MENU
prototype-sketch-ads

by • January 12, 2017 • Funding & investment, Talking about your startupComments (0)6

Two ways to get a bonus 100k on your next funding round

Say you raise 500k, giving you 10 months of runway to build whatever.

The money’s a blessing that allows you to buckle down and focus on product. You crack out some of those clutch features that have been sitting in the backlog for too long. It takes a couple months, and upon launch you realise they weren’t quite the right thing. You over-engineered some parts and missed the mark on others. No big deal, you’ve got the runway. User feedback in hand, you cut some bits, add a few others, and move ahead without worrying too much about it.

But 500k for 10 months means each month is worth 50k. If you’d been able to skip building the fruitless features, you’d have 2 extra months of runway to build move your business forward. In practice, that’s identical to having 600k instead of 500.

Learning in advance that you don’t need to build a feature is one of the highest-impact (and most common) results of good customer development. It’s why talking to customers is able to speed you up, even though it feels like it’s slowing you down at the time (“But we could be coooooodiiiiiiiing!”).

I’ve never met a founder who lightly makes their first few hires. They feel that extra 50-100k cost deep in their soul. The dread of spending it wrongly eats into their sleep. It feels like a company-killing decision to get wrong.

But really, moving slowly by being out of touch your customers is vastly more expensive. The number of completely unnecessary features (and even products) I’ve spent 2+ months on simply blows my mind. What I could do with that money still in my pocket!

I wouldn’t be surprised if talking to a few customers improved time to break-even by an average factor of 2x. And I can think of examples from my first company where it would certainly have offered 100x, had we been willing to “slow down” enough to do it. At my first company, we spent 3 months building an analytics dashboard when all our customers wanted was a weekly email of their numbers. That cost us $60k worth of runway (we were spending $20k/month at the time). Then we spent 12 months building a product in stealth mode that was so wrong we scrapped it during the beta as soon as we got our first real user feedback on it. There goes another cool quarter million.

Obviously sometimes you make mistakes, and they cost money, and that’s fine. The ones I’m talking about are the ones that are extremely preventable. Aggressively learning what your customers think always seems like the biggest opportunity to me, but maybe that’s just where I tended to make my biggest blunders.

So finding ways to not build stuff is the first way to get a free 100k. Money saved is far better than money raised, since the former costs no equity and has no strings.

The second way is to delay your fundraising until you’ve got a bit more evidence of success. Every extra sign of life you can prove while bootstrapping is going to boost your valuation and equate to free money. The month-saving stuff discussed above is just as valid–if not more so–before a first raise than after it.

We all get so fussed with the amount raised and months of runway, but really it’s about what you can accomplish in that time. Moving faster is always easier and cheaper than trying to get your hands on more cash, and the result is the same.

Related Posts

Leave a Reply

Your email address will not be published. Required fields are marked *

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>