Part 14/20 - Twenty Questions You Will Be Asked By Venture Capitalists (If You Get That Far)

By Laurence K. Hayward

This is part fourteen of a twenty part series on this topic.

14. What drives customer satisfaction for this industry and for the product? And, how do you know?

Have you conducted research in order to assess what is truly important to your customers? Do you know what product features are critical vs. those that are ancillary? A classic mistake in product development is to perfect unwanted features, sometimes at the expense of critical ones. For example, a company focuses on adding certain bells and whistles to its product at the expense of timely delivery, which as it turns out was the customers’ top decision factor. In your business plan, an understanding of critical product features or determinant attributes (what most determines or affects a customer’s purchase) can be used to distinguish your offering from that of your competitors.

Once you've acquired customers, ensuring ongoing satisfaction and tracking changing needs become critical. How will you support the product or service once it is launched? What will be the expenses associated with support? It is common to underestimate the time and expense associated with product or service support. Will existing customers purchase your product or service again? Will they recommend it to others? Regular and consistent customer feedback is essential in order to obtain answers to these types of questions.

If a VC has interest in your business, you can expect at some point that they will engage in ‘customer due diligence.’ If you don’t yet have customers, they may interview potential customers or industry experts to ascertain their demand for your product or service at the proposed price points. If you have customers, they will want to contact them to ascertain level of satisfaction and likelihood of repurchase. You will want to identify potential candidates and inform them in advance if a VC is planning to conduct customer interviews. If you are approaching a syndicate of investors (multiple VCs), coordinate the process (usually with the lead investor), so that the same customers aren’t approached repeatedly with the same questions again and again.

Laurence K. Hayward is the Founder and CEO of TheVentureLab. To learn more about him follow the link here

Part 13/20 - Twenty Questions You Will Be Asked By Venture Capitalists (If You Get That Far)

By Laurence K. Hayward

This is part thirteen of a twenty part series on this topic.

13. How do you plan to acquire and keep customers?

It surprises many people to learn that ‘marketing’ is commonly one of the weakest elements in most business plans (along w/ the financial projections). It’s almost as if the entrepreneur assumes that with the right business model, the products and services will sell themselves. There are many innovative and brilliant business concepts that never become real businesses, just as there are many so-so concepts that become the basis of major successes. I’m reminded of a successful entrepreneur who put a plaque on his wall that read, “nothing happens until somebody sells something.”

A well-developed business plan includes marketing strategies that demonstrate an understanding of market realities and customer behavior. For example, your revenue projections call for 100 units of X product to be sold next year. How will they be sold? Who will be selling them? Why is this projection realistic, do you have relevant industry, product or customer experience that guides this assumption? This is one reason VCs look for industry experience in their management teams. The appropriate experience should provide insight into the dynamics of the sales process and customer behavior, knowing for example the key decision factors (the sometimes harsh realities) of the customer group. Having a well constructed sales pipeline and a disciplined selling process will also help.

In the marketing section of your business plan and presentation, VCs will look for more than a list of your marketing initiatives. You can anticipate questions like: what are your company's customer acquisition costs? Have you calculated average and target revenue per customer? Do you know how many customers are required to break even? Do you know the product sales cycle? Think quantitatively as well as qualitatively.

In addition, the most successful companies know how they will retain customers -- even before they acquire them. It is said that it costs five times as much to generate business from new customers as it does from existing customers.

Customer retention is critical to the long-term success of most enterprises. How will you get customers to return?

Laurence K. Hayward is the Founder and CEO of TheVentureLab. To learn more about him follow the link here