This is the question at the heart of being an investor . . . and it’s a question that’s burned countless people over the centuries. Good decisions can be lucrative, but bad decisions are expensive.
You’ve got to have some way to sort the viable business opportunities from the chaff, and the easiest way to do so is to have standardized criteria. Here are the five most important qualities to look for in an entrepreneur when vetting potential small business investments:
Green Light Number 1: Passion
First and foremost—are they passionate about their product?
This is the deal breaker, and you’ll probably know within seconds to minutes of meeting an entrepreneur whether or not they really care about their product. Entrepreneurs who are just in it for the money are easy to spot; they tire of selling their idea quickly, they aren’t as active in hunting for opportunities, and they quit when things get hard.
Passionate entrepreneurs don’t give up. That’s the sort of person you want to trust your money with.
Green Light Number 2: Business Experience
Funding an entrepreneur’s first project is a risky proposition. Experienced entrepreneurs have experienced dozens of failures for every single one of their successes—there are some lessons you just can’t learn without trying and failing first.
Has the business owner you’re thinking about investing in had a chance to experience failure? And how have they learned from it? You want to make sure that they have a good chance of making it before you put your money down.
Green Light Number 3: Board of Advisors
Behind every entrepreneur is a board of advisors, and smart entrepreneurs know that they never want to be the smartest person in the room. That’s especially true when they’re trying to get a new business off of the ground, and you can tell a lot about your potential prospect by who they’ve surrounded themselves with.
Are they working with proven experts in their product’s field? Have they partnered with people who have a proven track record of success? Are they deliberately looking for people who are more knowledgeable than they are?
Green Light Number 4: Financial Projections
It’s always amazing when an investor forgets to consider the financial aspect of their investment.
There are lots of small business owners out there who are passionate, trustworthy, and hardworking. However, that doesn’t mean that all of them have what it takes to turn their idea or product into something that will eventually turn a profit.
And in the end, you’re in this to make money, right?
A budding business may not be profitable yet, but you should always check to make sure that there is a clear path forward to profitability. Do the numbers make sense? If the business isn’t profitable now, is it headed in that direction?
Green Light Number 5: Marketing Genius
Some people just have it—and others have studied hard to learn it. The gift of selling is one of the most important things an entrepreneur can have.
Analyze their pitch carefully not just for the product that they’re pitching, but the skill with which they pitch you on their project. If they can’t sell it to you, they won’t be able to sell it to anyone else . . . but if they deliver a stellar presentation, you may have found a winner.