Nobody can deny the significance of a startup investment. Investment is rewarding, both financially and professionally. It infuses the startup with fresh energy, and the startup can hire better people, deploy better infrastructure, and improve its existing product.
Some startups bootstrap their way to growth, but most others need external investment to scale up. Angel investors don't just bring money '“ they also bring knowledge and a larger network which the startup can benefit from.
Obviously, investors want something in return. They want reassurance that their investment is not just safe, but will also grow exponentially. This reassurance comes not from hollow promises and complex presentation decks, but from credibility. When a startup can back its claims with factual data, it establishes credibility.
One tool I have witnessed build credibility in the eyes of an investor is Customer Relationship Management (CRM) software. In fact, some founders within my close circle managed to close multiple rounds of funding precisely because investors were impressed with how they managed their CRM software.
A CRM tool is not just fancy software. It accelerates an organization's growth, whether it's a startup or an enterprise. Below are four reasons why startups that use CRM fare much better with investors than those without.
Two things matter deeply to an investor '“ a startup's historical performance and its potential for growth. An optimally used CRM captures both these factors accurately. It details what the startup has achieved and what's in the pipeline. Founders can (and do) use data about customers and prospects to prepare more comprehensive investor pitches. Likewise, such data enables investors to analyze whether the startup can achieve the promised numbers.
A CRM tool helps the founder justify the startup's potential, and it gives the investor more data to take a calculated decision. Thus, it creates a win-win situation right off the bat.
For a startup to succeed, it must be strong in two areas '“ product and process. A startup with good processes and a mediocre product has scope for improvement. But one with poor processes will eventually fail, even if the product can put a man on the moon.
Effectively utilized CRM software ensures that the startup '“ especially the sales team '“ sticks to a process. The team logs entries of visits, follow-ups, and conversions. The startup can study these and identify ways to shorten the time between prospecting a lead and closing a sale, thus improving revenue. As Peter Drucker said, 'œWhat gets measured gets managed.'
For an investor, this is a promising sign. It indicates that the startup prioritizes method over madness, and can scale in a structured manner. The stronger the processes, the more predictable the growth.
The most important factor for a startup, apart from its product, is paying customers. Its focus on this parameter dictates its rate of growth.
I've met business owners of enterprises with a turnover of over Rs 10 crores who didn't want to deploy CRM software. They reasoned that they would do it when they got a big order, which showed that they didn't know how their organization would grow (or even how it had grown).
On the other hand, I've met founders of just five-member startups who deployed a CRM tool even before they expanded their sales team. Their clarity in thinking and confidence was palpable '“ they set their sights on their goal and were keen on using CRM software to help them achieve it.
Startups don't use CRM tools just to attract investors. They do it because they want to scale in a structured manner, and want to leverage technology for it. This clarity in thought spells good news for investors, who invest as much in the founders as in the startup itself.
Imagine this '“ a startup is claiming to have made sales in large volumes, but you cannot validate this with anything except their invoices. Another startup compliments its sales figures with details about interactions with customers, like the number of visits, purchases made, follow-ups scheduled, and so on. Which startup would you invest in?
In the second case, investors feel more assured about the genuineness of the startup. They also have a clearer idea of how their funds will be used and can estimate how much their investment will grow. A CRM tool brings in transparency. It lays the foundation for trust between the investor and the founders.
With the meteoric rise in the number of startups vying for investment today, authenticity has become a key consideration point for investors. This authenticity doesn't come from flashy presentations and promises or unrealistic Excel-based forecasts.
It comes from proof-of-concept and historical performance data. It comes from the startup's commitment to processes to scale up. Such startups also get more investors who are willing to be part of their success stories.
Limesh Parekh is CEO of Enjay IT Solutions.
(Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the views of YourStory.)