I am investing in you.. I want you COMMITTED. I want you doing nothing else but putting my money to work to build those returns, and the idea of you doing something else means you are distracted from the venture, and then when things get hard, and you have options, you may elect to take the other option, and my investment goes with you. So frankly, I don’t see any compelling reason to part with my money, particularly in early stages until you are captaining the ship, be it into an iceberg or to the horizon.
All of this seems perfectly sensible – from the investor perspective, but what about you, the founder?
Founders love to dump on VC’s, and I enjoy a giggle too, but it is a really fair position when they are investing in something that is unlikely to have any residual value and in early stages. As they will say, “we are investing in you founder!” So I think if you do manage to convince a VC to invest early, it best be with you jumping in.
But VC’s are simply a source of capital, and it is one of many, and the one far less romantic but is becoming more and more accessible is to keep a good paying job whilst building your startup.
So what do you need to kick things off? Let’s see what our celebrity mogul likes to say on it –
Ignore the small business thing, its the same advice. Mark Cuban simplifies it to a nice sound bite, “No excuses, get after it”. But if you are paying attention, the bits that matter more are the other things he said – “you gotta know your industry better then anyone”, and “Don’t take on debt!”.
You do not need the same type of capital or time commitment you once did to kick off a venture. If it’s a software venture, no code/low code or even paying for an MVP (or using Venture Studios/Developments) can get you far enough to test out a market and even get paying customers, and physical product R&D can be done cheaper and cheaper, and once done – a shopify site, 3PL and some digital ad budget can get you testing things out. You can fund this from a reasonably paying job with a high dose of budgeting, sacrificing and suffering. If not one job, then two? How bad do you want it and what sacrifices are you willing to make? This is an intently personal set of decisions you make.
So it is quite realistic now to get your initial offer out and obtain some type of traction or positive indicators, and leaving your job/primary income stream before this stage is nuts in my view.
I am also not a fan of the “I got a redundancy cheque, so I’ll give the thing twelve months and then give up if it ain’t working”. I love a time bound goal, but what type of crystal ball do you possess where you can create these arbitrary timeframes on success? I have not yet met a founder that has told me “I accurately predicted when the thing will take off.” It either happened serendipitously and they didn’t expect it, or it happened alot later then they planned for. In my view, a venture should only be killed off if Customers confirm they don’t want the thing and you don’t want to pivot to the thing they want, or they want it but there isn’t a clear way to make money from it (now or in the future), or if you don’t want to do the thing anymore. I am unconvinced adding an arbitrary timeline makes any sense at all.
The other one I think is an oxymoron is – “By diving in, I will be desperate and hungry, and it will drive me to work extra hard” I get it, and you may well be right, but it’ll also add a tonne of pressure and stress to your personal life, and your venture itself, and can easily end up forcing you to make bad decisions for short term cash flow purposes, such as take money from the wrong people or on bad terms. This goes back to the old adage ‘“raise capital when you don’t need it, not when you are desperate”. I call this an oxymoron because I struggle to see why you would need this type of motivation to build something I would expect you to be all consumed by intrinsically.
In my view, keep the job for as long as possible (ensuring IP/Legal is managed), and consider the following as a reality check when making that leap. You’ll never have all the answers and nothing is guaranteed, but there is alot you can do to help yourself position yourself better for success.
- Do you know enough about your market and customer? I don’t mean your googling, I mean can you name 10 customers? And know the specifics of how to reach them, why they will buy, what you need to have or do to get them to buy, how long they would take to buy and what pricing is appropriate? This can take YEARS to learn, particularly if your not from the industry. I’ve said this before – start here before you build is my strong advice.
- Do you have sufficient capital for the things required to get you that revenue, and can you fund yourself till then?
- If you aim to raise capital, have you spoken to investors to socialise the venture and see their interest in the problem your solving and your product? They may not (and are unlikely) to be interested this early, but if they like the problem and you as a founder, they often will follow your journey and can define “If you got the product out and a few customers, we’d be ready to talk” as this gives you a nice target to understand when capital may be able to come in.
- If you want to bootstrap, how many customers do you need to pay yourself and get to cash flow positive? What time do you think it will take for you to get here? Whatever that number is, double it… Do you have enough in the bank to get there? Any scenarios we can rationally build to help forecast?
You are not trying to convince an investor, you need to convince someone far more important – YOURSELF. The 0-1 is the hardest and most painful thing and it is also where you will get the LEAST amount of support. There is plenty of money, talent and access for cash flow positive and growing businesses. Getting from 0 to 1 is ****** lonely and rejections are everywhere as is a tonne of empty promises from all sorts of people. I think if you have thought about the above things and it’s validated, then you’ve set yourself as best you can and all thats left is to take the plunge and go hard founder.
In the context of Australia, if you are thinking you want to raise capital as a pre-product, pre-revenue business, let me give you what I heard from a VC that presents itself as “Early stage”:
”We love and want to invest in early stage business and like to get involved with the founder. We just look for product in market, growing customers, and some revenues building, and then we love to get in early”.
Is that your definition of “early stage”? Yeah, me neither.
-Yazz
