The Startup Paradox: How To Make The Most Of Limited Resources
Originally published by Forrest Miller ’14 on the Venture for America Forbes Blog.
Early-stage startups are caught in a paradox: they need traction to raise money, but hitting significant milestones is often expensive. When funds are tight, it’s especially important to maximize your only resource: time. Refining your messaging and validating with prospective partners can be performed on a bootstrapped budget. Using your time wisely will ensure that your value proposition is clear and focused for when investors are finally ready to write checks.
This dilemma applies mainly to companies that need to hit big, capital-intensive milestones. If your business’s key metrics are app downloads or daily active users, then get out there and hustle. However, if your company lacks the funds to make a key hire or take a hardware prototype from minimum viable product to consumer-ready, there are still concrete ways to build traction and create value in the eyes of investors.
Validate the concept
Hopefully you have already determined that the problem your business solves is a worthwhile. Meaning, there is a demand for a solution and you’re creating something that meets user needs. Validation is an iterative process, however, and more input is almost always a good thing, particularly when it comes from those who know a lot more than you do about the industry you’re trying to enter.
Connecting with experts in your field will give you critical feedback on the concept and direction of your business and can lead to ongoing advisory relationships, either on an informal basis or as part of an official, compensated advisory board. Either way, these key industry leaders will be an invaluable resource as you refine your business’s value proposition and pitch. After all, if you can convince a successful entrepreneur or a famous scientist that you’re revolutionizing their space, persuading investors of the same should be no problem. Those experts can even directly help you do it. A name and headshot in your deck go a long way; a quote or letter of support goes even farther. Of course, thought leaders don’t exist in a vacuum: they have often led successful companies that have succeeded in your industry. Strong connections with individuals can turn into partnerships with the very organizations your business wants to emulate.
Proactively build relationships
Building connections with larger companies in your industry can be beneficial in a variety of ways. Discussing your technology confidentially with big players in your space can help further validate your concept, and line up a potential acquirer down the line. These companies, with their comparatively vast resources, can be invaluable channel partners as you scale and bring your product to market. This type of relationship can also allow you to focus on your business’s core competencies while leveraging a partner’s expertise in other areas to avoid reinventing the wheel.
Perhaps the best outcome of building these relationships with more mature companies is introductions to their investors. By definition, VCs and angels who have put money into these entrepreneurs are invested in them and what they think, and your contacts are likewise going out on a limb for you. These mutual relationships not only get you in the door faster, they foster a sense of trust that can otherwise be difficult and time-consuming to grow organically.
Nail the investment pitch
All of this validation and relationship building is done with one goal in mind: to raise the capital your business needs to hit key milestones. When you do get in front of investors, the work you’ve put in will result in a clear and compelling pitch. Selling your concept to key opinion leaders and entrepreneurs in your space will be just as intense as pitching to investors, maybe even more so; that’s why they’re the experts. Getting in front of these different audiences will allow you to A/B test your messaging and collect and synthesize organic feedback on how you’re conveying your company’s value proposition. You truthfully can’t know what will work unless you’ve tried it. How do different types of people respond? Which parts of your pitch resonate with whom? Find the answers to these questions early and trim the fat from your pitch. Likewise, what questions continually come up? Should you change your pitch to address them, or is it better to anticipate getting them and then nail the answer?
Combined, these elements will create a crisp message with a strong narrative supported by data and, ideally, experts in your space. Your pitch will convey a compelling value proposition because, not in spite of, the narrow focus your limited resources demand. Keeping your direction tight, with no superfluous information, will reflect well on your team and convince investors of exactly where their money is going.
Getting your startup off the ground is daunting, and trying to make significant progress on a tight budget reduces your margin of error even further. However, you don’t need a big VC check to thoroughly validate your concept, build relationships with key players in your industry, and practice pitching your company. Focusing your limited time on these critical areas will be invaluable to refining your value proposition and creating the traction and momentum your startup needs to excel even after raising money.