Those extra special legacy clients were the reason you were able to build your agency up to what it is today…but are they now limiting your continued growth? Hear me out.
In my experience, a lot of digital agency owners have a number of legacy clients on their books, clients they’ve worked with for years and years, with who they love and who have really positive relationships. The trouble is, these clients have been around since day-dot and all these years later, they’re still paying day-dot prices which are breakeven at best, and entirely unprofitable at worst.
This is troublesome for a few reasons, some more obvious than others.
Firstly, these clients are unprofitable and are costing the agency money – but the long-standing relationship actually means the agency owner feels beholden to them so they keep the work and grin and bear the cost of doing so – which impacts your bottom line.
Secondly, in an agency environment, the service on offer is essentially time – time spent by your employees to complete certain tasks for your clients. When these legacy clients, who are already getting an absolute bargain, start to encroach on their fair share of the agency’s team and billable time, the loss to the business compounds.
Suddenly these breakeven clients are costing money, and worse still, everyone in the team is tied up servicing them and there’s no capacity left to service the profitable ones.
I’m referring to the Pareto Principle (or 80/20 Rule). Which in this instance, means that 20% of an agency’s clients, should be generating 80% of the overall revenue.
While this is essentially just a model, in my experience the Pareto Principle absolutely rings true for digital agencies – if you have doubts, export your own client list and test this out for yourself!
With that in mind, and given what we’ve just unpacked in the paragraphs above, it’s clear that the revenue potential and the path to success lies in the hands of an agency’s top 20% of clients.
Allocating your resources (human or otherwise) to servicing those highly profitable clients, rather than the unprofitable/breakeven clients, is what’s going to grow your agency.
This doesn’t mean over-servicing these clients and doing more billable work for free. Instead, think about what your team can offer in order to maximise your client’s business. Perhaps you have a PPC team, who up until now were tied up servicing an unprofitable client – you could pitch your PPC service to your profitable client to complement the SEO work you already might be doing.
Offering more services to these clients will a) make your client’s know you have a genuine interest in the success of their business and b) generate more profitable revenue for your agency.
Raise your prices, drop your unprofitable clients & make the profitable ones feel like royalty.
Start by exporting your client list, sort them by revenue and then calculate their gross margins. You’ll be able to see quick-smart which accounts are profitable and which ones are not. From there, your next step is to raise your prices to a profitable level so that both your clients and your business are winning.
In my experience, there are three potential outcomes when it comes to proposing a price increase – so here’s my advice for every eventuality:
Everybody Says Yes – Great, now all your clients are profitable and your agency will continue to grow, and they’ll continue to receive high-quality service as you can now afford to do so.
Some Say No/Some Say Yes – Fine, losing a handful of unprofitable accounts won’t impact the profitability of your agency. The reality is, they were costing you money, so by letting them go, you’re still in the black.
The ones you have retained, have agreed to your price increase. You’re now making a healthier margin that covers the cost of any clients you had to let go of.
Even better, the time your team were spending to deliver the service for the unprofitable clients, can be reallocated so you can give back to your top 20% of clients who are generating 80% of your revenue.
Worst Case Scenario, They All Say No – Another positive outcome. These clients were costing you money and now they’re out of your hair. With fewer clients, you might have to slim some costs and reduce the size of your team – now you have a leaner agency that is easier to manage.
This might sound a little counterproductive, but you’re still guaranteed to be generating the same profit because you’re no longer losing out on the unprofitable clients.
What I’m trying to get at is, don’t fret about losing some clients who aren’t prepared to pay you the margin that a) your work deserves and b) you need in order to grow your agency. Chances are, your loyal, legacy clients will want to support your business and continue working together and will happily agree, which will cover the cost of any who might say no.
If you need any help increasing the profitability of your agency then Get In Touch with my team at Digital Agency Coach.
We’ve helped hundreds of clients achieve stratospheric growth through strategies just like this and we’d love to help you too.
Me and my team of experienced and dedicated Coaches are here to help you understand your business better and the best growth strategies for you, your agency and your team.
In a recent value-packed webinar about what the high performing agencies do, I shared the importance of knowing, understanding and keeping on top of your gross margins and the impact this has on your agency’s long-term success.
I’ve plucked out the key takeaways from the presentation and put together a valuable and actionable guide to gross margins, to help you accelerate your agency’s growth.
