Learn to succeed with investors–from a guy who failed.

Shortly after my college graduation, a few friends and I started a new media company. Within a few weeks we fleshed out the concept, wrote a business plan and set out to seek financing. With a little hustle, I managed to get us a meeting with a well-known investment firm to discuss the opportunity. Even though our business had yet to bring in a single dollar, and none of us had ever been the CEO of coffee shop let alone a multi-million dollar enterprise, we were all confident that we had a sure thing on our hands. After all, our financial projections forecasted gross revenues of $200 million. What investor could say no to that?

We’d be rich. All we needed to do was raise a small amount of capital–$15 million.

I remember thinking, “How hard could it be?” We were obviously, naïve, foolish and delusional.

There was one small problem with our plan. None of us had any idea how to pitch an investor. So I did what any clueless entrepreneurial upstart would do: Google searched “how to pitch an investor”.

Nothing that I read online could have prepared me for what was to come. We would quickly find out that our presentation was doomed before we ever set foot into the meeting. In reality, it was doomed before we started writing the business plan.

At the beginning of the meeting one of the investors asked me to hand him a one-page executive summary review. I hadn’t prepared a summary, so I handed him the first 11 pages out of the binder encasing my 95-page business plan. Strike one.

Less than four slides into my 32-slide presentation, the second investor interrupted me and said, “OK. Stop. I get it. You definitely don’t need $15 million.”

Defending our business plan, I overconfidently replied: “It can’t be done for less.”

“Really? It can’t be done, huh?” he responded with a smirk masking a hint of laughter. Strike two.

Both of the investors then proceeded to hit us with a barrage of questions:

“How much money have you personally put into your business? Anywhere near $15 million?”

“How can you possibly substantiate gross revenues of $200 million in year three?”

“Why are you trying to produce, market and distribute 10 products at the same time before you see if a single one sells at all?”

The questions went on and on. None of our answers were favorable. Strike three.

As you might have guessed, I didn’t walk out of that meeting with a $15 million check. I later realized, however, that this was one of the greatest educational experiences of my young career. I learned more about real-world fundraising in 30 minutes than many entrepreneurs learn in a lifetime. To this day, whenever I pitch investors for capital, I always remember these six hard-learned lessons:

1. Less is always more.

An elevator pitch is vital. Verbose presentations and lengthy explanations will not impress investors, and most likely will turn them off. Present your business in a manner that’s short, sweet and to the point. Investors need to be confident that your business will attract and retain customers. If they don’t grasp your concept in a short time span, they may presume that customers won’t understand it either.

2. Never hypothesize. Execute, execute, execute.

Inspire confidence with facts, not fiction. Most investors seek out low-risk businesses with proven managers that are as close to guarantees as possible. A company with cash flow, a track record and real-world experience has a better chance of getting investors than a business plan forecasting large returns. Find ways to test your business’s viability on a shoestring budget, and turn your idea into a functional business before you seek investment.

3. Leave the hockey sticks on the ice.

Excite investors about your big picture, but be reasonable and responsible. Avoid hockey stick projections. Respectable investors will not take you seriously if you present them with nonsensical financial graphs that claim your company’s revenues will grow from $100,000 to $50 million in three years. Show investors that you have a grasp on reality with three versions of financial projections: best case, moderate case and worst case. Base each of these models on facts, past and present performance data, industry and competitor analyses and a series of well-thought-out, defendable assumptions.

4. Learn to love discount stores.

Being cheap is chic. In an age where spending is out of control, you’ll need to prove that you are a fiscally responsible manager who knows how to get the most out of a buck. Give yourself wiggle room in your operations and marketing budgets, but avoid being excessive. Never ask for a large salary or big-budget perks. Investors want you to be in a position where everything is on the line.

5. Rome wasn’t built in a day. Your business won’t be either.

Investors are wary of funding over-eager businesses that seem destined to bite off more than they can chew. Before asking for millions of dollars to fund 50 divisions and hundreds of product lines, prove how well you can create, manage and fulfill demand for a single product. Demonstrate that your business can crawl before you say it can walk. Perfect your marketing tactics, sales strategies and operational procedures. Investors appreciate companies with sustainable step-and-repeat business models that are poised for exponential growth. Remember, even Google’s success is based on a single product.

6. Choose not to be the smartest person in the room.

Know what you know, know what you don’t know and find the people who know what you don’t know. Build a team of credible experts. The smartest leaders in the world are those who surround themselves with smarter people. Investors are funding a management team as much as they are investing in a great business concept.

Are you a young entrepreneur with a unique venture? Email Scott about it at pitchme@askgerber.com.

