Two Questions Every Entrepreneur Should Answer

Posted by: Rod Kurtz on September 9, 2009

Every business needs money. As an investor, I’ve developed a good understanding of what to look for in pitches for investment money. Often, what business owners and entrepreneurs seeking money don’t say or don’t know is as telling as what they do say and understand.

As an investor, I always look at what my return on investment will be should I choose to invest in a given company. I gauge ROI based on a number of things, but primarily on two simple questions. If a business can answer these questions, there’s a pretty good chance I’ll at least be interested enough to continue listening. These questions are:

1. Who are your customers? Entrepreneurs and business owners are always passionate about their product or service. This is, of course, important, but often they overlook the critical component of who their target market is and who will buy the product or service they provide.

2. How are you going to make revenue? Although this question seems simple enough, in my experience, more often than not, it cannot be answered. This is important for the simple fact that without customers or somebody to buy the product or service you want to provide you’ll never make any money.

These questions may seem elementary and simple, but by understanding who your customers are and how your business will make money you’re building a solid foundation that will help lead to long-term success.

Alan Hall
Founder and Chairman
Grow Utah Ventures
Salt Lake City

Reader Comments

Varun Arora

September 10, 2009 2:21 PM

With due respect, this is blindingly obvious and not rocket science. Entrepreneurs who're pitching without an understanding of who the customer is and why s/he'll buy are not entrepreneurs - they're more likely to be academicians or fresh graduates with stars in their eyes. While I'm no investor (being more on the "investee" side of the equation), I've certainly met tens if not well over a hundred people doing startups and I haven't come across anyone who's in this blindingly stupid category.

Just feels like a post that doesn't belong in BusinessWeek. Sorry.

- Varun Arora
Founder, HomeCamera
www.homecamera.com

Arunav

September 27, 2009 8:28 AM

Varun, I'm neither an academician nor a fresh graduate but nonetheless I think your comments about them is very derogatory and quite frankly uncalled for. Your comment obviously shows your naivety about how business plans normally gets pitched and how academicians and fresh graduates ar more knowledgeable than you believe. I guess you don't know anything about Customer Segmentation concept nor about the number of pitches an entrepreneur goes through before his/her idea is backed up by investors.
Just launching the homecamera business doesn't mean you are expert in entrepreneurship. Good luck in getting real in life and appreciating others' point of view.

Post a comment

 

About

Want to improve the way you run your business? Entrepreneurs, academics, and consultants from diverse industries offer practical advice on a variety of topics each business day.

To submit a tip for consideration, first check our archive of previous tips to make sure you're not repeating a tip someone has already contributed. Then send the tip to Small Business channel contributor Michelle Dammon Loyalka. Because of the volume of material she receives, she may not respond to each individual.

BW Mall - Sponsored Links

Buy a link now!