Tuesday, August 14, 2012

Part 15/20 - Twenty Questions You Will Be Asked By Venture Capitalists (If You Get That Far)

By Laurence K. Hayward

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

15. Who is the end user of the product or service offering? 

Is this a consumer-based business, or will you sell your product or service to other businesses? What do you know about the demand for your product or service in that target market? What do you know about the buying habits of your target market? VCs want to know that you understand the unique buying habits of your target markets.

Do you anticipate any roadblocks? For example, will you have to educate the buyer? Many entrepreneurs have an incredibly clear understanding of the benefits of their product or service. They may have even worked for a company that would be a potential buyer for the particular offering, which may be how they originally came up with the idea. Yet, when they begin marketing the product, they find out (often with surprise) that others don’t share their enthusiasm.

It often takes longer than expected to get past the inertia associated with understanding a new product or service offering. As a result, questions such as these are critical to understanding the sales cycle and marketing costs. Ironically, in this instance, competition can be helpful because it helps to demonstrate that a market already exists for the product or service offering. You may be able to use your competition to your advantage if you can demonstrate that they’ve proven the market demand, but you are better positioned to deliver a solution that meets customers’ needs (and perhaps doing so more efficiently as well).

Think about how you can leverage partners or resellers to reach your target markets. In many businesses, establishing effective sales channels enhances the scalability of the enterprise. It is often difficult to achieve the rapid sales growth VCs desire through organizational growth alone. Building out the sales and marketing function requires time and money, and significant effort in recruiting and training. However, key partnerships may help in spreading the message or expanding the sales channel to support rapid growth. If this approach is appropriate for your business, it should be outlined in the marketing section of your business plan.

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