Chapter 3 - Start Up Fundraising
IN THIS LESSON
Explaining Why You Will Make Money Instead of How: Moving Beyond the Revenue Model
The “why” is more important than the “how” when it comes to talk to investors. Telling investors why a start-up will make money (more on the side of vision and mission) is more important than just telling them how you will make money (i.e., the mechanics of it).
Consider Starbucks as an example: Before it became a global behemoth, Starbucks was a small Seattle chain. Its new CEO, at the time, turned that into a worldwide household name by convincing investors to put money into this company that would disrupt the way people think about coffee. It wasn’t just about drinking coffee; it was really thinking and perceiving about the entire coffee drinking experience.
In a sense, investors were pouring money into Starbucks because of the “why.” Although the coffee business was not that much of an appealing business, given the prevalence of grocery-sold coffee, but it was through focusing on the “why” – the reasons why Starbucks would make money (lots of it) that the CEO was able to take the entire brand and company far beyond its revenue model into a global phenomenon that is worth billions of dollars today. You will advance further, faster if you think this way as an entrepreneur.
Another example is Robinhood, an investing app. Back when it launched, there was fundamentally nothing unique or different about the back-end platform that Robinhood was pushing out, especially compared to all other trading platforms, which had robust data reserved, huge user bases, and much more advanced technology. However, Robinhood was able to become a unicorn and is worth well over $1 billion today because it was able to capture the millennial generation.
Robinhood had been able to raise money from investors by telling them they would be the one platform that captured the millennial generation for investing by making it easy (and free) to trade. In effect, they raised lots of investment by focusing on the “why” they would make money (by earning the trust of the millennial generation), rather than on the “how” (their technology and app interface).
What’s your WHY? You should know your why. You should also be able to convey this why to any colleague, customer, or investor. Your why is what will turn your idea into something that may one day change the world.