an abundance of capital — but — and because Judy is on the inside she hears these conversations — investors are frustrated because they cannot find good, solid, investable companies to put their cash to work.
That was a game changing paradigm shift for me, Onward Nation, when Judy shared the data points.
So let me say that again…availability of cash is not the issue. The cash is there. But positioning your company correctly so an investor sees you as investable — and — getting yourself into the right room with the right investors — now that is a whole different story.
But, what investors are craving right now is deal flow — a steady stream of investable companies. You solve that problem for them — you get funded and you get funded fast.
So how do you do that?
Let’s move to Ingredient #2: how do you show an investor — or group of investors — that you are investable?
As you might imagine, it is a process. You begin by answer two key questions that I learned from John Livesay (who by the way Inc. Magazine calls the Pitch Whisperer) and the questions are: 1) Why you? and 2) Why now?
To even get a seat at the table, you have to be able to answer these two questions succinctly. In fact, John helps business owners craft what he calls a “pitch deck”, which is essentially 10-minutes worth of content involving 10-12 slides all following a very specific formula.
For example, you have to grab an investor’s attention in the first 90-seconds, even if you’re given 10-minutes. If you don’t grab them with a compelling opening, they won’t pay attention for the whole 10-minutes because they hear pitch after pitch.
They literally hear 2,500 pitches a year and might only fund 25. So you really need to give deep consideration, Onward Nation to the content on your slides, what you are going to say, how you will answer the “Why you? / Why now?” questions and then be ready for the rapid-fire Q&A that follows.
I laughed — but when John shared these insights with me — he said, “Stephen, if you got the questions before you took a test, it would be cheating, but following this recipe is called preparation.”
And he is so completely right.
But there is more to the preparation and transforming your business from invisible to investable. And John was kind enough to break it down for me so I could really see behind this green curtain that he and Judy work behind every day.
John let me know that a business owner needs to think of the investment process as kind of a ladder with different rungs on it.
The bottom rung would be labeled “Invisible”. Much like dating, when you see somebody you’re attracted to, but they don’t know you exist. Awesome! Well with investors, it’s the same thing. You have an idea, you don’t have anybody on your team yet, so you’re invisible.
Then the next rung up is “Insignificant”. What’s worse, being invisible or being insignificant? They see you but they don’t really care — that happens when you’re insignificant. Ouch. So you have a couple of people on your team, but you really haven’t tested out your business model to see if anybody wants to use it or would be willing to pay for it.
Then you get to the “Interesting” rung of the ladder. Going back to John’s dating scenario, let’s say you say something clever or funny, the person is interested in you but they’re not going to go out on a date with you yet. So now you have some people on your team, you’ve got a business that has some scalability to it, but you don’t have connections and you aren’t really great at pitching.
But with the right coaching and mentors, and some hard work, you finally move up to the next rung of the ladder, which is where you’re “Intriguing”.
You’re not quite investable yet, but you’re getting a whole lot closer. And my guess is, Onward Nation — this has happened to you before — you pitch someone something and in response, they say to you, “I’m intrigued. Tell me more.” That’s what you want to hear from an investor because as I learned from Judy and John, your vital priority with the initial 10-minute pitch and the 10-minute Q&A is simply to get the second date — or the second presentation.
Then you get to the “Irresistible” level. That’s really where you become investable and that’s where you and your team receive multiple offers from multiple investors. But, this is also where you want to have experienced mentors in your corner who can help you negotiate the best deal — and — mentors who have the capability to help you leverage all that is going on during this process for your benefit.
So once you and your team have ascended the ladder and become investable and Irresistible, you now need to get in front of the right investors.
And that is where having influential and well-connected advisors and mentors as part of your team can deliver a major return on investment.
Because as I learned again from Judy and John, let’s say an investor decides to fund 25 deals in a 12-month period of time…it is highly likely…that 24 of those 25 deals came to them by way of a warm introduction. So, you can do all of the hard work and reach the Irresistible stage — but — if the right investors never meet you — you are still stuck.
You need to build a board of advisors by connecting with people who are capable of opening the right doors for you. Because when you are in the right room, with the right investors, and you have followed the recipe for becoming Irresistible in their eyes, and you deliver a compelling pitch — you will create FOMA — or the fear of missing out — so the investors will compete for your attention.
And that is a game changer, Onward Nation!
So before we close out for today…I want to share one final and very important lesson that Judy shared with me — and it was a question that I never answered while running Fortified Nutrition…and that was…what is the exit strategy of the business — and while you are in the business — how you will grow and capture market share?
This is critically important because investors do want their money back with a significant return so you need to be really clear on your exit strategy — and you get there by having a deep understanding of your market and what is happening in your industry. You also need to be able to articulate your customer acquisition cost and how you are going to acquire customers.
And lastly, be sure to avoid the amateurish mistakes. One of the biggest ones is saying things like, “If we just get one to two percent of the market in China, we’ll be a billionaire in six months.” That’s a top-down sales forecast and sophisticated investors know you’re going to have to start from the bottom up with metrics like how many phone calls are you going to have to make, how will your leads convert, and really understanding those customer acquisition cost are critical to your success.
And then let’s end with some resources you can use and study further. First…be sure to listen to Episodes 329, 360, and 362 for deeper dives into blueprints and recipes you can apply to put yourself in the best position possible to access the cash you need to grow your business.
In addition, Judy and John teach a detailed webinar that goes even deeper with more examples and action steps. You can find it here. Register for it and drop me a line — would love to hear more about what you learned.
So with that…I want to thank you again for taking the time to be here with me today.
It is an honor to have you here — thank you for tuning in — I am delighted you chose this episode to be what you listen to, study, and take with you on your morning run, or maybe Onward Nation has become part of your daily commute, or in some other way has become part of your morning routine.
I want you to know how much I appreciate you sharing some of your invaluable 86,400 seconds you have in your day with me and the strategies we learn and share each day from today’s top business owners.
And please continue to let me know what you think of Onward Nation…good or bad…I always want your feedback. You can hit me up on Twitter, find us on Facebook, me on LinkedIn, or you are always welcome to email me directly at firstname.lastname@example.org — and yes — that is my actual email address — no fancy filters or filing system — it will come directly to me.
We will be back tomorrow with an incredible encore interview with Mitch Russo — don’t miss it because Mitch shares the recipes behind building constant and steady cash flow into your business. The conversation with Mitch is rock solid awesome — you will love it.
Until then, onward with gusto!