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#HTP: Know the Microeconomics.

Know-the-Microeconomics

Nobody cares about your company.

That is to say, nobody cares about your company like you do. Often, when pitching in front of investors, entrepreneurs try to show the unfilled space in the industry or the bigger picture of what they can do. While all of this is important and can make an impact, investors want to hear about the microeconomics of your enterprise first and foremost. They want to know, “Have they done the math? Do they understand the actual numbers behind what they’re doing?” If you can’t provide these numbers then you’re not an entrepreneur, you’re a kid playing pretend.

So many entrepreneurs prepare for a pitch by focusing on the macro. They do in depth research on the industry, they find competitors that occupy the same space and describe the shortcomings of these companies while highlighting the need for whatever idea they’re selling. But just as in sports, while knowing the competitive landscape certainly helps you gain perspective and understanding, knowing yourself is far more crucial.

This is what’s known as understanding the microeconomics of your enterprise.

The first figure you’ll need to understand is your customer acquisition cost, the amount that you’ll have to spend in order to get a customer all the way through the pipe. This is a combination of the sales costs, marketing costs, overhead etc. that you’ll need to dish out with regards to each new customer the process brings in. Secondly you’ll need to understand how long you can keep these customers and what they’re worth to you. Investors love being inspired, and while an eloquent presentation can sometimes sell an idea, nothing is more inspiring than someone who has done the math and knows their own business model in and out. Investors are looking for a combination of factors when deciding whether to invest in your company. They want passion, understanding and ingenuity, but, most importantly, they want the numbers that show you’ve planned it out and understand the economics of your own business.

It’s important to remember however, that you still need to describe the industry or market you’re entering into during your pitch. You should demonstrate an understanding of the playing field and your place on it, but if you can’t provide basic numbers such as your customer acquisition costs, customer worth or your churn rate, then you aren’t ready to pitch, plain and simple.










 

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