Why your idea is not investor ready

In my role as the President and CEO of the?Society of Physician Entrepreneurs ?(SoPE), I sometimes receive inquiries like this: “Hi, Dr. Meyers. I was reading some of your posts on the SoPE website and social media, and was wondering if you wouldn’t mind taking time to read the enclosed business plan for an idea I have and whether you could give me some advice on where to find investors.” Or,?"I have model with a various innovative spin-off and it needs 100 million. Where does one go.?

I've also mentored and coached student teams participating in idea generation and pitch fest competitions.

One of the biggest startup entrepreneurs mistakes is taking money too soon. ?As one blogger suggests, you may not need to take on investment as soon as you think. Some of the most successful startups were built while?bootstrapping. ?Bootstrapping enables you to really learn the ins and outs of your business, make strategic decisions, and intensely focus on building the offering you are trying to launch. Many businesses that take on investment too soon try to scale too quickly and aren’t forced to be as strategic and fail.

Plus, you should have skin in the game early.

In most instances, I receive no more or the information that I receive is not investor-ready and typically contains the following errors written by biomedical and health entrepreneurs trying to commercialize an idea, invention, or discovery.

They are:

1. People describe ideas that have not been reduced to practice.?There is a significant difference between an idea, an invention, and an innovation. An idea is something that pops into your mind and stays there. It is a prisoner, never to escape or otherwise see the light of day, let alone a customer. An invention, on the other hand, is an idea reduced to practice. It can be sketched on the back of a napkin, a prototype made of Styrofoam and duct tape or a YouTube video describing your digital health product. An innovation has both a qualitative and quantitative component. It is a new way of doing something, using old things in a new way that results in at least ten times the value of existing competitive offerings. Anything short of that is an improvement or, worse case, a solution looking for a problem.

2. They are not clear whether they have technology, a product, or a business.?A product is something customers will buy that solves their problem. A start-up is an entity looking for a scalable and profitable business model. Like a child is not a small adult, a start-up is not a smaller version of an ongoing business.

3. They ask for money to make a product or do research.?Investors give money to make money as soon and as risk-free as possible. They are not interested in giving you money to do research, pay your salary or buy an office. They want you to use their money to validate a business model that can be scaled to create profits as quickly as possible. They don’t support science projects.

4. They do not have a business, let alone a business model.?A for-profit business is an organizational entity designed to offer products at a profit. The business model describes how the business will create, deploy, and harvest value. Several businesses sell one or a few products; however, there are few. Most must expand their product lines eventually, capture new markets and adapt to change to sustain their growth.

5. Most don’t have a validated business model, i.e., early adopters or customers.?Technological products require not just technical validation (Will it work the way it should, and the way customers want it to?), but clinical validation (Will it do what we say it will do and be safe?) and commercial validation (Will the dog eat the food?).

6. Their proposal is not investor ready.?Less than 0.5 percent of venture pitches will get funded because the presentation is not formatted correctly, the information is not appropriate or focuses on the wrong things, the opportunity is not big enough or profitable enough or, quite simply, what is being proposed is not technically feasible, believable, or based upon valid marketing and revenue assumptions.

7. They spend 80 percent of the time talking (usually in arcane language with lots of jargon) about their solution, 15 percent of the time talking about themselves and five percent talking about the problem to be solved or the job to be done.?Most doctors, engineers and scientists are preoccupied with their solution. Investors are interested in the market pain; how big it is and how much the market is likely to grow if you fill the product/market gap. In short, at this stage, you need to be a problem seeker, not a problem solver.

8. They don’t listen.?If you listen long enough, patients will tell you, their diagnosis. The same is true for customers. They will describe or demonstrate their pain and ask you for a solution. Don’t miss the diagnosis by listening to their chief complaint.

9. They insist they are right and are usually looking for validation of their ideas.?What you think is valuable is irrelevant. The only thing that matters is what the customer values, and they vote with their wallets.

10. They have poor interpersonal, communication and selling skills.?Investors bet on the jockey, not the horse. Act like you’ve been in the end zone before.

11.?It is unclear why they are asking for money they think they need or what they would do with it if they got it.

12. They think that what they think about the value of the technology or company is relevant.

13. The valuation is grossly overstated

14. They don't understand who invests in what at various stages of technology development

15. They have a fundamental misunderstanding of the customer or the job the customer wants them to do

16. They don't talk to enough people with the problem

17. They don't do enough research to see if their idea is patentable or if they have freedom to operate

18. They don't understand the industry ecosystem, how it works, the value chain, or the workflow of the participants

19. They are problem solvers, not problem seekers

20. They create unrealistic revenue projections, timelines, benchmarks, and uses of funds

21. They don't use a VAST business model

22. The result does not achieve parts of the sextuple aim

23. They have not done a complete review of the literature that, had they done so, would reveal that someone is already doing or selling what they have in mind.

24. The only pitch they know how to throw is a curve ball

25. They don't understand the value of the value analysis of processes of care and workflow of the different stakeholders

Don't believe The Mythology of Innovation: ?You’re always just one good idea away from your next blockbuster product.

Before you ask for money, be sure you have:

1. A product

2. A patent

3. A team

4. A customer

5. A plan

6. A website

7. A story

8. A company

9. An executive summary

10.An exit strategy

Here are 50 questions angel investors will ask you when you make your pitch. ?Be sure you are ready to answer them. Investors want to know 1) how they will make money and make a difference, 2) how much they will make 3) how soon they will make it.

Here are some places to go to apply for low or non-equity diluting money.

Do me a favor, please. Before you send your idea to someone for input, be sure you’ve done your homework and have a proposal that is ready for primetime. Focus on the problem, not the solution. Create a business model that you can test and then validate. Don’t ask for money too soon.?Practice your communication skills to tell your story in as short a period as possible, ?using language that a sixth grader could understand. (The Wall Street Journal?uses language at a sixth-grade reading level.) If you can’t, then kill the idea, save us both time and move on to the next. Good luck with your new venture.

Arlen D. Meyers, M.D., MBA is the President and CEO of the?Society of Physician Entrepreneurs ?on?Substack ?and Editor of?Digital Health Entrepreneurship