Funding a new business idea – Part 1

By BankBazaar.com | December 7, 2009

If the idea is so good and giving so many benefits, why is it that somebody else has already not done it? This is tough question faced by any innovator. A genuine answer to this question is required rather than saying, “There is no one as bright as me”. There is no point in trying to re-invent the wheel.

To get a new business idea is easy. To get a new business idea with high growth potential is difficult. To get a business idea with high growth rate and to get funds for it is very difficult. And to get the funds without any collateral…. now come on am I kidding!! No I am not. It is possible to get funds without any collateral for a new business idea. The process takes a few interesting steps.

The Risk with New Business Ideas

There are a number of reasons the ordinary banker or financier will shun new businesses and business ideas. Some of them are:

The Idea Is Not Proven

A new idea is just that – NEW. That is why many questions are raised around it. Will people like the idea? Even if they like it, will they buy it by spending money? What are the substitutes? (The fabled NASA scientists spent US$ 500 million on research for a pen for use in space that will not leak, write even when it is upside down, and write even during a space walk – the substitute a pencil.)

Are People Ready to Use it?

This is not a follow-up on the question above. The question is whether the social, technological, infrastructural environment conducive for the idea. Many an idea and product have failed because they were ahead of their times. Typical case is the Apple PDA which failed and the iPhone which zoomed (and continues to sell well in other countries except India [is it because we still don’t have 3G to maximize the iPhone Experience?]).

Is There Managerial Talent?

This is a question asked again and again by prospects to any new idea. As a new company can you serve them well enough to meet even their basic expectations? Can the company grow to serve me if I shift to a different city (country)? Will the company continue to innovate or is it just this one product they plan to sell?

What Is The Incentive?

As a person taking risk with the new idea, what is the incentive for the user? Do I get recognition (in society, peer-group, and user clubs), convenience, solution-to-a-problem, price advantage, higher productivity, etc.

Why Has No One Else Done It?

If the idea is so good and giving so many benefits, why is it that somebody else has already not done it? This is tough question faced by any innovator. A genuine answer to this question is required rather than saying, “There is no one as bright as me”. There is no point in trying to re-invent the wheel.

*Google Test

As an innovator, we are like the mother with the new born child. As the saying goes, “Kakkaiku Than Kunju Pon Kunju” – “For the Crow, its baby is a Golden Child”. Understanding the risks in a neutral way and to address them is the first step to getting funds.

Doing the *Google Test on the business idea helps in getting neutral feedback on the idea. The first step of this test is to write down atleast 5 sets of key words that describe the new business idea.

Then do a search on google for the key-words. For each key word the first 2 page results of Google, alone can give a world of new information.

Further refinement to the search can be done from the key-words (industry terms) that we have got from the above searches.

The Google test will tell us who the competition is (company and substitute products), what are the capabilities of the competition, the feedback and the expectation from the prospects, the market size, experts’ views on the industry, opportunities to fine-tune / change the idea, legal and statutory requirement etc.

The key outputs for the innovator form the Google test will be:

Do I continue with promoting the idea?

Taking a No at this stage can be very valuable for the innovator as a lot of time and money is saved.

What needs to be improved?

The answer is an Yes to further the idea, the Google test will reveal the improvements that need to be made on the business idea to tackle competition, meet the prospects’ expectations, marketing plan to reach the consumers, etc.

The Pitch

The next step in getting the funds is to prepare the *pitch. Why should some body buy the idea and why should anybody invest in the company? And the questions should be answered in colloquial language. No technical words and abbreviations please.

The Pitch will answer these questions in an interesting and curiosity stimulating manner. There is a progression in the time frame for the pitch. The shortest and the toughest to master is probably the Elevator pitch (45 seconds to 2 minutes long and only talk), the Introduction Pitch (10 minutes with about 3 to 4 slide) and the Business Plan Pitch (half an hour with about 10 slides).

*Credits are due to the IC2 Institute, University of Texas at Austin for the Google Test and the Grand-Ma’s Pitch

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