In this article, I’ll unpack exactly what gross margins are (and are not), what a good gross margin looks like and how to fix your gross margins if they’re not up to scratch.
When it comes to digital agencies, gross margin is a simple calculation using the direct costs of delivering a specific service and the price at which you sell it out – the gross margin is what’s left in the middle.
In a product-based business, like a chippy, the gross margin will be what the customer pays for the chips, less the cost of the potato and the labour required to peel & cut them. It might cost the chippy £1 to buy the potatoes and 50p in labour to prepare them, which means when they sell them for £2 the gross margin is 50p (or 25%).
Whereas in an agency, where the offering is service-based, the question is how much are we selling our time for and how much does that time cost?
It’s crucial you calculate your gross margin against the separate groups of revenue within your agency. For some, this might be geographically (UK vs US) or by industry (eCommerce or Lead Generation), while for others this could be the individual services (PPC, WebDev, Design etc.)
For example, if you’re an agency that delivers PPC, and you charge £1000 per month for PPC, and the salaries and freelancer fees for your PPC team are £500, then your gross margin is £500 (or 50%).
Your gross margin considers the revenue the service generates and the direct costs associated with getting the job done. What your gross margin won’t include, is all your general overheads, like your office, accountancy fees, utilities and so on. These still have to be deducted in order to understand your Net Profit.
In order to make sure there’s still plenty leftover in your net profit, you need to ensure your gross margin is healthy enough to allow for all your general expenses. If your services are unprofitable at a gross margin level, then there’s no hope for your agency to be making any money at a net profit level.
In my experience, a lot of agency owners muddle the waters when it comes to their gross margins, direct costs, overheads and net profit – which is how they end up providing unprofitable services and losing money.
The key learning here is that your salaries and contractor or freelancer fees must be attributed as direct costs to the associated service, not in your general overheads. Remember you can also factor in partial salaries of team members such as account managers, who spend only a portion of their time on chargeable client work.
This enables you to look at your services objectively and understand which ones are actually profitable. Rather than taking note of a huge gross margin number on your P&L sheet that tricks you into thinking your services are 95% profitable because you haven’t calculated the wage bill.
Now to the bit we’re all here for – what does a good gross margin actually look like, what should you be aiming for in order to grow your agency and become one of the high performers?
In our experience, agencies with gross margins anywhere above 50% are doing great. North of 60% and you are doing brilliantly. On the contrary, if you’re numbers are anywhere less than 40% then you have some serious work to do to ensure your agency is still profitable once you get to your net profit.
Now that you’ve calculated your gross margins and know exactly what each of your services is generating, you can take an objective view about what’s actually making your agency money (and what isn’t for that matter).
For any services that are underperforming – ie. the cost (salaries & tools) associated with delivering them are higher than the revenue they bring in, you need to ask whether you can fix them. If you can increase your prices and/or decrease your costs by making the service more efficient and your team more productive and grow your gross margins back up to 50-60%, then brilliant.
If you can’t make these changes, then it’s time to drop the service and refine your offering to focus on the services that are actually generating a healthy gross margin. Without taking this action, your agency won’t be growing anywhere.
Digital Agency Coach is a team of coaches, consultants and mentors servicing digital agencies across the globe. Led by me, Janusz Stabik, we’ve helped hundreds of agencies transform their agencies to achieve more revenue, more profit, more time and less stress.
My team and I use this blog to publish insightful, valuable and actionable insights on a weekly basis. To make sure you never miss a tip – subscribe to our newsletter to be the first to know once a new article arrives.
The new ‘Intro to Game Art’ short course will give you an insight into the world of game art, exploring the range of roles and essential skills needed to get you started when exploring a potential future career in game art. There is a host of exciting modules that your tutor will guide you through, including:
Planning and producing work to a design brief.
Working in the games industry
Concept art for computer games
Modelling for computer games
This new and exciting programme is designed to equip individuals (aged 19+) with the technical skills, knowledge and understanding needed to produce digital content across several platforms, ensuring you can use social media most effectively for your small business, sports team or trade.
