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March 28, 2015

Get Product, Not Funding

Bootstrapping
For the past 8 months, I have been working on a startup called Newsworthy.io. I’ll spare you the details (as you’ll get a proper update soon), but it has been many long months of researching and refining the concept,recruiting developers and advisors, securing licensing agreements, rapid-prototyping, surveys and focus groups, and perhaps most time-consuming of all, reaching out to our networks to pitch to angels and VCs.

But we still have no product launched; nothing out there in the world to have our initial assumptions validated and hardened by consumers actually using it. Instead, we sought to validate our concept by getting funded.

Big mistake.

Craving the wrong kind of validation

Why is there such an emphasis on getting funded among early-stage startup founders? I’m not talking about established businesses that now need an injection of funds to scale, but about founders at the concept-stage.

Is it because we are in love with the idea of making it big? The media coverage of explosive valuations doesn’t help (think Slack or Meerkat in recent times). Is it because we genuinely require the capital and resources of VCs in order to move an idea forward from the concept stages into the tangible?

Or is it because we feel this will validate our concept, better than anything else, and justify to ourselves and our families, the many hours we have poured into something non-revenue generating at the cost of a steady salary?

Maybe it is about our intrinsic approach to assigning value to things, not by their functional merit, but by their dollar value? The fact that the Apple Watch Edition can sell for $10,000 USD+, while its identical (functionally speaking) siblings, are starting from $349 and $599, is telling indeed.

If this is your motivation, to validate your concept by prescribing a material value to it, then a funding round is for you, as it will involve real investors in the market placing an actual dollar figure on your business. But don’t mistake this for a functional validation (by your users) of your concept. For that, you need a product in the market. So why not start with this first?

Validate your product

After you have vetted your concept, the first thing you should exclusively pour all your energy into is this: build and launch the simplest, leanest version of your product.

This is commonly known as your minimum viable product (or MVP). Its purpose is to get your idea into the hands of real users as quickly as possible in order to confirm your assumptions.

There’s also nothing more powerful than real user feedback, which can be fed into subsequent iterations of your product until you get it right. Great user metrics—what you are really striving for as you iterate to perfection—is also the ultimate leverage you can have in pre-money valuation discussions with investors.

In most cases, an initial MVP will not require much capital or resources to implement — you just need to use your smarts to determine what the simplest delivery method is for you to validate your concept.

What is important, is to ensure the VP in MVP. No matter how minimal your initial offering is, it must be viable in so far as it solves your users’ problem, and it must be a product—a complete, albeit lean, user experience. Otherwise, not only will you achieve poor outcomes, you are not really validating anything remotely comparable to your final product.

Be prepared for this path of validation to take several iterations to get right. Matt Lindsay, a fellow experience design practitioner at Kloud Solutions, recently pointed me to a diagram put out by the team at Spotify (this version is re-illustrated by Kirill Shikhanov), that best sums up how one should approach an MVP in this iterative manner:

Conclusions

Pursuing funding first, which can often lead to having nothing tangible to show for yourself after months or years of trying, is a perilous road to traverse. It is simply far too risky for yourself and your investors, who want you to come to them with something that has been tested in the first instance, and not merely hypothesised.

There are, in my view, only a few reasons that might drive founders to pursue funding over product development as a means to achieving validation:

  • Genuine licensing or subscription costs that are prohibitive to the founders;
  • The development of even a minimum viable solution will require capital beyond their means (again, think Magic Leap);
  • Failing to consider what an MVP version of their product would look like, and thus rashly concluding that only a complete solution, with its prohibitive costs, time and resource requirements, is feasible.

The last of these is not at all valid (but most likely the greatest cause of this approach to validation), while the other two are really only applicable in extremely rare cases.

If your purpose is to validate, nothing beats an iterative approach to product development, where the initial version, your MVP, is lean enough not to require external funding. So really, just keep building those products of yours. If and when you’re good to go, those investors will come knocking at your door.

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Startup Strategy