Not every great idea is a great business idea. That’s why business investors look at investing in a formulaic way. At a speed pitching event last week, a judge from BoomStartup mentioned he looks for the three T’s – team, traction and technology. For a business startup, it’s not a bad idea to incorporate these as part of the startup plan.
Team – The team is composed of mission critical position your startup needs to get to the next level. Depending on the industry, a lawyer or a software developer may be necessary for the team. Regardless of the industry, once money starts flowing a bookkeeper or accountant should be on it. Having a team tells an investor the founder is serious. It’s also a form of validation or social proof for the business.
Team members come in many different flavors. If there is seed money, the team member(s) may be hired directly by the business. An outside firm that performs needed services can count as a team member. Usually, however, funds necessary to fund these types of team members aren’t there. That’s where entrepreneurs get creative by offering a piece of future earnings for work performed now. This is known as sweat equity. Entrepreneurs sometimes take on partners directly into the business to fill that team role. Sometimes there is a team of one. Solopreneurs seeking outside funding should have a compelling story of why they’re completely on their own.
Traction – Investors want to know there is interest in the business product before they invest their money. Startups demonstrate public interest by showing traction. Inc. Magazine defines traction as “quantitative evidence of market demand.” What is quantitative evidence? It’s what startups convince investors it is. Businesses can define their key performance indicators to determine what the next level is. This is much easier for startups that are making money. Incoming revenue is very concrete quantitative evidence.
Pre-revenue companies have bigger challenges, but market research can be compelling enough for an investor if they like the other things about the startup. Some pre-revenue evidence includes the number of Facebook likes on the business page, purchase orders, app downloads, Twitter followers or website traffic. All of those can be used to demonstrate traction for pre-revenue companies.
Traction demonstrates to investors a demand exists for the product and the startup is beginning to meet that demand through measurable actions.
Technology – The technology being used by the startup is also a consideration for business investors. For technology companies this is obviously mission critical. Sometimes those companies don’t even have a beta version in place, so they’ll have to demonstrate a wireframe, show a technology team member and provide a launch date. Even non-tech companies need to demonstrate how they use technology. Mentioning bookkeeping or project management software in a presentation tells an investor how thorough the startup is.
The three T’s provide a solid framework for startup companies in implementation of the business plan and in pitching to investors.