This course will provide a great opportunity for you to develop graphic design techniques, such as designing and producing a brand identity and branded graphics for Instagram, TikTok, Facebook and more. There is a host of exciting modules that your tutor will guide you through, including:
Planning your Project
Typography and Layouts
Working with Illustrator and Photoshop
Creating a Brand
We can’t think of many businesses that don’t need some sort of digital presence these days. For many a dedicated business website is essential to sell, collect leads, provide brand awareness, or company information.
For this website to work well for the business it needs to be found, and it needs to stand out from competing websites. This is where the search engines come in, and SEO. Unfortunately, the world of SEO can seem impenetrable to the inexperienced, with its secret algorithms, computer languages and technical knowhow. It is a highly specialised discipline that most companies need help with on a regular basis. A particular challenge is often how to get the balance right between SEO, eCommerce and usability in your page content. You may need the support of SEO experts for this, hence a proliferation of national and local SEO Agencies.
All SEO Agencies promise higher rankings and more traffic for your site, so how can you be sure you are hiring the best, the one that will be able to deliver on that promise and more? There are no professional accreditations, no formal qualifications for SEO. But there are things you can do to make sure you are hiring a great SEO Agency to work with you.
Step 1 – Research SEO Agencies that have a similar client profile to your business
This might be similarities in the industry you work in, or in company size or budget size, or even in ethical outlook or company vision. Have a detailed look at their website – is it professional, useful, knowledgeable, and engaging? And where do they rank for terms relevant to their business like ‘SEO Agency in [INSERT CITY THEY ARE IN]’, ‘SEO Agency in [INSERT INDUSTRY THEY WORK WITH]’
If they can get their own website to rank well for highly competitive terms like these then they know what they are doing!
Step 2 – Make a short list
Research and make a shortlist of 3 or 4 agencies, including a mixture of maybe regional and national, or large and small SEO firms and call them to arrange a telephone or face to face interview.
Step 3 – Watch this excellent video
Have a watch of ‘How to Hire an SEO Agency’ from Maile Ohye, who was a top Google representative. If you don’t have time to watch it below, (11 minutes) we have outlined all the main points in the next section of this article.
Step 4 – Ask for references
Testimonials and case studies are useful however, these may not always give a complete picture. Ask for a few references of their current or past clients and drop them a line or call. If other clients are willing to take a few minutes to recommend the agency’s services, then that is a great thumbs up.
Step 5 – Be prepared to give it time
SEO is a mid to long term marketing strategy. It is unlikely you will see positive results immediately – we recommend 6 to 9 months is the absolute minimum time you should wait before assessing the outcomes and next moves with your chosen agency. If you jump ship too early you may end up losing all the SEO advantages you have just invested in. But do expect to be kept fully informed on progress on a regular basis.
If you have not got the time to watch the video, then do have a read of our synopsis of the advice from Maile Ohye, in the official Google video on finding the best SEO company for you. You can read the helpful tips and advice all about selecting the right SEO agency for your business.
If you would like any more advice, or to discuss a technical SEO audit or what we feel our SEO agency can offer you, then please give us a call and talk to our SEO experts. We are a specialist SEO agency for Bristol and would like to understand your business and help you to achieve your goals. We have SEO clients who are happy to provide references for us and give you the low down on their results and what it is like to work with us, so if you would like to chat to one, we can put you in touch.
When many people think of SEO they think of Google and other search engines and how to higher up in the ‘rankings’ on their results pages.
Whilst this is still crucial and for many the cornerstone of the industry as a whole, there has been a lot of evolution in other platforms as well and the phrase SEO now covers optimisation strategies and techniques on a wide range of different platforms and sites including:
Essentially, you should be thinking of SEO whether you are uploading your latest company podcast or sending out your next company tweet. There are plenty of opportunities to get your content in front of a wider audience without focusing too much on the orderly nature of rankings.
Here we have compiled a guide of actions, strategies and quick wins that you can implement to improve the SEO of your Instagram page and start to create an audience that will support your growth as a business.
For the sake of time we will assume that you already have an Instagram page set up and ready to go with a good idea of the content you are looking to share, so where do you start with your SEO on the site?
One of the main steps you should take is to optimise your Instagram profile page. Not only will this help your SEO, but it will also add valuable content that will help visitors to the page work out who you are and what you are about. Below we have listed some of the steps to take to optimise your Instagram page for SEO.
