My last series of articles introduced basic methods for becoming a smart, safe and profitable investor or a trader. The objective is to use these strategies before even beginning to invest. In response to my article, I received an email from a good friend of mine who said that he sees himself as an “entrepreneur,” not as an investor.
Investor Or Entrepreneur ?
This article will clarify the differences between an investor and an entrepreneur and explain why the entrepreneur needs to understand the investor`s mind in order to succeed in the business world.
As I previously explained, the investor is constantly seeking value and looking for upsides in long-term investments. Who is going to provide those things to the investor? The entrepreneur, whose job is to create this value for the investors.
An entrepreneur, contrary to an investor, is creating value. There are many ways to create value: It can be done by bringing something new to the world or by improving others` work. For investors, the investment in a new business or startup has the highest return but also the highest risk (they always go side by side); the returns can be 10 times your money and more, but often you`ll lose most or even all of your investment.
Why does the entrepreneur need to understand the investor`s mind?
In order to succeed as an entrepreneur and bring your idea to the world, you need to have funds. There are several ways to acquire those funds:
- Use your own money and savings.
- Get a loan from a bank or a lending company.
- Take a first or second mortgage on your house (similar to a loan except a mortgage is usually fully collateralized – easier to acquire than a regular loan).
- Get private or institutional investors to invest in your company`s future profits by selling them a percentage of the company.
The last option is the one which most entrepreneurs would rather resort to, because they are risking someone else`s money, Because of the appeal of this option, the entrepreneur must wear many different hats and change his way of thinking – if you`ll be able to think like an investor it will be much easier for you to convince investors to invest in you.
How can you get others to invest in you?
Investors see many ideas every day but are looking for opportunities that have the most chance to create long-term profits. As an entrepreneur, you need to understand how the investor thinks and makes decisions in order to convince him/her to invest in your idea.
You`ll do so by understanding and thinking like an investor. Investors are interested in one thing – making money. Smart investors must invest in a diversity of projects or ideas with different risk factors. In this way they level out the risks and maximize their odds for a profit. The expected profits should be higher than returns on the safest form of investment, government treasuries bond. If it is not so the investor will invest in treasuries.
When you talk with an investor, make sure you show the person how he will make money out of your idea, not how this idea will change the world. Changing the world is nice, being part of it is even nicer, but this is a different game. Investors are there to make money and by doing so they help you make money as well. It`s extremely important to remember that both sides need to end up winning. Make it a win-win situation.
The problem most people have when they meet potential investors is that they haven’t prepared financial plans, haven`t shown the cost of the development process, how long the process will take, what is the potential selling price, etc. The financial plans are as important as the idea itself. Showing the investor a good and profitable plan will maximize your chances to attract the investors.
How can the CEO game help you?
In the CEO Game, you will experience running a business, putting your ideas into action and attracting others to invest in your project. In the game you`ll play from both sides – the investor and the entrepreneur.
The CEO Game.
September 19th, 2009 at 4:20 pm
[...] Here is the original post: Entrepreneurs, Investors & The CEO Game [...]