Scott Gerber is Entrepreneur Magazine’s Young Entrepreneur columnist, CEO of Gerber Enterprises and founder of AskGerber.com. Visit AskGerber.com to find out how your business can get featured in Scott’s new book, Never Get A Real Job. For information on speaking engagements, media appearances or Gerber Enterprises’ portfolio of businesses visit www.GerberEnterprises.com. Follow Scott on Twitter @askgerber.

Here’s a great story of unexpected success written by our friend Karen Axelton, writer for Small Biz Daily.

Ever since I moved to the Long Beach, California, area years ago, I’ve heard about the gondola rides in Naples – a waterfront part of Long Beach where homes are built on a network of canals like those in  the Italian scene above.  Earlier this year I got to witness gondola rides live when I visited a home in the area. But I had no idea the gondola company was run by an entrepreneur until I read an article about it in my Auto Club magazine, Westways.

Mike O’Toole started Gondola Getway in 1981 when he was still a student at USC. The business was a marketing project, but when he graduated in 1982, O’Toole bought an 18-foot replica gondola, put an electric motor on the back, and started doing cruises on the canals with just one boat.

As the business started to grow, he found a business partner, David Black, and added a second boat. But soon, the business required even more expansion and in 1984, O’Toole went to Venice, Italy, to observe how real gondolas were built. He came back and began building gondolas that would easily be steered by one gondolier with an oar.

Today, O’Toole has 10 gondolas and as many as 30 employees who take passengers on romantic cruises through the canals.

“I didn’t think I’d be doing this for the next 25 years,” O’Toole told Westways about the business he started as a student.

That got me thinking about how many successful entrepreneurs get started by accident. But was it really an accident? O’Toole grew up on the canals of Venice and learned to sail as a kid. He ended up creating a business that enables him to do what he loves.

And lots of other people love it too. When I watched gondolas going by, my first thought was how joyous everyone was. The gondola passengers and their gondoliers were beaming (no wonder, since O’Toole says an average of one marriage proposal a day takes place on the boats). And everyone in the homes up and down the streets overlooking the canals lit up, smiled and waved with excitement whenever a gondola went by.

Some people make fun of that saying “Do what you love, and the money will follow.” I’m not sure how much money Gondola Getaways makes, and it’s not the kind of business that can become the next Starbucks or McDonald’s. But it warms my heart to read about a business owner doing something that makes him happy – and makes everyone else happy, too.

You can find out more about O’Toole at the Gondola Getaway site.

SmallBizDaily is powered by four people with a passion for entrepreneurship: Rieva Lesonsky, Maria Anton, Maria Valdez Haubrich and Karen Axelton. We met at Entrepreneur Magazine nearly 25 years ago, when Rieva hired the rest of us as editors. We’ve been a great team ever since, so when Rieva decided it was time for her to stop talking about entrepreneurship and start living it, she naturally turned to us to be her business partners.

At SmallBizDaily, the writers combine their decades of experience reading and writing about entrepreneurship with their new experience as startup entrepreneurs to share their unique take on the world of small business.

Taking a personal inventory and assessing your current resources will save you time and money! If you’re going to go into business for yourself, one of the best things you can do is know what you’re getting into and whether you have access to the resources necessary for you to succeed.

Entrepreneurs always underestimate what they will need to start their businesses. Honestly, anyone can start a company. But only a small percentage of those who try manage to build successful firms. In one way or another, the reason for failure usually comes down to resources. Businesses that fail most often do so because they lack money, industry expertise, or a viable strategic plan. These are all inputs, or resources, whether they are intellectual capital (knowledge) or monetary capital.

Use this chart (to the left) to take a personal inventory of your resources as they apply to starting your company. If you do not yet have your business concept solidified, use the chart to identify how well equipped you are to be in business in general. (For example, under “knowledge” assume that you will need to know how to manage money, create financial statements, have some management or entrepreneurial experience, understand a particular industry, have a better-than-average skill that you will use, and so forth.)

As soon as you have nailed down your business idea, recreate this chart and do it again. You might even want to keep it around while you’re in the planning stages, updating it until you feel confident that you have the key resources that you will need to begin.

Feel free to add more resource categories and, if possible, in the description/specifics column, order according to importance, giving each item its own line. Then simply check off the appropriate boxes, identifying how accessible each resource is to you right now. It is important that this list reflect your present situation so that you don’t neglect something that you need to learn or obtain.

Study the completed chart carefully and update it regularly. You may want to recreate it on a piece of paper, draw it on an erasable board, or put it on a spread sheet so that you can more easily edit it. It can be of enormous help to you in starting your company the right way, the smart way.