How to Convince Investors You Can Sell Your success, as a company and as an investment, will depend on your ability to get customers to buy i service.

By Scott Shane

entrepreneur daily

Opinions expressed by Entrepreneur contributors are their own.

Last week, I made an investment in a startup called PetPartner App that helps veterinarians and pet groomers connect with their clients across marketing multiple channels – from postcards to email to apps.

The company meets a true customer need with a valuable service. But that's not why I invested.

Like all startups, the company's success will depend on its ability to get customers to buy its service. I wrote a check because the company's CEO, Taylor Cavanah, gave me confidence that the company can do that.

Because many founders are trying to convince investors that they can sell, I thought it would be useful to outline some of the ways entrepreneurs do that.

1. Show that customers value your product.

You can't succeed as a startup unless you offer value to customers. PetPartner App offers customers an attractive value proposition. Two pieces of information convinced me of that. First, I talked with several of the company's customers, and they all said that they benefit financially from PetPartner App's service. Moreover, none of them could offer a scenario under which they would walk away from their supplier. Second, PetPartner App's data confirm this customer loyalty. The company has a 99.4 percent monthly recurring revenue retention rate.

2. Demonstrate that the value of a customer is high relative to the cost of acquiring one.

The lifetime value of a PetPartner App customer is $12,800, but it only costs the company $1,900 to get a sale. To me, a lifetime customer value that is five times the cost of acquiring a customer is a compelling ratio.

Related: The 3 Steps From Interested Customer to Sold

3. Know your sales metrics cold.

Cavanah can rattle off his sales metrics the way most people can tell you their kids' birthdates. He can tell you how many leads each of his sales openers can handle each month; their call-to-schedule percentage; the number of discussions per month openers can set and the number that sales closers can complete; the average number of days to open and close a deal, and the fraction of sales closed each month. Contrast that with many entrepreneurs, who can't describe any of the numbers in their sales funnel.

4. Analyze your sales metrics to identify ways to improve.

Some entrepreneurs collect metrics, but don't do anything with them. Cavanah looks at his metrics and figures out how to improve his company's performance. Here's a simple example: PetPartner App's sales data showed that when openers schedule meetings with customers two to three days in advance, the closers have a 2.5-times higher chance of actually speaking to the customer than if they schedule the meeting seven to eight days in advance. So Cavanah set a rule limiting how far in advance openers could schedule meetings.

5. Figure out the sales model that works for your business.

Some businesses are better off having the same person open and close sales, while others do better with specialists in each role. PetPartner App figured out that they are better off using separate openers and closers, because that approach yields much higher conversion rates in their industry. In their business, it turns out, some people are great closers, but lousy openers. So if they have the same person opening and closing, they end up with a lot of great closers having nothing to close.

A lot of investors think about a founder's ability to attract customers when considering putting money into an early stage company. While checking off all of these "sales" boxes won't guarantee that investors will finance your startup, it will peak their interest, like PetPartner App did for me.

Related: How to Handle Online vs. In-Person Leads

Scott Shane

Professor at Case Western Reserve University

Scott Shane is the A. Malachi Mixon III professor of entrepreneurial studies at Case Western Reserve University. His books include Illusions of Entrepreneurship: The Costly Myths That Entrepreneurs, Investors, and Policy Makers Live by (Yale University Press, 2008) and Finding Fertile Ground: Identifying Extraordinary Opportunities for New Businesses (Pearson Prentice Hall, 2005).

Want to be an Entrepreneur Leadership Network contributor? Apply now to join.

Editor's Pick

Related Topics

Thought Leaders

10 Simple, Productive Activities You Can Do When You Aren't Motivated to Work

Quick note: This article is birthed out of the urge to do something productive when I am not in a working mood. It can also inspire you on simple yet productive things to do when you're not motivated to work.

Business Solutions

Stay Organized with This Task Management Tool, on Sale for $30

A Study Planr Pro subscription is just $30 for life.

Business Ideas

55 Small Business Ideas to Start in 2024

We put together a list of the best, most profitable small business ideas for entrepreneurs to pursue in 2024.

Devices

Get a 15-inch MacBook Pro for Less Than $375

Save on this refurbished MacBook Pro for a limited time.

Data & Recovery

Get 2TB of Cloud Storage with PhotoSphere for Just $280 for a Limited Time

Easily store and access photos, videos, and other files spread across your work devices.

Business News

Here Are 3 Strategies Startup Founders Can Use to Approach High-Impact Disputes

The $7 billion "buy now, pay later" startup Klarna recently faced a public board spat. Here are three strategies to approach conflict within a business.