If you want to optimise your profile for Instagram then including some primary keywords within your name and username will help increase your searchability, although it should be stated this is not the be-all and end-all for Instagram SEO. It is also worth noting that snippets from the profile bio’s are also pulled through, strengthening the case for having some target keywords within the first line of your Instagram bio.
Try to avoid ‘keyword-stuffing’, just like Google, this can be a spammy tactic that will not get you anywhere on a platform like Instagram where content is key and optimisation comes in as a supporting function.
Captions are a big part of Instagram SEO, and if you write keyword optimised captions you will make it easier for the Algorithm to pick up your posts and share them with the relevant people. It is worth noting that the content will be shown to different people depending on their interests, if you are a coffee company, your posts will be more likely to be shown to people who have expressed an interest in coffee, particularly if you are including relevant keywords within your captions.
Alt tags are fantastic if you are looking to upgrade your Instagram SEO, and whilst they are less important in the eyes of Google, they can still have a considerable impact on the social media platform. Much like on your website, alt tags will help visually impaired audiences and you can use #hashtags and competitor handles in your alt tags to improve visibility and be found alongside your competitors and other relevant content. Make sure the alt tag is descriptive enough to be of value to potential audiences.
Additionally, a recent talk from Digital AdDoctor’s Freya Jones at BrightonSEO confirmed that #hashtags should be included within the caption of your Instagram posts as opposed to the first comment to drive better engagement. This is crucial if you want your #hashtags to be picked up by the Algorithm to improve your Instagram SEO.
Whilst #hashtags are very important in Instagram just like other social media networks, you no longer need #hashtags to search for people or accounts, the information you have in your username and bio has become more important.
Whilst you may be tempted to use certain ‘black hat’ SEO tactics in Instagram like buying followers and likes, we recommend avoiding it at all costs. Much like Google, the Instagram algorithm will get better at weeding out companies employing poor tactics and punishing them accordingly.
Once you have implemented a good Instagram content plan optimised for SEO you will want to find a way of tracking your progress. Find a good analytics provider and measure your results, we recommend not putting too much focus on vanity figures like followers as these can be misleading, although they are still very useful as a starting point.
Look at your engagement and find out if your SEO efforts are helping you get greater coverage on Instagram, this will help you work out what the next steps are and how to use the additional coverage to drive better results and revenue for your business.
If you are looking to drive leads and traffic to a site, then make sure you consider that aim when it comes to your Instagram SEO. Whilst this should not be the end goal, getting users off the site and into your databases and lead funnels will help give you more control over your channels, although it is worth noting that engagement on the platform is just as important. Try not to view Instagram purely as a means of driving leads and signups for your business and potential clients.
Whilst having a strong Instagram presence will not directly impact your SEO in Google, it will help you build an audience and drive relevant and engaged traffic to your site, which will help build your overall digital visibility and following.
Make sure you keep an eye on your Instagram and keep up to date with any new SEO changes and tactics the site may be making to ensure you stay ahead of the competition. Of course, if you would like any information on SEO and how we can help, then feel free to get in touch with a member of the Varn team today.
What does the future of PR and marketing look like? Business leaders are planning ahead for 2022 in one of the most unique situations that people have faced. How do you prepare your business for life when dealing with a pandemic?
AMBITIOUS and Insider Media spoke to business leaders in the South West to find out what their approaches to PR and marketing will be in 2022. Which areas will be their focus? Where are they increasing their investment? And, where they’ll be choosing not to spend.
The answers show that business leaders in the South West are planning to invest: engaging with their core customers and visitors more than ever before. And not just their customers. Thanks to a skills shortage across many sectors, using online to source new recruits is alo where businesses will be investing. As a result, online activity is becoming more important than ever for PR and marketing activities.
Life really did move online during the last 12 months and while in-person events are starting to come back, digital has taken the lead on many aspects of businesses. As well as B2C companies, B2B businesses are seeing the value of social media and how to use it for success.
Mike Ribbeck, Insider Media Editor said: “As the purse strings tighten, business leaders look at expenditure and decide which are the most important functions to protect and which areas of the business are expendable.
“The reality is that, rather than bringing the world to a standstill, the pandemic has accelerated many of the trends that were reshaping the world that we all live and work in. The digital revolution has picked up pace and businesses from all sectors and different sizes have made the transition to operating virtually.
“All of that means that the need to get the message out about your business and the services it can offer has never been more important.
