Questions You Should Ask Before Showing Your Cash Money
With the rise of companies like Venmo and Ellevest, it’s clear that companies don’t need a traditional business model to be lucrative.
If you’re looking to invest in new, innovative businesses, there’s the potential for huge returns– but that also means a fair amount of risk, which means considering an investment from as many angles as possible.
Beyond making sure a business checks certain boxes, such having a secure network, strong business plan, and talented leadership, read on to learn the five questions you should ask yourself about what to look for before backing a new business.
1. How Are They Marketing Themselves?
Marketing is the crux of any successful business; it makes buyers aware of companies’ products and entices customers to make a sale. Plus, more sales for them, means a better return for you as their investor.
It’s important to look at some hard data when doing your research. You can use tools like Google Trends and Google Analytics to track a company’s successes and failures over time to see how your investment could contribute to more growth.
Here are some key factors to notice when looking at this information:
- Are they getting organic traffic to their website?
- Are visitors actually staying on the site?
- Does traffic converting to sales?
- Is their use of social media engaging?
- Are they promising strong customer service and following through on it?
Services like Semrush can help a new business analyze their marketing and devise a strategy to get organic traffic, improve engagement and increase sales conversion.
2. Is This Start-up Optimizing Its Operating Costs?
here are a lot of up-front costs involved in starting a company, especially once it grows up a little and moves out of mom’s basement.
A key factor to consider when looking at a business’ costs is location. If it’s somewhere like Silicon Valley, you’re looking at some high costs right off the bat just for property leasing.
Trying to get a start-up off the ground in a high-profile city is going to be a whole lot more expensive than if a start-up is renting some corporate real estate somewhere like Logan, Utah. Location also takes into account state laws which determine how much a business will pay in taxes (or what kind of tax incentives might be available), and what their employees’ salaries look like based on cost of living.
Remember: the more money a business saves, the more it’ll have to invest in other aspects of their business–which is good news for investors.
3. What’s the Investment Risk?
Many new business ventures today are extremely scalable, making it safe to expand or test new marketing tactics. On the flip side, opening new locations, adding more inventory, and hiring more people in a traditional retail store comes with high capital investment.
When thinking about risk, talk to the CEO to make sure they have a crisis management plan if things go haywire. That plan should include the following:
- Chain of command with clear communication channels
- Set of identified risks
- Process to review and update crisis planning
- Series of activation protocols
4. Can They Earn Money ‘Round the Clock?
Businesses that aren’t confined to normal business hours can operate twenty-four hours a day, 365 days a year. In other words, they have the potential to make more money than traditional 9-5 operations.
That potential can be maximized by opportunities for various types of income. If you’re looking for a business that can turn a profit sooner rather than later, dig into how they plan on diversifying their sources of income, if at all. Some strategies could include:
- Affiliate marketing
- Diversified advertising
- Membership programs
- Franchising plans
- High-value content blog
5. Are They (Or Can They Become) A Global Player?
A business such as local coffee shop won’t be able to advertise itself as widely and broadly as a digital startup. As long as potential customers are on the internet, buyers around the globe can learn about a company and its products. This means wider reach and increased brand recognition, which ultimately leads to more revenue.
Many of the major players in the digital space (e.g., Amazon, Twitter, Uber, etc) grew because of their global appeal. Of course, while being able to invest in the early stages of a company as successful as Amazon isn’t likely, you can look for certain qualities that can improve the chances of a new business becoming a big deal.
If the business you’re thinking of backing checks the following boxes, there could be some sparkle there that, with your help, could turn into a shine:
- Cultural sensitivity and an appeal to social values in a given area or region
- Potential to build strong relationships with influential people or organizations
- Strong market research capabilities
- Effective arbitration plans or processes in place
About the Author
Elaine Thompson is a digital journalist whose writing has been featured in a variety of online publications, including Home Business Magazine and Bizfluent.com. Her work focuses on sustainability and balance in the work place and at home.