Early on in any startup is more often than not filled with the unknown. How can you market on a shoestring budget? How will you reach your target market? There’s a ton of questions, but one thing is for certain: it is thrilling to see your little startup start to come into its own.
As you acquire customers and your customer base grows, once you start to make a profit it’s only natural to start thinking about the next step forward. This isn’t a decision that should be taken lightly. Funding has only become more difficult to pursue and isn’t always a viable option for early-on founders to pursue. But once you have key structural parts of your business in place, sponsorships are often an option for startups with a well-formed concept.
How do you know that you’re truly ready to usher in prospective corporate sponsorships or investment opportunities?
Here’s a few signs that your organization is ready to start pitching for both…
You Trust Your Team
Solid choices in co-founders can make or break a company’s success. During the early days, these are your key contributors and they must be willing to put as much sweat equity into the organization as you are.
It’s crucial to have the trust in your team- no matter how small- and that you know they’re committed to your business concept. This can be problematic if employees are stretched too thin; it doesn’t matter how much talent they have or how invested they are into your concept. Keeping your team under too much stress, you’re on a path to a burn out, which won’t help anyone achieve their goals.
Burning your team out makes it more likely that your core stakeholders won’t stick with the company. Having your core team in place puts your organization in an advantageous position when you’re pitching sponsors or trying to acquire another source of funds. This is the point where a lot of startups are ready for an angel investor- individuals who have earned income that is exceeding $200,000 or have a net worth of more than $1 million.
These folks are accessible across any industry and are particularly useful for entrepreneurs who have moved beyond the seed stage of financing, but don’t yet have the significant revenue needed to court venture capital funding.
Solid Organizational Processes
It’s a common startup culture trap, and it causes far too many startups to fail because they focus solely on growth and end up forgetting about the basics. You cannot walk before you crawl! Even doing something as simple as defining your internal processes and your unique selling proposition can go a long way in helping you to form a proven business concept.
Your organizational structure must be put into place in the beginning to keep everything organized and keep the team focused.
Making sure that you have a solid structure in your organization puts you in a position to prove value and ROI to your potential sponsors and investors. More and more often, sponsorship decisions are driven by the tangible economic value of that relationship. When you’re working towards validating the ROI in your pitches, it’s crucial that you focus more on metrics, how you’ll help the prospect measure their return and all the work involved in helping them achieve their goals.
However, when pursuing straight funding, putting in the proper organizational infrastructure early on will put you in a position to pursue funding from multiple revenue streams, including personal and seed investors at this juncture. Early on, having a solid organizational infrastructure helps document your journey beyond the acquisition of funding- no matter where it comes from. Making these decisions early on will help you validate your business concept to others.
You Have Positive Cash Flow
Good cash flow management, boiled down to the simplest essence, means that key principles understand every dollar received and every spent and never delegate this key process out. It’s up to the c-suite to control the flow of cash in and out- they should always scrutinize every dollar out and work on motivating those who owe to pay their dollars in.
Scaling will increase the cost it takes to do business and it often does it before you’re able to generate additional revenue in the traditional way your company acquires sales. This is a perfect scenario where it would be appropriate to pitch prospective corporate sponsors.
Whether you’re looking for VC funding, or pitching sponsorships, you must make sure that your organization is in the black (or has a validated plan to get there). Venture capitalists are used only after a startup has begun to show a significant amount of revenue. These are crucial players in your space- they typically invest a substantial amount of money to organizations (averaging around $10 million). VCs tend to gain most of their returns through carried interest- a percentage received as compensation from the profits of a hedge fund or private equity.
Driving sponsorships for your startup is a numbers game. The single biggest mistake you can make is focusing on the ‘perfect’ sponsor for your business too early on. If you are running a profitable, well-managed startup, you’re in a place to start being pickier about only working with dream sponsors, but when you’re just starting out and looking for an influx of cash to make your business viable, you can’t be too picky.
Being transparent is key here- obviously, you’re looking for ‘partners’ to help make your organizational goals and the push to scale a success, but be clear: you are also seeking financial support. Try to make that as transparent as possible as early on as possible. Doing so avoids a long, drawn-out pitch process where a potential sponsor never commits. This is a waste of time and labor and is especially cumbersome if you’re only pitching for relatively small numbers (which you likely will be at first).
You Can’t Keep Up With Demand
This is a problem that solopreneurs and early-on product startups run into frequently. When you’re ready to hit a growth push, you’ll have more clients coming to you than you could handle by yourself, leaving you with two options: either you turn away clients, or you hire additional help to assist with the client load.
You don’t want to be stuck in a position where you’re losing out on new opportunities at this stage. Don’t fall victim to a productivity bottleneck- scale as you need to. Regardless of your industry, steady demand is probably the best sign that your organization is in a place perfectly poised for growth.
You’ve Read The Fine Print
Founders often make the mistake of concentrating so thoroughly on growth and revenue, that they forget to overlook any legal ramifications that are tied to growing their business. As business grows, the ever-growing laundry list of government regulations they are expected to follow grows. Regulatory constraints can become especially confusing for companies that are taking it international. Business can get complicated quickly if you go into these waters unfamiliar with the regulations with your new untapped market.
When your research is completed, you can confidently proceed knowing that you won’t run against any local or federal regulations that can halt, pause, or delay your young company’s growth.
This is also important when pursuing sponsors and investors- prospective sponsors and investors want the security of knowing that their partnership with your organization will not lead their brand to facing controversy. Investors will not want to invest in a company that has landed itself in hot legal trouble and brands interested in sponsorships are wary of being associated with controversial PR nightmares. Make sure that you proceed knowing what the legal lay of the land looks like so that you won’t be caught off-guard.
About the Author
Kristen Bowie is a marketing leader, forging the path with data-driven decisions. When she’s not writing for thought leadership and creating sponsorship proposals at Qwilr, she’s hanging out with her two urban dwarf goats, painting, or is out watching a local band. Connect with her on LinkedIn, Facebook and Twitter.