“And the channels of communication to potential clients and business partners have continued to multiply with social media playing an even more important role when it comes to marketing and PR.
“According to our survey, the majority of businesses have maintained the level of spending or even increased.
“One of the most interesting findings was where businesses will be concentrating theory efforts. The two main areas that stood out were content creation and social media.”
Our survey has found that there are six core areas where business leaders will be focusing their PR and marketing efforts, including content, PR and SEO. Results from our survey include:
Phil Smith, Managing Director, Business West, said: “In the past 18 months, South West businesses have wrestled with a unique and complex set of challenges as a result of Brexit and the pandemic.
“Whilst business impacts such as social distancing measures are temporary, labour shortages and inflationary pressures look set to continue (at least in the medium term) and could have a stymieing effect on our economic recovery.
“As the government looks to recoup some of the £300bn+ that it spent during the pandemic, SW businesses will no doubt be anxious about potential tax hikes and rate increases.”
It is encouraging that businesses recognise the huge part that PR and marketing play not only in boosting their brand and growing sales but generating awareness of new products and services too.
It is also evident that marketing has a vital role in attracting, engaging, and recruiting talent into the business (as well as helping to retain talent). Indeed, today’s job candidates discover and weigh up potential employers in the same way they find consumer goods, restaurants, and hotels. It is mission critical that marketing budgets reflect this digital shift.
The amount of online content consumed by the average person doubled to seven hours a day. Social media activity increased by 12.3 per cent with the average person spending nearly two and a half hours on social sites.
A clear, resounding message from the businesses we spoke to is that we are going through an accelerated pace of significant change.
The pandemic hit the fast forward button, transforming consumer perceptions, expectations, and behaviours almost overnight. There are no pause or rewind buttons – consumers and the world have moved on. This has profound implications for how we market ourselves. Failure to keep up with the pace of change could mean being left behind forever.
Download your copy of the white paper now.
Most people don’t go into business because of their love of finance (except us, of course). Whatever your ‘why’ is, it’s unlikely that involves organising invoices, chasing debts, and delving into your reports. But even as a team of one, having a financial forecasting model in place can actually take the pressure off and give you the confidence in your numbers you need to get on with the parts of your business you really love.
Once you understand the benefits of having an accurate and realistic forecast that can support your day to day, it’s much less intimidating and far more empowering. So, let’s get into some of the reasons you should make a financial forecast a priority in your business.
The money coming in and out of your business doesn’t always line up with your plans. An accurate forecast will give you a good view on your cash flow over the coming months so you can be prepared when things don’t always go to plan. For example, before you go and spend big on a new piece of equipment, you’ll be able to see what will happen if invoices get paid late next month and make sure you don’t end up in the red. Mismanaging cash flow is the biggest reason that small businesses fail, so this is an important one.
Have you ever been caught out by a surprise tax bill? Or maybe your invoices go out and before you know it, they’re a week late and you’ve not chased up? Setting up a forecasting model will give you a chance to make sure everything is accounted for. You can siphon off small amounts across the year to make sure big bills don’t hit quite as hard and implement revenue recognition strategies to make sure that money coming in is acknowledged in the right period. If you do project work and get paid in large lump sums, it’s advisable to spread that income across the time it takes you to do the work so that your finances tell the story of the reality of your business.
Having an up to date and realistic forecast will impress any stakeholders that you need, from the board to potential investors. It can act as a communication tool to express your plans, concerns, and ideas as well as help answer any questions they have, no matter how detailed.
Once you have a forecast in place, as long as you update and engage with it regularly, you can use it as a tool to support your decision making. Having all the elements of your business in one place will give you an overview of how one decision will affect another. It will be easy to see how each decision, big or small, will impact your finances and future.
While a forecast needs to be realistic, you can use it to do more than tell the story of your business – utilise it to take control and make your goals happen! Once you have a clear picture of your numbers you’ll be in a much better position to see the path you’re heading down and change course to get where you want to go.
Getting started is usually the hardest part, but having the right expert to help can make it an empowering experience. They’ll be able to support you in finding the right model and make sure it’s set up in a way that makes sense for you. Having a bespoke model will make your experience with forecasting far more efficient and effective.
FD Works know what’s involved in running a small business, from startup to success. We’ve used our experience to create a customisable forecasting model to specifically support complex, small businesses.
