Entrepreneurs often believe that investors need to feel some pressure of demand to get them out of tire-kicking mode and into the driver’s seat. How you create that demand makes all the difference.

The path of least resistance to creating investor demand is commonly believed to involve hinting at other investors' interest or to talk openly about an offer of a term sheet. I have been implored to “get in early” or to invest before others to “get the best terms”.

There is no doubt that having more than one investor interested in your opportunity is a positive occurrence. There is a fine line between courting multiple investment opportunities and playing investors off on one another. In all cases, pitting investors against each other or creating a false sense of urgency falls flat. The investing community is close knit. Cross the line with one, and you are likely to gain a reputation fast.

The responsibility is yours to make your opportunity attractive so that investor interest occurs organically. No amount of slick presenting or grandiose projections will compare to a real opportunity.

5 Steps to Legitimately Increase Investor Demand

Demonstrate You Have Sought Customer Input

Your customers are the most important aspect of your business. Start your business right by seeking and implementing customer input repeatedly. When entrepreneurs demonstrate they have sought customer feedback early and often, investors will take note.

How do you collect customer input? Here are four ways that you can translate to investors.

Surveys. Asking actual or potential customers a few simple questions can provide solid insights. Use an online survey tool like Survey Monkey or AYTM.com. You can develop valuable data regarding your customer demographics, their preferences for features and the value they place on the benefits of your product.
I frequently see entrepreneurs develop a solution that they need, but then fail to seek customer input on whether their idea is attractive in the market. Investors call this a “solution for one” and it seldom results in a viable business.

Documented Customer Discussions. Get out and talk with your real and potential customers. Make sure they care about the problem you are solving. Understand what they are doing now to solve their needs. What are the costs of the problem to them? What might they pay for your solution? What will it take for them to switch from the status quo?
Take good notes, and then summarize your new knowledge for investors. Be able to describe the changes it means for your business.

Commitment Letters. Can you identify beta customers and get their commitment to try your product/solution now? Will they pay to help you deliver a solution that meets their needs?
For those that agree to become first customers, ask them to write a short note indicating their willingness. Also, ask if potential investors can contact them to learn more about their interest.

Pre-Sales and Actual Sales. Money talks and customer money talks the loudest. It is your reward from your customers for producing a product with value.
Investors take note when a startup has sales and begin to get interested when you can demonstrate sales are increasing over time in response to your customer focus.

Improve Your Product Via Customer Feedback

Collecting information is the first step, analyzing it and incorporating it into your product and business is the next step. Make it clear to investors how your interaction with actual and potential customers has improved your product, improved your business processes, changed your understanding of the market, etc.

Be brief and focus on results. If you can point to several instances where you learned from customers and then quantify the results, investor interest will increase.

Approach Your Business as a Business

Put in place repeatable and scalable processes to support significant growth. Document plans for infection points at which these processes need to change based on sales volumes, new hires, product line additions, competitive impacts, etc.

You need to show investors that you are purposeful about building a sustainable, growing business.

Base Your Business Model on Proven Business Principles

Avoid believing you have found a new model for business – that somehow you will make up losses on volume or that viral marketing will drive marketing costs to zero. Find real-world success analogs, even competitors. Good comparisons lend credibility to how your business might be successful.

Make sure your business model is something that the investors can relate to and understand. Business models should never involve a leap of faith.

Be Coachable

Investors want to get involved and help you and your company be successful. Focus on investors that are a good fit. Their money is the least important component of what they contribute to the business. Ask to be connected with entrepreneurs in their networks. Listen to their advice, debate it with them, and make sound decisions based on their counsel.

Product changes, marketing adjustments, and business strategy updates show you are listening and are willing to make intelligent changes. Conversely, if investors perceive you are a lone wolf or argumentative with even minor suggestions, they will lose interest.

Substance Matters

None of the above is sexy. Seeking customer input, building a business on sound business principles, and being coachable all involve thoughtful, hard work.

Covering up for a lack of seeking customer input or for overlooking a realistic business model with a slick presentation or with grandiose promises will lead to mismatched expectations and fundraising failure.

Amateur tactics such as indicating other investors are interested (even if true) or creating a sense of false urgency may get you a second meeting or into due diligence if you are lucky.

Once investors kick the tires and open the hood, however, you’re a non-starter if you lack substance.

So, it is up to you to focus on building a great business that will interest investors. Investors will stay in tire-kicking mode until you prove there is an engine under the hood. When you do that, investor interest is organic.

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“Creating Investor Demand”!

Zig Ziglar famously said, “People buy from people they like, trust, respect and … believe.” Investors are no different. Creating investor demand through substance makes all the difference.

I'd love to know how you have experienced generating investor interest. Add a comment below and let us know what worked and what failed; we can all learn something from you.

Cash photo credit: iStockphoto/hjalmeida