What Answers You MUST Have When Investors Ask About Your Customers
Before an Investor hands you a few million dollars, they’re most likely going to want to talk to a few customers of yours, that is, if you have them already. Paul Judge, Founder and CTO at Purewire Inc. and today, an investor says that:
“It’s become so sexy to pitch to investors nowadays that people forget to first go talk to customers. I have people pitch me, and when I ask what customers think about this, they tell me they don’t know. So why are you talking to investors right now?”
He claims that he needs proof that the startup is solving a “Valuable Problem” — meaning that customers are willing to pay for the solution.
So before you talk to Investors — it’s time to talk to some key customers and get the story from them so that you can tell your “User Stories” to the Investors in an accurate way. I’m not talking about market size, numbers and demographics here — rather the intimate knowledge of your customers’ stories — where they were when they “found you” and what has changed in their lives since engaging with you?
Here are some important points to research and present:
- Focus on Target Market Users — Choose clients that are part of the target audience that you are “selling” to VC’s — because these are the ones they’ll seek out to talk to first.
- Align with Your Clients — Find out what they like/dislike about your product, if they haven’t converted to paying customers yet — why? What would they need to happen in order to convert?
- Learn the Churn — If you have clients that are no longer clients — find out why, get candid answers and see where they migrated to and what their getting that they were missing with you.
- Competitive Edge — If a customer moved to you from a competitor, find out why they left and why they chose you. This can strengthen your competitive edge.
- Verify Testimonials — If you have testimonials on your website or deck, make sure to verify that they still stand behind their testimonials.
- It’s All in the Details — Know your users’ habits, how they use your product and be ready to show real time usage analytics. Investors MUST check this box off so they know your metrics are true.
- Choose What to Use — Focus on 1 strong usage metric that you want to emphasize — i.e. number of return visits a day, engagement time per session, etc. Know the numbers inside and out for at least that specific metric.
- Firsthand Experience — This is a hard one but the payoff is big — find someone the VC knows that is either a user, tell them so they can ask them first hand about their experience. If the VC’s child, spouse, another Entrepreneur they’ve invested in, etc. is a good potential user — offer them a free trial to get their opinion. Or if the VC is in your target market — ask them to become a user and see first hand!
- What’s the Cost to You? — Know either your Customer Acquisition Cost (CAC) or have a short term plan to find it out.
- Let Them Choose — Be prepared to provide a VC with contact info for clients that gave testimonials and a few that didn’t. Talk to them, vet them, make sure there are no unpleasant surprises.
The more you know before the better — you’ll look more professional and not be stuck when they ask you a questions about the customer. The more comfortable you feel answering questions and the more familiar you are with your customers — the better your pitch ( and not to mention your product) will be.