Start-ups: pain free

Angel investor and experienced entrepreneur Andy Yates on how knowing your market will help you avoid business headaches

So far we've covered a number of things that investors always look for in start-ups. Commitment, research and a good demonstration product are key, and so is having a balanced team and strong connections in the industry you're targeting.

My next top tips may seem like obvious ones, but it's amazing how many would-be entrepreneurs ignore them.

Get to know your customers

There's a real temptation for entrepreneurs to adopt the mantra: "Build it and they will come". Take this attitude, and they rarely will. The reality is that you have to go and find your customers rather than assuming they will come to you.

In the vast majority of presentations that young entrepreneurs have made to me as a potential investor, the same PowerPoint slide pops up. It goes something like this: "We think the market in XYZ industry is worth £10 billion, and we aim to capture 1 per cent of it within three years, which means we will soon be turning over £100 million a year."

I've always thought that this sort of top-down analysis is a topsy-turvy way of going about things. Of course, it's important to choose an industry and market with big potential, and preferably one that's growing quickly and has plenty of opportunities. But, when pushed, most entrepreneurs have very little idea how they're actually going to win that 1 per cent of the "huge" market they've outlined.

There's only one solution: go and speak to some potential customers to see what pain they're currently facing and exactly what product or service they need to take it away. If you work out properly how to provide cost-effective pain relief to clients, you will avoid the business headaches that many start-ups suffer. If you don't take this kind of bottom-up approach, you may end up getting bruised. Ask yourself: how many clients can you realistically get on board in the first year and how much will they pay? And just how are you going to acquire these clients without spending a fortune in marketing? Then you'll be closer to coming up with an feasible business plan - and that's what early stage investors really want to see.

Find someone with experience

Start-up entrepreneurs are often among the best and brightest people around. They also might have a great idea in a great industry. However, many still don't get funding from investors. Why not? Because they lack one vital ingredient - experience. They haven't created a business before and really proved that they have what it takes to beat the odds.

What can you do? Try to find somebody that has business experience and get them on board. For example, if you're looking to create a business in the car industry, why not try to get a former executive at a big car company to help you drive your business forward. If you're a technology entrepreneur, tap into the growing number of fellow entrepreneurs that have had start-up success in this field.

Someone with the right experience will lend a huge amount of credibility to your start-up and get investors interested. They will bring you vital contacts and introductions that can make all the difference when you're chasing all those important first clients or partnerships. They can also become valuable mentors, helping you to avoid the potholes in the bumpy road that every start-up has to travel. Finally, first-time entrepreneurs tend to be, and probably need to be, optimists, but experienced entrepreneurs can add a vital dose of realism to the mix.

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