If you want to know more about how to get started with forecasting and how it can support your business, read our research report on SMEs and their relationship with forecasts.
If you’re looking for a forecasting model, or some guidance around financial forecasting then get in touch on 01454 300 999 or [email protected], or head over to www.fd-works.co.uk to find out more.
Most agency owners are familiar with Key Performance Indicators (KPIs) — these are values that measure the success of your ongoing progress against a defined metric. In essence, a KPI will measure, or indicate, how an agency is likely to grow.
For most of us, KPIs have been a mainstay of working life since our internship days. However, what often comes as a surprise to many of my clients is that KPIs can come in two forms, Leading & Lagging.
In this article, I discuss leading & lagging KPIs, how and why you should measure both types and why the high performing agencies do just that.
As we all know, a KPI is a pre-defined metric or milestone which is used to gauge progress across all functions and departments. KPIs are tangible, valuable insights that help inform decisions about how an agency is run.
A Leading KPI is input related. Leading KPIs measure the current activity in your agency, whereas a lagging KPI only demonstrates what you’ve already achieved.
Lagging KPIs are important to monitor, as they give a good snapshot of the topline performance of your agency. However, if the numbers are a little off, and this is the only metric you have, it can be tricky to pinpoint and fix where things went wrong.
The idea behind Leading KPIs is that they create targets, focus and accountability within your agency on a daily basis. This helps to keep you (and your team) on track toward successfully meeting your lagging KPIs.
To get a good handle on your agency’s growth trajectory, me and my fellow Coaches always recommend tracking more leading KPIs than lagging ones — with a ratio in and around 4:1.
This is often the secret sauce to success — monitoring, reporting and acting upon leading and lagging KPIs is what sets the high-performing agencies apart from the pack.
Because I love an analogy, let’s imagine your digital agency is trying to shed some pounds. In this instance, you would have a Lagging KPI of ‘Total Weight Lost’.
Jumping on the scales once a month just to measure the outcome and see how much weight has been lost is going to make for slow, blinded progress.
Instead, you could measure your daily exercise, track your diet and weigh yourself on a weekly basis. These metrics would be your Leading KPIs and will give a more accurate reading of how you are tracking toward your weight-loss goal.
If you reach the end of your third month and you still haven’t lost any weight, then you can review all your KPIs and see where the shortfalls or issues might be. The more Leading KPIs you track, the easier it is to identify areas of improvement.
A key differentiator between high and underperforming agencies is how many, and what kind of KPIs they are measuring and learning from.
Successful digital agencies have more Leading KPIs than lagging. This helps them predict and prepare for their growth — they’ll know where their agency is heading before it actually gets there.
By monitoring both types of KPIs, you are able to see the relationship your leading efforts will have on your overarching goal. By keeping an eye on both figures, you’ll be able to attribute any issues with your Sales to any increases or decreases to your Call Tally or Event Attendance.
At Digital Agency Coach, we host bi-weekly Mastermind Groups for digital agency owners. These informal workshops are centred around peer learning — you’ll learn from other agencies who are navigating the same challenges as you and will pick up game-changing tactics such as today’s KPI hack, which improve the performance of your agency.
Get In Touch with myself or my team of friendly digital agency experts, we’d be delighted to help answer any questions about this article, our Mastermind Group or our Coaching & Mentoring Programs.
If your understanding of the startup world is based on the series produced by (and starring) mid-noughties nerdy heartthrob, Adam Brody, it might surprise you to learn that most tech ventures aren’t funded by dubious dosh from the criminal underworld. That isn’t to say that StartUp isn’t an entertaining show, by the way, but it’s not exactly an accurate representation of how startup founders might seek investment.
While there are some great examples of companies that have ‘bootstrapped’ their way to billions, most successful tech businesses will raise equity finance at some stage in their scale-up journey — usually over several funding rounds. The right investment not only unlocks the cash you need to accelerate growth but also provides you with a new business partner who is aligned with your goals, brings business acumen and an invaluable network of industry contacts.
Knowing how to turn your venture into an investment magnet is key to getting the attention of the right type of investor while never feeling pressured to settle for a bad fit. So, how do you as a startup founder attract that perfect investor? Here are 6 qualities investors will be looking for in your tech startup.
