Call for Free Consultation (858) 876 4597

I Get By (Funding) With A Little Help From My Friends (and Family)

Friends and Family Funding Help from The Startup Garage

One of the most daunting challenges when starting a business is raising start-up capital. Finding and securing the cash will take careful research, good negotiating skills, and, above all, an unflagging commitment to launching your new business. Begin your capital search within your current network of friends and family. A good business plan is necessary every time you approach investors and lenders. As funding rounds get larger and larger, the business plan needs to evolve with additional information, financial projections, and key performance metrics.

Unless your friends and family are professional investors, they probably don’t want to read a 50-page business plan. More likely, they’ll prefer to sit down over coffee and hear you explain your idea. To avoid being too informal, draw up a five- to 10-page document that sums up what you want to do, how you’ll do it and what you’ll apply the money toward. Such a summary ensures you’ve made important disclosures, such as the key challenges, risks and competition the business faces, and that your backers understand what their money is going toward. You should also be able to cite some of the risks for friends and family to give funds such as the possible length of time to get the money back, a possible business failure, and long-term growth prospects.

Key Elements of a Friends and Family Business Plan

1 Page Product Description

The objective of the Product Description is to clearly explain what products or services your business will offer. The information provided in this section will become the basis of your Marketing Plan. You should never assume that your product will sell itself, include a comprehensive description of the product using specifics and detailed language. It should be written so that the reader can easily understand what the product is and what it does. The Product Description should also compare your product to other similar products on the market. This gives you the opportunity to clearly define what advantages your product has over the competition, as well as to address any weaknesses that you may need to improve upon.

Basic Marketing Plan

1. Target Market

  • Geographic segmentations
  • Demographic/socioeconomic segmentation (gender, age, income, occupation, education, household size, and stage in the family life cycle)
  • Psychographic segmentation (similar attitudes, values, and lifestyles)
  • Behavioral segmentation (occasions, degree of loyalty)
  • Product-related segmentation (relationship to a product)

2. Positioning Statement

The secret to defining what makes your business different is to understand what your ideal client really wants and make sure you deliver it better than anyone else. What do you uniquely offer that your clients find amazing? Do you:

  •    Find simpler ways of doing things?
  •    Serve a niche market better than anyone else?
  •    Bring a new perspective to challenges that offer unique solutions?
  •    Package your services in a way that appeals to your ideal client?
  •    Create systems that help clients learn how to do things more effectively?

3. Price Strategy

  • Market skimming: If you’re the only product in the market or have a highly differentiated proposition but can only supply a small proportion of the market then a marketing skimming strategy is often best. This allows you to maximize profitability and use your high pricing to limit demand.
  • Market penetration: Companies usually adopt a penetration pricing approach because they want to grab market share. However penetration pricing requires an iron-grip on costs and efficiency as it is often only with economies of scale that the product becomes profitable.
  • Competitor matching: This pricing strategy results in propositions that are priced at similar levels to the competition. This strategy can be most appropriate where markets are only growing slowly or not at all.

4. Distribution

  • What is the most convenient means for customers to obtain the products or services they want?
  • What is the specific level of customer service standard required?
  • What is the most cost-efficient way of providing accessibility and service?
  • How many customers are there, where are they located, what is their average transaction value?
  • What structures do your competitors use and how efficient are they?

5. Sales and Promotion Strategies

  • Blogging / guest blogging
  • Social media marketing
  • Content Marketing
  • Search engine marketing
  • Event marketing
  • News / media /Public Relations
  • PPC advertising

6. Market Research

  • Interviews (either by telephone or face-to-face)
  • Online surveys and questionnaires
  • AdWords
  • Focus groups gathering a sampling of potential clients or customers

Want To Learn More?

Download our free Raising Capital From Friends, Family & Founders eBook.This book overviews best practices for raising money from the first people you go to — your family, friends & founders. Dealing with money in personal relationships can get a bit tricky. This guide will cover fundamental concepts, legal issues and material you’ll need. It will help prepare you for the difficult conversations and in some cases enable you to avoid them altogether.