Actually, You Don't Need VC Funding to Succeed
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The traditional startup approach of building a business plan, making market estimates and pulling funding from VCs is riddled with risk and misconceptions. In reality, less than 1 percent of startups have raised capital from VCs. Venture capitalists generally invest only 1 percent of their own funds. The rest is from investors. The majority of those investors fail to earn a profit after fees from the VC firm. Even successful VC firms generate 80 percent of their revenue from 20 percent of their investments.
A successful venture-backed business is a rare thing indeed. Most successful startups are, and must be, self-funded. So how does a self-funded entrepreneur get an ecommerce site off the ground, tackling web design, product design, manufacturing, distribution and marketing without investors? Begin with a unique selling proposition.
If there is one place where most beginning entrepreneurs go wrong, it’s their focus on being better and cheaper. They compound this by emphasizing the product itself when the brand is often more important. Your brand is built on your target market but most startups have no target market, focusing instead on reaching the widest possible audience, being useful in a wide variety of circumstances and getting onto mainstream media outlets.
You don’t need to invent a brand new kind of product or do something that’s never been done but you must find and fill a gap in the market. When Mike Del Ponte co-founded the Soma water filter, he didn’t do anything revolutionary. He simply copied Method’s approach of sustainable, design-focused soap and applied it to water filters. It’s about being “different” and “disruptive” in a memorable way, not about being “better” or “breakthrough.”
For startups, it is rarely about being cheaper and almost always about being intimate, premium, custom, luxurious or relatable. Sometimes a startup can produce goods, especially software, and sell it for less than their competitors but profit margins are meager. Growth will be difficult and, since you don’t offer anything your competitors don’t, you aren’t likely to build a loyal following.
Focus on a very specific audience. The resulting camaraderie encourages a loyal following of consumers who interact with each other. These interactions boost sales and transform your products into inelastic commodities. That’s not speculation, it’s peer reviewed science. You can always create a new brand later, funded by your successful business, but you are unlikely to ever get there if you start too broad.
Be as specific as possible about who the product is for and what it is most useful for accomplishing. Describe how the product accomplishes the task. The less ambiguity, the more trustworthy the product. People understand intuitively that a product designed for a specific task will perform that task better than a generic product.
To develop your unique selling proposition, think about not just your product but your position as a media company. In the post-Internet world, product companies are media companies. You will be much more profitable and have more loyal customers if you build your own platform, rather than buying eyeball space on somebody else’s platform.
As with your product, the ideas don’t need to be completely unique. Instead, the approach and combination of ideas should be unique and presented to unique audiences. Derek Halpern built a successful blog with an email list of 17,000 subscribers, in 11 months. He did it in a very competitive space by combining online marketing with psychology and presenting the same messages to new audiences.
How much content you produce is not relevant to your unique selling proposition. Focus on a topic with unique value that will keep audiences coming back for more. Focus on the problems your audience cares about, whether or not your product is a direct solution. Obviously, your topic should be related to your product but this is about your audience, not your product.
I can’t stress how important is all of this. If you have even the slightest inkling that your product or your positioning is too generic, you need to start with this. It comes before everything else.