Thursday, April 19, 2012

Don't Drive Into a Storm on Bald Tires

I started to write this post about National Golf Day after seeing my Twitter feed held hostage for most of yesterday, but then, thankfully, I received an email about a more relevant topic for golf entrepreneurs so I switched directions.

In short, you can learn about National Golf Day here and read an account of the day's festivities here.

Which leaves me with this note that just crossed my inbox from an entrepreneur I met at StartEngine about his search for seed-stage investors:

"In retrospect, it would've been good to understand early on how important "traction" is.  It's more important than many of the other elements we spent so much time working on (pitch, slides, due diligence, projections, even much of the networking).  We'd have re-prioritized."

That's great feedback for me as a Mentor and great advice for all aspiring entrepreneurs.  He's absolutely correct.  "Traction" is proof that a market and customer exist.  That is more important to investors than anything else.  And it should be the top priority of entrepreneurs as well.  What does a great pitch, deck, business plan, etc. matter if there isn't a market or customer?

The chicken/egg question that then arises is - how do you get "traction" when you have no money but investors want traction before giving you money?

The answer is to bootstrap.  One of my most influential MBA professors wrote a great article and created a great slide show on this topic that I encourage you to read.

Bootstrapping requires acquiring customers early and often.  It's a constant focus on sales.  It's minimizing your start-up costs by generating revenue and churning cash flow quickly.   If your product or service is really that good, you may even be able to get PO's before the product/service is built - which, in essence, would make your customers your financiers.  Bootstrapping works especially well when manufacturing is involved.

But bootstrapping for a length of time isn't financially feasible for many tech entrepreneurs who don't have a clear and immediate revenue model.  Too many of these folks are, in my opinion, focused on the astonishing success of the Instagram's of the world ($1 billion for a team of 13 with no revenue?!?!) and not mindful enough of the reality that 1,000s of companies with this model fail for every one Instagram that succeeds.  TechCrunch et al just don't publish the failures (understandably) so the picture you see of easy start-up glory painted in the news does not reflect reality.

If I could do it all over again, I'd advise my friend at StartEngine (who has a mobile app company) to bootstrap, get a Minimal Viable Product (MVP) into the App Store, and then spend a minimum of 50% of his time thereafter focused on user/customer acquisition.  If the product solves a major pain, people will use it even if it's not perfect.  The bigger the pain-point, the more users you'll get.  And that provides the traction you need to convince the investment community that you're worth the risk of their capital to see what the proverbial "flop" holds for your company.  Add a revenue model to that equation - which I believe every start-up should have from the outset - and you're ready to put the pedal to the metal.

Equally as important for you the entrepreneur, "traction" let's you know whether you're spending time on a real business with a viable market and customer-base.  With it, you know to endure the valleys because the peaks could be spectacular.  Without it, you know (hopefully) that you're driving into a storm with bald tires and life is too short for such nonsense.

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