Every entrepreneur must answer four simple questions. The answers to these questions will help you stay focused on what is important. And if you are trying to raise money, these are precisely the questions investors want answered.
The questions are:
- What problem are you solving?
- How will you solve it?
- Who is going to solve it?
- What deal are you offering investors?
Let’s look at these questions one at a time.
What Problem Are You Solving?
Most successful businesses are successful because they address a clear and compelling pain that a group of potential customers feel. For example, you might be providing a solution to any number of problems, for example:
- “a woman stands a 1-in-7 chance of dying in childbirth,” in the West African country of Niger
- 170,000 C6-C7 quadriplegics in the US are unable to self-catheterize using current intermittent catheters
- 750,000 start-ups/year have headaches finding ideal office space
- Many renters & commercial lessees want the benefits of solar power but cannot build solar panels on their roofs
Notice that in all these cases, we are talking about the problem, not the solution. It is important to always understand the problem and start the discussion or presentation with the problem, not the solution.
How Will You Solve It?
Once you have convinced listeners that a problem exists, you have their attention. Now it is time to tell them about your unique solution. Customers must see your product (or service) as a better solution to their pain than alternatives offered by the competition.
The word competition is used here in the broadest possible sense. It includes companies that directly compete with your company (e.g., Avis if you are Hertz), companies that indirectly compete with your company (e.g., bus companies if you are a rental car company), and the status quo (e.g., people who are not traveling because of the lack of transportation options).
Better can be mean lower priced, or more convenient, faster, cleaner, greener, more exclusive, more reliable, and so on. These latter qualities are called differentiators.
In short, how will you solve the problem better than others?
Who is going to solve it?
If you have come this far, your listeners are convinced that you are addressing an important problem and you have a figured out a great way to solve it. That’s great! The next thing the listener wants to know is whether you have the ability to pull it off.
So, the question is: Who are you? Why should anybody believe that you will succeed? Nobody will doubt that you believe you will succeed. But do you have credibility with others? Here are two points to ponder:
- Most investors will invest only in teams, not individuals
- Most investors will invest in teams who have succeeded before
What should you do if you are by yourself? Simple answer: Get a team. You can’t do it all yourself anyway. What should you do if you have not “been there before?” Simple answer: Team with others who have. I talk about how I am “in my fifth startup.” But I wasn’t the founder of “my” first startup; I joined it after its first year. I used that experience as leverage to become a key player in “my” later startups. I hope you see the reason I put “my” in quotations; every one was started by a team of individuals, each member bringing a unique set of skills.
What deal are you offering investors?
Now that you have convinced the listener that there is a problem, that you know how to solve it and that you and your team can solve it, only one challenge remains: can you convince the investors that it is worth it for them to invest?
The standard form to describe the “deal” you are offering investors is called a cap table. A cap table describes precisely who owns shares of the company currently and how many. It also describes who will own shares of the company after the investment that you are seeking and how many. It shows you are not hiding anything.
In summary, answer these four questions (usually in this order). If you can’t answer them, you probably don’t have a viable company! If you can answer them convincingly, you should have an easier time raising investment money.
 Kristof, Nicholas, and Sheryl WuDunn, Half the Sky: Turning Oppression into Opportunity for Women Worldwide, New York: Vintage Books, 2009.