ON ENTREPRENEURSHIP || Answer This Critical Question to Get Funding For Your Business

I’ve recently taken up business mentoring for startups.

The founders taking part in this entrepreneurship program have been running their businesses anywhere between six months and two years; some are figuring out their product-market fit, and others are looking to secure their first round of funding.

One surprising discovery I made during my mentoring calls: the businesses asking for funding didn’t tie said funds to milestones.

In plain English, this just means: what will this money do for the business? 

For example, if you are asking for $100,000, what are you going to use this money for? What kind of results or traction will this generate for the business? 

If you say, “We’re going to use this money to hire a marketing coordinator who will create three posts a week on social media,” that’s focused on output and not performance/milestone. Instead, if you say, “We’re going to use this money to hire a marketing coordinator who will create three posts with purchase links on our website that we expect to generate $400 in sales revenue on average per post,” then we’re getting somewhere because now you’ve tied the investment to an outcome instead of OUTPUT. 

In case that didn’t hit home, here’s another example. If you say, “This money is going to pay for a developer’s salary for one year to build our platform,” versus, “This money is going to pay for a developer’s salary for one year to finish building version 1 of the platform which can service 1000 users with a maximum capacity to generate $250K in revenues,” then we’re talking milestones. 

Most investors are wary of funding companies because the milestones and direction aren’t clearly defined. Does it mean you have to guarantee that you will hit the milestones? We all know things won’t turn out exactly as planned and there will be hits and misses, but investors want to understand your rationale and how you strategize towards your goals. Suppose you’re asking for money without clearly connecting the input and outcome. In that case, it’s like a bakery telling a customer they don’t know when they’ll get their birthday cake or even how it would look, but the customer still needs to pay the $100. Being a startup, you usually have a bit more leeway in defining the outcome, but it doesn’t mean it can be entirely off the mark. 

So, if you are raising funds for your company, make sure to tie the investment to milestones. Otherwise, who would want to put up the funds when they have no idea what they’re getting?