You would have to be living under a rock not to have heard about the billions in venture capital flooding into the Valley. Venture firms raised over $60 billion in Q1 2011 alone. Some companies are ramping from zero to billions in revenue in years rather than decades. Students fresh out of school are being offered six-figure salaries, four-month signing bonuses and iPads to come on board. (VentureBeat summed it up well in this recent story.)
Of course, these stories seldom report that for every company like this, there are 99 others that flounder and end up as large financial craters.
Here in Canada we would of course like to have billions in venture capital, but would we like all the headache of a “home run or nothing” mindset? Or what about young hires with salaries greater than that of a senior developer, who, spoiled by a culture of “gimme gimme,” move on to the next hot company without so much as a thank you when the perks stop coming? I wouldn’t. I would like a place where people work hard and have aspirations to build amazing businesses with growth plans that don’t require a $1 million round followed in six months by another $5 million and then of course the much needed $30 to $100 million round.
So let’s assume you are in an area where the bubble is more of a balloon, but you have a great business idea. How do you get it rolling? I think you need two things. The first is a method to self-fund your project. The second is a process to keep all the varied team members engaged when you may not be able to pay competitive full-time salaries (we will explore this point next week in Part II of this post).
How do you fund your unfunded company?
On Monday Francis and Leo wrote about lean startup. Here’s my take on the lean approach to getting your unfunded company funded and your product to market.
If you have an idea that solves a customer’s problem, preferably a large customer, then you should be able secure “funding” from them. This funding might come in the form of services, prepayment on the product or even as a strategic investment. While you are out doing your market research—the part where you actually talk to potential customers—seek out these types and arrange meetings by being open about the concept product you are working on and your interest in their feedback.
Being honest and upfront starts the relationship off on the right foot and encourages them to be open with you. If your product idea is indeed a fit for them, a contract will develop from it, provided you give them added incentive to take the risk. Offer them the first mover advantage with a price point that will be half of what your product will cost in full commercial release. You can also take advantage of this time to have them prepay some of the royalties, device costs and so forth up front. Remember, if you’ve made it to the negotiations stage, you’ve done very well and hold far more power than you may think.
A few dollars more
Once you have this first customer, it isn’t time to just buckle down and work hard on the deliverable. Rather, this is the best time to go in search of additional funding from government sources, angels, and friends and family. Don’t wait until the few dollars you’ve secured from the customer are running out to start this search.
Government programs such as IRAP, the Investment Accelerator Fund managed by MaRS, and Ontario Centres of Excellence are amazing resources if you are based in Canada. And don’t forget BDC and EDC. For every dollar you pull in, you can find another dollar or two from the government to match it. At YOU i Labs we were able to secure, through five different programs, well over $1 million in government grants and loans on a very small upfront investment, much of which was sweat equity. There is a very long list of programs and organizations that can help you such as Communitech, DemoCamp, Ryerson University’s DMZ, OCRI, Toronto Tech Meetup and Mobile Experience Innovation Centre.
I don’t recommend you formally ask for their help until you have that very interested, preferably signed, first customer. There are thousands of great ideas that people are trying to bring to life, but securing that first customer raises you above the noise and into the top five percent. If you start off on the wrong foot with these organizations it can be hard to build up the momentum later.
Startup isn’t a culture, startups have DNA
This road of services-to-product is fraught with traps. Many startups turn into lifestyle businesses, which are great, but it’s unlikely you’re reading this if that’s your goal. The challenge is that if a company wants to be a product company, it needs to have a culture of product and a product-oriented team even though it may be operating with a services model in those first years. With a services model, billings will be low but often the customers will be very happy. The other risk is that you build a product for that first big customer that isn’t what the larger market wants.
While you are building and deploying to your first customer you are often re-selling across their organization to secure buy-in from other decision makers. As you’re going through this process you are building the DNA for your startup. Most entrepreneurs don’t appreciate how fundamental that DNA is to their everyday operations.
A company run by a friend of mine sold its software to a very large tier one company, but when a new opportunity came up in a smaller and more nimble market where the technology was a perfect fit, they pounced. Two years later my friend and his team came to realize they couldn’t sell their process into smaller organizations. Their model just couldn’t be scaled back and simplified enough to succeed in this market. But other startups with a very different model and a lower price point where able to fly in and successfully deploy a similar technology. After this experience my friend’s company refocused and found success with tier one customers.
At Flick Software, we know we are best at large and complex mobile solutions and poor at small marketing applications that often also require creativity. We know our DNA. Know yours.
Next week I’ll help you measure your DNA and use that to keep everything on track.
Get out there and create some amazing companies!
Jason Flick is co-Founder and President of YOU i Labs and President and CEO of Flick Software, a successful serial entrepreneur and product visionary. Jason has founded half a dozen companies in the past 18 years and is advisor and executive to nearly a dozen software companies. He is passionate about the disruption mobility has created and how businesses can lever it.
As part of our ongoing series examining the ecosystem necessary to bring technology to market, we asked serial entrepreneur Jason Flick to share some of his insights on getting tech to market with lean thinking. This is the first of his commentaries and we welcome your feedback.