Recently, I got a call from a frustrated university professor who is a friend of mine.  He had just met with a very nice and smart group of entrepreneurs from his college.  They had gotten together, and spent a fair bit of their own money to develop a piece of technology.   The technology worked, very elegantly at that.  Problem was, they had no idea who, or why someone, would use the technology.  And, they wanted to raise capital so that they could figure that out.  They were mystified why, having taken the risk to develop a product on their own nickel, investors weren’t clamoring to invest in their company. As my pal sighed on the phone, it struck me that this is a pattern I see pretty often in entrepreneurs.

Investors will often say that we don’t invest in ideas, we invest in entrepreneurs.  This is absolutely true.  An idea without someone to drive it is useless to an investor, since the essence of investing is the act of providing entrepreneurs with money so that they can generate more money for the investor.  It’s a pretty fundamental thing, and is the same whether the investor is a college roommate, well connected businessman or professional investor.  The corollary of this for many entrepreneurs, therefore, is that to obtain capital you must demonstrate yourself to be a “backable” entrepreneur.

What are the attributes of a backable entrepreneur? There are many view points on this, but the overlapping themes seem to be:

·         A willingness to manage the risk of the business, and properly shift it to others.

·         An ability to fail upward – i.e., to manage to make something positive out of immediate failure.

·         A willingness to listen to other viewpoints.

·         Self awareness.

·         Experience or informed vision in the market dynamics of the opportunity to be pursued.

What is often a point of confusion is that many think that entrepreneurs should demonstrate a willingness to take risk, and that taking risk in itself makes one a backable entrepreneur.  Actually, the most successful entrepreneurs spend every waking hour trying to figure out how to reduce, eliminate or shift risk.  Entrepreneurs are actually not risk takers – they are risk managers. 

If you have ever hosted a party at your house you know the feeling you get around 7:05 when no one has shown up for your 7pm start time – what if no one shows, what if I put the wrong date in the Evite, what if …… In other words, what if you threw a party and no one came?  That would kinda stink wouldn’t it – unless of course you were really an introvert in which case you’d be secretly pleased.  Well, think about a business idea like a cocktail party.  If no one shows up is it still a party?

Because investors are driven by economic return they need the businesses that they invest in to grow.  That requires an ongoing, and growing, network of relationships – vendors, employees, consultants and customers.  A successful business is a series of successful sales transactions which result in lasting and economically useful relationships.  Put simply, the biggest risk that a business idea has is that no one comes to the party.

The successful host understands that a clear and compelling party plan is a necessary condition to getting people to attend.  How will you get people to attend your party?  How will they benefit from attending?  Why will they want to do it again?  What validation can you provide for your expectations?  Is this something you can do once or multiple times?

If you apply this to a business idea, you get a business plan – the road map for why your business will succeed.  A lot has been written about what goes into a successful business plan.  The Get Educated Series has a useful course on the subject.  But, putting aside the micro points, the major ones is this – unless you have a compelling and consistent explanation for why people will care about your  business and consume its offerings you will never get an investor.  Because investors will take many risks, but very few of them will take the risk of financing a party where no one will attend.

Risk taking, getting off the dime and starting the journey, is the bravest and most important first step of any new venture. It’s a step not to be dimished in its importance. But, to attract investors you must satisfy them that you are not a risk taker, but  a risk mitigator.  And, that my friends is why you must have a clear plan for reaching customers in order to be truly backable.