This should go without saying: the best way to build a business is to create sales from the outset and use the profits from those sales to fund your business expansion and software build. Of course that’s easier said than done, your great idea needs to be one that allows for early sales or sales with no development or inventory.
I have seen some great examples of companies pull off creating sales without spending much money. A good example is my friend Richard Green at evvnt.com. Richard created sales before he had spent much money on software development. Evvnt are taking a pain away from event owners by aggregating event listings, a classic internet solution but the evvnt product didn't even need software to make it work, software just makes it much more scalable. Evvnt only took external investment once they had proven their model with revenues, and needed to expand.
In the B2B space it is possible to create sales before you have a product, by getting companies to agree to pay for the product once it’s available or even getting them to agree to help pay to build the product. With a contract in place, you can get a loan against the expected delivery of the work to pay for the development. In the real world, entrepreneurs often use smoke and mirrors to persuade the company they are selling to that the product actually exists but you can do it with complete honesty and integrity.
The second you take external money, you increase the pressure on your business exponentially. Many investors do not have patience for business plans that don’t work the way you had originally sold it to them and begrudge changing forecasts and pivoting. Depending on your investor, you may find you need to spend a lot of time managing them.
My experience is also that once you create expectations with an investors, you create resistance within yourself to change your plans, even when your gut is telling you it’s a good idea.
You should never raise money unless you need it. if you need to raise money, raise as little as possible.
Bootstrapping is Absurd
According to Wikipedia, the term bootstrapping was originally synonymous with an absurdly impossible action. Bootstrapping a B2C proposition can be a very tricky task especially if your business plan is to prioritise user acquisition over revenues (not always the best idea) and even if revenues are in the picture, it’s likely you will need scale before you are profitable. This makes the process almost impossible without having deep pockets of your own.
Maximum Value, Minimum Spend
Even if you have little cash, and the prospects of early sales look bleak or improbable, do everything you can to show value in your proposition before seeking seed investment. Here are some ideas to get you going:
- Create an MVP or proof of concept — the ideal state of investor readiness would be to have an MVP (minimum viable product) working. Get your friends and family using the MVP; ideally the MVP should have a revenue stream live. Try and get some proof of traction i.e. that people who are not your friends and family will use the product.
- If you can build an MVP, test some customer acquisition strategies to create a cost of acquisition that has some proof behind it. Investors might love the idea, love the MVP but they also want to see you can get people using the product without spending a ludicrous amount of money to bring customer on board.
- If you can't charge for the product from the outset, try to get evidence that people would pay later. There are several ways of doing this; in my experience surveys usually have a lot of false positives in this regard. Your website could have a section asking people to pay/upgrade even without the feature or payment functionality being in place, you can have them register their intention to pay. In the meantime, you have some useful data about people willing to go that far.
- If you can show network or viral effect, even on a small scale, this would be of immense value to potential investors.
- Without an MVP or proof of concept, you will find it hard to raise any seed capital but it does happen. Create a demo, run surveys, show that you know your customer. All of this is useful evidence to a potential investor.
Dressing for Success
Like dating, much of what an investor looks for in a startup comes down to chemistry and personal preference. However there are three general things investors will look for:
- Great ideas: even if the MVP is not so great, they want to see that you're addressing a real problem that is disruptive or fills a gap.
- Great team: most investors are looking for startups with at least two co-founders with a track record or impressive credentials.
- Why you? The team should be relevant to the product / service. You should have a good answer to the question “Why are your team the one to make this business a success?”
Ready for Battle
At this point you should have bootstrapped as far as you could and have the following in place:
- An MVP which proves the concept with some customer / revenue traction.
- A one page written teaser.
- An investment slide deck (for presenting) of no more than 15 slides.
- A clear view of how you will monitise.
- An exit strategy for your business (or otherwise).
- A financial model which show’s your path to profitability.
- Details of how you will spend the money and what the investor will get for it.
- Documents addressing any of the key objections you envisage you will face.
- A great team in place with people who can demonstrate their suitability and track record.
- A video and images if you’re consider crowdfunding.
Show Me the Money.
In part two, I will cover the main sources of seed investment available in the UK, where to find them and the pros and cons of each.