As a simple example, an investor might agree to invest [$200,000] in your business on using a convertible note; if after one year your sales are less than [$200,000] then the loan would convert to shares at [$1] per share; if sales are greater than that then the price would be [$0.50] per share – giving you a big incentive to make the company perform.

You can get a lot fancier with the formula, and the investor will likely want security over the whole company and its assets, so that if things really turn to custard they can step in and either run the company themselves or liquidate the company in an attempt to make good on some of their loss.

Convertible Notes can be useful in some circumstances, but I generally prefer straight equity deals with few strings attached because I like to get involved very early on. They can also complicate the situation in further capital raises. That said, so long as everybody understands the limitations, they can be a useful tool in exactly the situation you describe.