Knowing When to Raise Money for Your Mobile App
Grow Your Business, Not Your Inbox
It’s tough raising outside capital for your startup. Often entrepreneurs who have gone down this route compare it to having a full-time job. But it doesn't have to be this way. The trick is timing.
Because running a startup leaves limited hours in the day to focus on outside financing, you need to maximize returns for your time spent. Hence, you need to know when the time is right to raise money for your mobile app, or more generally, any company.
In extremely rare cases, you may be one of a handful of entrepreneurs who will raise money at the idea stage in your app’s life cycle. This circumstance tends to only arise if you have raised money before, sold a successful startup or have excellent connections in the startup community.
For everyone else, there’s a golden rule: Get traction before you seek funding. The reason being is at the idea stage, you really don’t have any validation from your customer whether they want your app or not and merely asking potential customers seldom helps. Instead, you have to give them something they can use and take their feedback to understand if it works for them. That’s the base expectation of any investor. They surely do not want to invest in a product that no one wants.
So before hitting up investors for capital, make sure you follow this path.
Raise money, but not from investors. Look to your friends and family, save a sum each month from your paycheck and use your credit card to get your mobile app off the ground. For instance, if you save $1,500 each month, you’d have $6,000 at the end of four months, which will at least fund the initial down payment for your app, if not more.
Then as the development comes along through the months, you will simultaneously be saving money each month as well. Up the ante on savings once you kick-start the development.
Develop the first version. Now that you’ve saved up some cash, get cracking on your app’s version one release. Don’t expect your product to be perfect on day one and certainly don’t pack in every feature you desire into the first version.
Create your app with only its core value offering. For instance, if you were to create the mobile-messaging app WhatsApp today, your initial rollout would simply be the one-to-one messaging feature -- group messaging, emoticons and image sending, among other features would come later. Because in this instance, the core value offering of your product is to offer cross-platform messaging without incurring carrier charges.
This will not only help you keep your costs in control but also get you to market validation quicker.
Monetize. It goes without saying that unless you make money from your app, you’re not going to be able to sustain selling for a long period of time. This doesn’t mean you need to monetize from day one. For example, some apps such as social networking-based may warrant a sizeable audience first before monetizing.
However, you must have a monetization strategy clearly laid out when you begin development of your app. Investors are always interested in knowing your plans on making money through the app and how it will grow into a multi-million dollar product.
Get traction. Easier said than done but without it your app is no good. Building an app is the easiest thing to do in its entire life cycle. Getting customers to use it and consistently do so is the toughest part.
Your focus on day one of app production should be getting customers. Put a marketing plan in place and start working on it early in the development stage. You’ll need to start executing it at this stage as well.
Get feedback, build and rebuild. The first set of customers will give you the best insights on your app. By building analytics into your app, you will also be able to tell how those first few customers are using the app along with metrics such as how many downloaded and did not sign up and how many signed up but did not show up the second time.
Based on this feedback, you will have to tweak your app to suit the demand. There’s a constant tinkering along with enhancements involved. You will get to know a point where users find your current version of the product a great one to use without much missing and that will be your cue the app works.
Focus on growing your user base. At this stage, you pretty much know that you’ve got an app that works, one that people want and one where the user base in increasing month-on-month. It does not matter whether the growth in numbers is slow, as long as there is demonstrable growth.
This is the stage you start approaching investors to help you take your app to the next level, which could mean further enhancements and/or to grow at a much faster pace.