Attention entrepreneurs: This is a surefire way to attract investors

Why is customer validation critical?
Strangers will mostly not put money only in an idea: Self-funding, friends and family arestill the best source of seed capital. External investors will want to validate not just your intention to build a great business but also understand what the early customers have to say about it.

Demonstrate your team’s ability to sell: Too many startups fail not because their product/service was not great but because they didn’t have the skill sets to sell the products. External investors are increasingly looking for teams that can go out there and convince their customers rather than the ones who believe that if they have a good product, the customer will come automatically.

Customer testimonials are the best arguments: You will need to prepare several slides in your presentation to convince your investors that you have positive customer testimonials in your investor deck. If these customers are the ones that pay, the conversation will become several times easier.

So how should you go about getting the customer validation?
Put together a list of potential customers: Think like you already have the product/ service ready and then think of the first three to four customers (for B2B businesses) and 30-50 people (for B2C businesses) you would approach first.

Look for early adopters: Several business plans project their primary customers to be decision makers in large companies offering them better ways to tackle their current problems. Here is the problem with that approach: The larger a company, the more difficult it is to convince them to try out a product (however, promising) created by a startup. As arule of thumb, it is easier to look for customers in smaller, new companies who are early adopters and are looking for ways to grow themselves. In retail customer solutions, you will have to seek out the first 30-50 early adopters, starting from your immediate network.

Look for people who could connect you to beta customers: Take the help of organized
mentor networks like TiE (The Indus Entrepreneurs) and NEN (National Entrepreneurship
Network) who might be able to connect you to senior people from the industry/target group you want to sell to.

Don’t worry about profits from beta customers: If you are building a B2B business, don’t
worry about profitability of your first customer - the same number will apply to about 50 in a B2C business. After the initial traction, you need to start charging your customers to convince yourself and the future investors about the viability of your business.

What if your idea can’t take off without external money?
Option one: Rethink the idea to fit your budget. I am a strong proponent of starting out only with money that you and your active partners put in either yourselves or through friends and family.

Option two: Reach out to the incubators and accelerators who might be keen to invest in you at the idea stage itself. I would mostly recommend this option only if you are not able to refit your start-off plan to the funding that is available to you.

Option three: Shelve the idea! Maybe you can take it up a couple of years later when you have more capital to put behind customer validation.

In conclusion, no amount of internal planning can substitute the learning you will get once you make your first sale and get your beta customers. Customer validation will ensure you have tweaked your plan and have answers to most difficult questions before you approach your investors!

The author is founder-Idyabooster; seed and angel stage investor

This article first appeared in Entrepreneur India magazine