by Ash Maurya, Founder of Spark59.com & Author of “Running Lean” 3/10 enhanced by Peter/CXO Wiz4biz 6/14
At every stage of the startup, there are a set of actions that are “right” for the startup – they maximize return on time, money, & effort. A lean/ bootstrapped entrepreneur ignores all else, to focus on this !!!
Are you Ready for Funding? While bootstrapping & lean startup techniques are not just limited to funding, funding is one of the first problems entrepreneurs tackle. A lot of (especially first-time) entrepreneurs feel that Step 1 is writing a Business Plan and #2 is getting Funding. However, during the early stages of a startup, all you have is a Vision and a set of untested guesses. Selling this to investors without any level of “validation” of your Product or Services, is a waste of time.
Why Pre-mature Fundraising is Waste. (Getting funded is not validation) Seed-stage investors are just as bad at guessing what products will succeed as you are. Without any product validation to rely on, they hedge their bets against your team’s past track record & story-telling ability. So while getting funded at this stage is a testament to your team building & pitching skills, it isn’t product validation.
Without validation you have no leverage. More importantly, without validation you don’t have Product/ Market “credibility” which typically comes at a price – reflected in lower valuations & investor-favored term sheets.
Investors measure progress differently. While validated learning is the measure of progress in a lean startup, most investors measure progress through growth. Reconciling the two during the early stages of a startup (when the hockey stick is largely flat) can be highly challenging and distracting.
Getting Funded always takes Longer than you think. Time is more valuable than money. Would you rather spend 6 months pitching investors so you can refine a story based on an untested product, or spend time pitching customers so you can tell a credible story based on a tested product?
Too much $$ can actually hurt you. Money is an accelerant, not a silver bullet. It lets you do more of what you’re currently doing, but not necessarily better. For instance, if you’re building an MVP, more money might tempt you to hire more people and wait to build more features both which can actually hurt you and definitely slow you down.
Constraints “drive” Innovation but more importantly “force” Action. With less money, you have to build less, get it out faster, and learn faster. Startups that succeed, are those that manage to iterate/ revise enough times before running out of resources. Time between these iterations is fundamental.
[ What about all the Advice & Connections? It is cheaper than ever to startup. When is the right time to raise Funding? Stage 1: Customer Discovery/Ideation, Stage 2: Customer Validation or the Death Valley. Stage 3: Customer Creation/Growth in Premium Content ]