Speed matters the most for a start-up. It’s the ability to create value, deliver it at scale and to do it at a breakneck speed, which really defines a start-up. At times you need injection of external resources, especially money, to achieve the speed. This is when you would want to raise investment.
Statistically, less than 1 per cent of start-ups get funded, so if you are a start-up founder looking for investment, then the odds are stacked against you. However there are few basic things that you can do, which I learnt while we were raising funding, that can go a long way in helping you improve your odds.
1. Prototype; not pitch
If you are waiting for someone to invest in your idea so that you can take it off the ground, then you are doing it completely wrong. A decade ago you needed considerable amount of money to start-up; but today everything that you need to start a business (and this is mostly true for a technology business) is either cheap or free. Consider infrastructure; you can work virtually without needing an office. Consider IT infrastructure; most of the tools and even server space is available for free or you can take it on your credit card. Consider marketing; you can leverage on Facebook, Twitter, Pinterest, Reddit, Digg or influencer relationships to get the word out. In today’s world, there is no excuse to not build a prototype. So before you pitch to VCs, make sure you have a working prototype.
2. Sales/Traction will fix everything
I have heard start-up founders generally complain about how IIT/IIM grads with similar or who are at less advanced stages get funded while they don’t. It’s not uncommon to hear how investors always keep asking for more proof every time the founder would meet them. All this can be simply understood by acknowledging the fact that investors are in the business of making money. So when they ask you to go back and achieve something more before they can invest, all they are unsure about is your capability to make money. With a prototype you can show that you can execute cool stuff, but when you make money or get traction that’s when most questions can be thrown outside the window. I feel that sales/traction fixes everything. It’s probably the best proof of business and it pays to focus on it weather you are raising money or not.
3. Know your numbers
You must be aware of the key metrics and key conversion points for your product. At an early stage, there are very few things that really matter, namely:
a. How do you get people through the front door (Acquisition)
b. How do you deliver the “Aahaa” moment as soon as possible. (Activation)
c. How do you keep delivering the “Aahaa” moment as often as possible ( Retention)
d. How do you make money (Revenue)
These numbers primarily define the sustainability and scalability of your business. It’s important that you have an accurate measure of all these numbers and that you should run constant experiments to optimize them as much as you can.
4. Market is not 10 billion * 1%
Guy Kawasaki describes this as the “How hard can it be?” syndrome. Basically what it means is that you take a really huge market, say $10 billion then multiply it with 1 per cent and then you say “conservatively speaking, how hard can it be to get that?”
There are multiple problems with this strategy.
a. First it’s freaking hard to get even 1 per cent of the market
b. Second, why would you want to just get 1 per cent of any market
c. Third, why would you want to define your ability to succeed by the size of market you are operating in and not by your capability to dominate it.
Generally, start-ups that are unsure about the market opportunity tend to define the size of market by a union of all the markets that they possibly fall into. For example: Our start-up operates in the wellness market. Wellness is a multi-trillion dollar market (over $3 trillion by some estimate). However this is the union of all possible wellness market, in many of which we don’t even plan to operate. We are a workplace wellness company and our total addressable market is much smaller and it’s important to accept it.
I believe a better approach is to find a market that has a problem; then solve the problem and dominate it. You can always create ripple effects from there and move to adjacent markets.
5. Sell the vision
Investors invest in what you want to do and use what you have done so far as a way to evaluate if you can achieve it. So while you get the acquisition, activation, retention and revenue metrics right, you got to have a vision. I am not saying that you make one up just for raising investment! As a founder you must believe and articulate the dent in the universe that you plan to make. For instance: We, at zoojoo.be, want to measurably improve the wellbeing and happiness level of people on this planet by helping 1 billion people form healthier habits. This is our mission and our investors loved that we didn’t just have a valid business, but also had a mission to create impact.