As a startup founder, being passionate about your project should be a prerequisite. If not, then it’s probably the wrong venture for you. You need to truly believe in the product/service you want to provide and be confident that it’s either an improvement on what’s available on the market or an entirely new take on addressing an old problem.
Beyond your bright idea, you should also be mindful that investors are investing in you as much as they are in your business. Are you able to distil and describe the journey you’ve been on thus far? Can you showcase your passion, skill-set and creativity?
However, while passion per se is great, would you put your money where your mouth is? Most investors are looking for founders who are willing to invest their own capital — hypothetically, at the very least. After all, why should someone part with their hard-earned cash for your project if you’re unwilling to do the same? The same applies to investing your time. If you’re unwilling to work hard on your own project, then it’s unrealistic to expect anyone else to.
To get your business off the ground, you’ll have to — or will have had to — raise the initial capital yourself. This can come from your own savings, borrowings, or even friends and family. Either way, this is a concrete example of demonstrating that you believe in your product/service, so much so that you’re willing to invest money into it.
To be worthy of investment, any new product/service needs to have a proven market and be appealing to that market. Ideally, your venture will have begun operations and demonstrated an ability to sell that product or service — essentially, you need to have a robust ‘proof of concept’ to show investors. Investors will look for the following:
For a tech startup, the proof of concept is often an MVP (Minimum Viable Product) — a product with just enough features to satisfy early customers and provide adequate feedback for future product development. Through our experiences building brilliant launchpad apps for businesses, we’ve come up with a checklist to help you get started with your MVP ASAP.
Most investors are looking for business opportunities that have potential — primarily, for growth. This is all relative, of course, based on the size of your market, but ideally, you need to have a market with significant reach — regionally at least — depending on the nature of your product or service.
Not every product/service is going to have a worldwide market, of course, but a large enough market to increase scale and margins within your operations is typically a requirement for investors.
If your startup is a would-be disruptor in an existing, saturated market then the same rules apply. However, your growth potential is likely to be deeply scrutinised because any market share gained is being taken directly from a competitor, therefore your competitive advantage needs to be demonstrable.
Which leads us on nicely…
No matter what the product — whether it’s clothing, music or a new software platform — the same question always applies: what makes your product unique? To be worthy of investment, there has to be something that sets you apart.
If your product or service is genuinely the first of its kind (something that many founders wrongly convince themselves is the case), then that’s your competitive advantage. What’s more likely, however, is that your startup will be entering an existing market. This is where having a real differentiator is crucial for success.
Take German neobank, N26, for example. Voted ‘Best Bank in the World 2021’, N26 is by no means the only player in the online-only banking market — competitors include the likes of Monzo and Revolut. However, by taking a service that people have to consume and generally dislike (banking), and turning it into an enjoyable process by focusing 100% of its efforts on user experience, N26 has confidently positioned itself as ‘the bank you’ll love’.
To save on cost, most startups will have very limited staffing (at the start of their journey, at least), usually consisting of one or two founders. Whether it’s a team of two or ten, the number of staff isn’t an issue so long as the key areas of the business are covered. For example, if your business is centred around AI technology, do you have someone in the team who is a specialist in this area? It’s extremely important that you have an expert in the tech or market you’re entering.
Operating control is another area investors will be looking at before taking a punt on your startup. They’ll expect you as the founder to have developed (or be in the process of developing) policies and procedures to control the business and ensure their investment doesn’t go to waste.
It’s also important that as a founder, you’re able to ‘let go’ and delegate authority across your team. We get it, your startup is your baby, but over time, you need to trust someone else to take care of the proverbial nappies. Or bedtime story. You get the gist. Investors will take comfort in seeing expertise and autonomy spread across a fully engaged team.
The coldness with which investors approach this topic can be a bit of a shock, but getting into their mindset — ie. looking for a return, can keep you focused on what’s important for your startup. It’s important to know that from a financial perspective, investors will have two primary questions when looking at a project:
These questions can be answered by a thorough financial projection which you can do yourself, but if you’re struggling, there are people you can hire to help out.
Essentially, investors want to know what their ROI (return on investment) will be and when they’ll begin to see it, so including a full ROI analysis in any pitch to an investor is highly advised.
At Gravitywell, we love working with enthusiastic startups and help with prototypes, pitch decks, MVPs and conceptual work. If you’d like to discuss how we can take your idea to the next level, get in touch.
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