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In observing 100s of deals, advisor to dozens of early stage businesses I'd add: So many folk show up asking to raise because they only see how their company c

In observing 100s of deals, advisor to dozens of early stage businesses I'd add: So many folk show up asking to raise because they only see how their company can work "at scale". They have forgotten to do things that don't scale. It's like they skip problem-market fit, jump way past MVP (but still call it that) and almost have to raise - then try to force the market to exist. Many (most?) of these companies I've seen could have started with a smaller fit. That could test the market theory for cheap (Lean) - cheap in terms of time and money. If the fit is good one ends up with a small business with medium good margin - and a way better idea of what the scaled up universe looks like. Much easier to raise when you've got a) solid foundation and b) actual unit economics. However, now the raise is on real numbers - so less likely to be the crazy raise one could do on dreams alone. Like, do you want a 0.01% chance to raise money or a 2% chance to build a business that keeps you and a few others well paid and perhaps out of the rat-race.

coding123 3y ago
That sounds like what magic leap was - it will only work if everyone has one. Doesn't matter if 10 people are not interested. You convince everyone to buy one when everyone else has to have one. But how do you get it so that everyone else has one first?
quickthrower2 3y ago
> So many folk show up asking to raise because they only see how their company can work "at scale" Maybe that is the optimum way to get investment? Like how coders at an interview could talk about how they solve business problems with simple solutions, but instead need to talk about how they have kubernetes and microservices experience, know Martin Fowler's patterns inside out, can recite what the L in SOLID means, etc.
- morelisp 3y ago
  The L in SOLID is the only useful letter for building simple solutions.
bsder 3y ago
> Like, do you want a 0.01% chance to raise money or a 2% chance to build a business that keeps you and a few others well paid and perhaps out of the rat-race. Or, you do a raise; it keeps you out of the rat race for a couple years; and you move on when it implodes. The problem VCs are having right now is that people have figured them out. If I have a business which can throw off cash, I don't need VCs unless I have a competitor I need to outrun. If I don't have a business which will get to cash, it's fine to take VC money to leave them holding the bag if I never find a "real" market.
- mdorazio 3y ago
  I'd say the problem VCs have now is that the decade of nearly-free money is over and everyone has 5% risk-free return investment opportunities. At the same time the sky-high valuations of many startups were based on dreams that never panned out, and exits are both sparse and unlikely to match values of 2 years ago. So as an asset class, VC is much less appealing than it was before. It's fun to see articles like this one popping up more frequently now that the market has shifted, which amount to a "back to basics" entrepreneurship push. In contrast, the last ten years saw tons of articles pushing founders to raise as much as possible as fast as possible.
gedy 3y ago
It sounds cynical, but over the years I've met a lot of folks who just want to "build a business", and the actual product, MVP, etc is secondary or maybe doesn't even matter? They are in to raise money, hire lots, and "go big", etc.
- danielmarkbruce 3y ago
  It's not cynical, and these people are often well meaning. It's common because the folks in question don't fully internalize that to the customers, there is only the product/service, and it does X valuable thing. There is no business. I use Snowflake, AWS, coke zero, etc. I don't care or think about their "business".
Jugurtha 3y ago
>Many (most?) of these companies I've seen could have started with a smaller fit. That could test the market theory for cheap (Lean) - cheap in terms of time and money. If the fit is good one ends up with a small business with medium good margin - and a way better idea of what the scaled up universe looks like. One model that also works before that phase but that's eschewed is consulting in the sector founders want to enter. They'll gain insight into what people say are problems, what problems people pay for, and the wisdom to know the difference. They'll meet stakeholders between users and economic buyers who might later sign the checks. They'll build a network, gain in expertise and credibility, explore potential beachheads, hear what will be their messaging, and discover rough go-to-market strategies all the while having positive cash flow. This works in their favor if/when they'll want to raise for they will come in homework in hand and coin in pocket. Even if they jump way past MVP like you pointed out, they'd be ahead of someone who didn't do that. Granted, it's service revenue but with money, like with a few things in life, you tend to get offered more when you're already having some regularly and can walk away.
- djbusby 3y ago
  Yes, I love this way to start. The practice selling is the biggest benefit IMO. Your other points are solid.
- ricardobeat 3y ago
  How would you start consulting in a sector you have no experience or proven track record with? I can’t see how this advice would apply to say, Dropbox, Zalando, Stripe or any other success story that comes to mind.
  - spacebanana7 3y ago
    I imagine most consulting is operation specific rather than sector specific. For example, the experience of raising a few rounds of VC money would provide opportunity for financial consulting; the experience of hiring 50 engineers for HR consulting; or spending a few million on ads for marketing consulting. Disclaimer - I have no consulting experience.
  - 3y ago
jmartens 3y ago
>Like, do you want a 0.01% chance to raise money or a 2% chance to build a business that keeps you and a few others well paid and perhaps out of the rat-race. I don't do startups to have a job, I do startups to do the hard things in an attempt to build something groundbreaking. Presenting "raise money" vs "have a job" is a false dichotomy.

