Understanding the Investor's Perspective

When seeking funding from friends and family, remember that your primary objective is not just pitching a great business idea. Instead, you need to focus on mitigating their risk.

• Every investment must answer the question: How do I get paid for the risk I take?
• Investors require higher returns for taking on greater risks.
• High-risk startups offer the potential for massive returns, but also a high chance of failure.

Assessing Risk in a Bakery Business

Unlike high-risk startups, a bakery business might not offer the potential for 600x returns. This means that the investor's risk is higher relative to their potential gains.

• Investors are hesitant to invest in businesses that have a high chance of failure without sufficient reward.
• A high risk of business failure is less appealing when the potential return is limited.

Strategies to Reduce Investor Risk

To make your bakery business more attractive to investors, you need to address their concerns about risk. Here are some strategies:

• Profitability: Aim for early profitability to demonstrate the viability of your business. This minimizes the risk for investors.
• Hybrid Investment: Combine equity and loan components in your fundraising approach. This provides investors with two avenues for return: equity share in your success and interest from the loan.
• Transparency: Openly discuss the risks and potential challenges associated with your bakery business. Transparency builds trust and reduces uncertainty for investors.

Shifting the Focus from Desire to Value

Remember, investors are not motivated by your desire for money. They care about their own financial interests and getting a return on their investment.

• Focus on the value proposition for the investor, not just the benefits for your business.
• Explain how your business will generate returns for the investor, addressing their concerns about risk and potential loss.

Growth-First vs. Profit-First Business Models

Your business can be categorized into two fundamental models:

• Growth-first: Prioritizes user acquisition and market share, often sacrificing immediate profitability.
• Profit-first: Focuses on generating profit from each customer, building a sustainable business through profitability.

Profit-First Bakery Model

A profit-first bakery model prioritizes profitability from the outset. It focuses on minimizing expenses and maximizing efficiency.

• Start Small: Begin with a home-based operation or rent a space on a limited basis. This minimizes overhead costs.
• Profitable First Customer: Ensure your first customer is profitable before scaling up.
• Incremental Growth: Focus on acquiring profitable customers one at a time, gradually expanding your operations as revenue grows.

Investing in a Profitable Bakery

A profit-first bakery model is more appealing to investors due to its lower risk and potential for consistent returns.

• Investors are more likely to invest in businesses that can demonstrate profitability and a clear path to growth.
• A strong financial foundation built on profitability reduces the risk for investors and increases the likelihood of success.