With a good idea, you can get funded to start and grow it into a successful venture. While this is a possibility, it is not what typically happens. A good idea is a good hypothesis and investors don’t fund hypotheses in a market filled with proven concepts and attractive solutions with growth potential. The job of the entrepreneur is to build fundable products not sell wise hypotheses. As a bootstrapped founder in the early stages of a startup, the more value you can create with existing and earned resources, the stronger is your position in the investment pool.
Back when I was a college student, I spent 8 months fundraising for my first startup. I took about 70 meetings and heard a lot of praise for my vision and value proposition but didn’t see a single investment dollar. The reason became crystal clear, I was selling a hypothesis, not a fundable product.
The stage at which your product becomes fundable depends on many variables like growth relative to industry metrics, competitive advantage, market share and the nature of the product (hardware or software). However, as a rule of thumb, approaching or hitting product/market fit seems to be the stage at which investors are most comfortable funding the venture.
Author and entrepreneur Eric Ries describes product/market fit as, “The moment when a startup finally finds a widespread set of customers that resonate with its product.” Entrepreneur and investor Marc Andreessen adds, “You can always feel when product/market fit isn’t happening. The customers aren’t quite getting value out of the product, word of mouth isn’t spreading, usage isn’t growing that fast, press reviews are kind of ‘blah’, the sales cycle takes too long, and lots of deals never close.”
Traction solves many problems. Conditioning value creation on funding does not get you funded. The question is, how to build a fundable startup without funding? Here are 2 non-equity funding sources that will help you build traction under limited to no budget exactly how companies like Mailchimp, Basecamp and Stripe started.
- Start With A Service
Selling services is not scalable but a quick and inexpensive way to start generating revenue without a software. Mailchimp and Basecamp are two examples of companies that started as agencies which gave them an opportunity to build a group of potential product users, gather feedback and bootstrap the product by investing a percentage of sales without investors.
Virtually, every software solution is created to solve problems that were once addressed by a person or a group of people. The team at Basecamp helped companies with project management while Mailchimp sold web design and then email marketing services.
Starting an agency is not something you’re considering?
- Design A Sellable First Version
Most entrepreneurs spend all of their resources building what they feel is the perfect version of the product. There will never be a better proof that this method doesn’t work than the dot-com crash that resulted from startup ventures raising millions of dollars to build an exceptional solution and take their companies public without sufficient validation, for many, without a single revenue dollar.
A sellable first version combines automation with manual work to get customers’ job done. While Airbnb had a website with listings and booking capability, they visited every host and helped them optimize their listings with better photos and copy. While Stripe advertised the ability to create instant merchant accounts, it was the founders who manually built their customer profiles behind the scenes. Had they focused on automation since day one, they would have missed the opportunity to acquire the first key customers, validate their idea quickly and alleviate startup risk.
If your first version is not sellable, you risk missing an opportunity to capture the highest validation criterion, revenue. If your solution is too advanced or if your business model requires a lot of active users, you need to consider investing a bigger percentage of the delivery process through manual work up to a point where you are selling a service. Facebook helps you connect and stay in touch with family and friends while building new relationships. The first version of Facebook could have been a meetup.
Nowadays, thanks to cloud-based tools, it is simpler and cheaper than ever to build the first versions of your product quickly. To ensure maximum exposure to user experience, needs and expectations, consider designing your sellable first versions with the condition that the core of the solution is manually delivered while the implementation or integration of tools is meant to help you get customers’ job done and save you time.
For instance, the food on demand startup DoorDash used a website to showcase restaurant menus so that they don’t have to list menu items on the phone when a lead calls
and explain how DoorDash worked. However, when someone ordered, they delivered the core of their solution (food) themselves.
I think you would agree with me that the best non-equity funding source that we could ever have as entrepreneurs is customers’ money. To generate revenue quickly, instead of focusing on building an advanced product, think about how you can become the product and leverage existing tools to help you get your users’ problems solved. Best of all, it is a great story to tell investors and the media.