coding123 3y ago

That sounds like what magic leap was - it will only work if everyone has one. Doesn't matter if 10 people are not interested. You convince everyone to buy one when everyone else has to have one. But how do you get it so that everyone else has one first?

quickthrower2 3y ago

> So many folk show up asking to raise because they only see how their company can work "at scale" Maybe that is the optimum way to get investment? Like how coders at an interview could talk about how they solve business problems with simple solutions, but instead need to talk about how they have kubernetes and microservices experience, know Martin Fowler's patterns inside out, can recite what the L in SOLID means, etc.

morelisp 3y ago
The L in SOLID is the only useful letter for building simple solutions.

bsder 3y ago

> Like, do you want a 0.01% chance to raise money or a 2% chance to build a business that keeps you and a few others well paid and perhaps out of the rat-race. Or, you do a raise; it keeps you out of the rat race for a couple years; and you move on when it implodes. The problem VCs are having right now is that people have figured them out. If I have a business which can throw off cash, I don't need VCs unless I have a competitor I need to outrun. If I don't have a business which will get to cash, it's fine to take VC money to leave them holding the bag if I never find a "real" market.

mdorazio 3y ago
I'd say the problem VCs have now is that the decade of nearly-free money is over and everyone has 5% risk-free return investment opportunities. At the same time the sky-high valuations of many startups were based on dreams that never panned out, and exits are both sparse and unlikely to match values of 2 years ago. So as an asset class, VC is much less appealing than it was before. It's fun to see articles like this one popping up more frequently now that the market has shifted, which amount to a "back to basics" entrepreneurship push. In contrast, the last ten years saw tons of articles pushing founders to raise as much as possible as fast as possible.

gedy 3y ago

It sounds cynical, but over the years I've met a lot of folks who just want to "build a business", and the actual product, MVP, etc is secondary or maybe doesn't even matter? They are in to raise money, hire lots, and "go big", etc.

danielmarkbruce 3y ago
It's not cynical, and these people are often well meaning. It's common because the folks in question don't fully internalize that to the customers, there is only the product/service, and it does X valuable thing. There is no business. I use Snowflake, AWS, coke zero, etc. I don't care or think about their "business".

Jugurtha 3y ago

>Many (most?) of these companies I've seen could have started with a smaller fit. That could test the market theory for cheap (Lean) - cheap in terms of time and money. If the fit is good one ends up with a small business with medium good margin - and a way better idea of what the scaled up universe looks like. One model that also works before that phase but that's eschewed is consulting in the sector founders want to enter. They'll gain insight into what people say are problems, what problems people pay for, and the wisdom to know the difference. They'll meet stakeholders between users and economic buyers who might later sign the checks. They'll build a network, gain in expertise and credibility, explore potential beachheads, hear what will be their messaging, and discover rough go-to-market strategies all the while having positive cash flow. This works in their favor if/when they'll want to raise for they will come in homework in hand and coin in pocket. Even if they jump way past MVP like you pointed out, they'd be ahead of someone who didn't do that. Granted, it's service revenue but with money, like with a few things in life, you tend to get offered more when you're already having some regularly and can walk away.

djbusby 3y ago
Yes, I love this way to start. The practice selling is the biggest benefit IMO. Your other points are solid.
ricardobeat 3y ago
How would you start consulting in a sector you have no experience or proven track record with? I can’t see how this advice would apply to say, Dropbox, Zalando, Stripe or any other success story that comes to mind.
- spacebanana7 3y ago
  I imagine most consulting is operation specific rather than sector specific. For example, the experience of raising a few rounds of VC money would provide opportunity for financial consulting; the experience of hiring 50 engineers for HR consulting; or spending a few million on ads for marketing consulting. Disclaimer - I have no consulting experience.
- 3y ago

jmartens 3y ago

>Like, do you want a 0.01% chance to raise money or a 2% chance to build a business that keeps you and a few others well paid and perhaps out of the rat-race. I don't do startups to have a job, I do startups to do the hard things in an attempt to build something groundbreaking. Presenting "raise money" vs "have a job" is a false dichotomy.