Steps to Growth Capital Self-Study GuideStep 3

3.3 Prove Your Potential for Growth

You've got to provide investors with a realistic and convincing story that supports your argument that an exciting, viable opportunity exists out there. The key to telling that story and proving your potential growth and profitability is three-fold: it calls for a solid analysis of current conditions that pinpoints the opportunity; a cold, hard look at how your business runs; and a plan that shows how your company can capitalize on the opportunity.

Situation Analysis: Good for You and Good for the Investor

One useful way to examine and demonstrate your potential is to do a situation analysis that diagnoses the external environment (industry, competitors, etc.) and your internal operations (marketing, production, etc.). In the next few sections we'll give you some help in conducting this kind of analysis.

A situation analysis has two benefits:

• it helps you formulate strategic objectives and plans for how your business can realize its potential; and
  
• it can help convince risk capital investors that your company's new venture will have a "good fit" in its environment and competitive arena.

This process is sometimes called a "SWOT" analysis because it looks at the Strengths and Weaknesses within your company and the Opportunities and Threats outside your company.

Objectives and Plans

  Take a
 Closer Look How do risk capital investors think?
If you can answer these investor questions you'll be on your way to assembling an attractive investment pitch.

Once you've assessed your company's internal and external environment, you're in a good position to develop informed strategic objectives and plans. Risk capital investors will want to see these objectives and plans to get a better sense of where your business is going and how it's going to get there. The plans and objectives you develop can form the basis of your business plan and investment proposal.

The objectives you set should be measurable and have a clear time frame. As well, they need to be backed by specific plans that demonstrate the steps you will follow to capitalize on your business opportunity. Your plan must address the expected timing of activities and resources that you'll need — such as staff, investments in additional assets, and financing.

One reason a situation analysis is so powerful is that it helps you develop plans and specific actions that:

• minimize identified threats to your company;
  
• help you take advantage of opportunities;
  
• let you capitalize on your company's strengths; and
  
• minimize or eliminate your company's weaknesses.
  

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