Introspection: How to fund your startup from customers
pfreet
· 6 months ago
Well put Jeff. Revenues create time, preserve capital and motivate the team. Why do so many entrepreneurs miss this?
rjurney
· 6 months ago
Because they have Steve Jobs and Google stuck in their head, and when they hear our leaders at Georgia Tech say "good companies can raise money in Atlanta" they think, "We're a good company... we can raise money."
Even though its not true, they are wasting their time trying, and they would be better off chasing real customers.
MikeSchinkel
· 6 months ago
Jeff:
Yet another excellent post; not a logic flaw to be found!
BTW, I could be wrong but I think many of us in Atlanta who are planning to stay in Atlanta actually ARE beyond the complaining. That's what ASE 2.0 was last night; the start of a focus on what it takes to make startups work. In Atlanta.
And wonder of wonders, focusing on creating companies that produce things that real customers will buy is IMO exactly what we need to be doing.
MicahWedemeyer
· 6 months ago
I'm choosing option 2. I quit going to a lot of the Atlanta startup events because I realized I was expecting someone to just up and write me a check. Instead, I just spend that time at home, at my desk, working on my startup.
MikeSchinkel
· 6 months ago
Micah,
There are many more reasons to go to Startup Events besides hoping someone will write you a check. You should go to meet people, form relationships, learn from them, and build your network of people so when the time comes you can have the relationships in place to form the best team.
I know from experience what happens when you just spend time at home working on your startup and don't engage it the broader community. I did exactly that 1994 thru 2006. What happened? I was never able to add to great people on top of my initial great team because I didn't know many people besides my employees, and when my company was profitable and growing I wasn't able to get the investment I needed because nobody in the investment community knew me.
Of course the fact I organize a monthly meeting via AWE means that my advocating attendance may appear self-interested but there are many other groups and activities besides mine; AWE is just one of many you can participate in and if you chose never to attend AWE and only the others you'd find great benefits. And please realize my group is mostly a labor of love with me trying to contribute to the community; AWE currently has no sponsors so it's not like I'm getting a salary from the group.
-Mike
John Stack
· 6 months ago
Sage advice. So many people get caught up in the startup funding cycle before they have demonstrated that they have the ability to make money. Of course, this flies in the face of Freemium; however, ad-supported sites don't always have the right legs.
rjurney
· 6 months ago
Excellent post. Thanks for sharing this, Jeff.
sburkett
· 6 months ago
I agree - sage wisdom. Bootstrapping by getting a customer to pay for what you're selling (or to invest in you outright) is far better (and often much faster) than raising outside capital.
Good post - I haven't had time to comment on rjurney's post yet, but it is also a fantastic read and a good companion piece to this one ...
If we all believe that good deals (that need it) eventually get funded, let's focus on creating better entrepreneurs ... who will in turn create better deals ... who will get funding. The source of the capital is immaterial IMHO.
Here are a couple of older posts of mine which go into some of this as well - might be a few tidbits in there for someone:
Great post Jeff. I did it exactly that way, built something that customers wanted, funded it with revenue (GASP) from paying customers!
My question though is, is it limiting to start a business this way? By relying on the offset to build revenue from paying customers, are you creating a ceiling on your idea/business that will be hard to overcome? Now, I couldn't be more happy with the sale of my company a little over a year ago, but creating a services company I was never going to hit the big time. I wasn't building something that would change the world, that's probably a better way to say it.
This is going to lead me to writing a post on the topic, but I am curious what your thoughts are on that angle. Putting aside the debate of whether or not people should be trying to be the next Google, do you even have a chance at achieving that level of success if you start off servicing clients and depending on their revenue? And if so, where does that leave Atlanta?
wayt
· 5 months ago
That's a great point, Jeff, and your story of funding the early development of Appcelerator with "customer funding" is very similar to how we got going at N2 Broadband in 2000/2001 when the tech finance was in nuclear winter. My five cofounders and I didn't raise outside capital for 18 months and yet were able to build the company to 18 people because: 1) we put in a chunk of change ourselves ($1M+ from our own pockets and from our parents, cousins, etc. - "friends, family and fools") 2) we did consulting work for Time Warner Cable, the second-largest cablee operator, to help them define and implement their next-generation architecture for interactive TV services, generating $1M in revenue in our first year.
It's always difficult to build a product business ( in our case, a software product) when you are doing consulting/services work to keep the doors open, but in our case the consulting work HELPED US DEFINE OUR PRODUCT. By being so close to a key player in our industry, we were able to understand where the cable industry was going (toward video-on-demand) and what big painful problems needed to be solved in that industry (huge integration costs to stitch together the components of a VOD system). That big problem DEFINED OUR PRODUCT FOR US, and we built a plug-and-play services architecture to enable all of the components in a VOD system to be compatible, thus commoditizing VOD servers, billing systems, and other components.
So the lesson I draw from this is that consulting/services revenue can not only provide funding to build the business, it can enable you to get close enough to real customers so that you will understand what real problems they have and can then go about solving them. Too many startups have a grand vision for their product/solution without first finding a real painful problem that needs solving.
All Comments
Even though its not true, they are wasting their time trying, and they would be better off chasing real customers.
Yet another excellent post; not a logic flaw to be found!
BTW, I could be wrong but I think many of us in Atlanta who are planning to stay in Atlanta actually ARE beyond the complaining. That's what ASE 2.0 was last night; the start of a focus on what it takes to make startups work. In Atlanta.
And wonder of wonders, focusing on creating companies that produce things that real customers will buy is IMO exactly what we need to be doing.
There are many more reasons to go to Startup Events besides hoping someone will write you a check. You should go to meet people, form relationships, learn from them, and build your network of people so when the time comes you can have the relationships in place to form the best team.
I know from experience what happens when you just spend time at home working on your startup and don't engage it the broader community. I did exactly that 1994 thru 2006. What happened? I was never able to add to great people on top of my initial great team because I didn't know many people besides my employees, and when my company was profitable and growing I wasn't able to get the investment I needed because nobody in the investment community knew me.
Of course the fact I organize a monthly meeting via AWE means that my advocating attendance may appear self-interested but there are many other groups and activities besides mine; AWE is just one of many you can participate in and if you chose never to attend AWE and only the others you'd find great benefits. And please realize my group is mostly a labor of love with me trying to contribute to the community; AWE currently has no sponsors so it's not like I'm getting a salary from the group.
-Mike
Good post - I haven't had time to comment on rjurney's post yet, but it is also a fantastic read and a good companion piece to this one ...
If we all believe that good deals (that need it) eventually get funded, let's focus on creating better entrepreneurs ... who will in turn create better deals ... who will get funding. The source of the capital is immaterial IMHO.
Here are a couple of older posts of mine which go into some of this as well - might be a few tidbits in there for someone:
http://www.scottburkett.com/index.php/entrepren...
http://www.scottburkett.com/index.php/entrepren...
Cheers.
Scott
My question though is, is it limiting to start a business this way? By relying on the offset to build revenue from paying customers, are you creating a ceiling on your idea/business that will be hard to overcome? Now, I couldn't be more happy with the sale of my company a little over a year ago, but creating a services company I was never going to hit the big time. I wasn't building something that would change the world, that's probably a better way to say it.
This is going to lead me to writing a post on the topic, but I am curious what your thoughts are on that angle. Putting aside the debate of whether or not people should be trying to be the next Google, do you even have a chance at achieving that level of success if you start off servicing clients and depending on their revenue? And if so, where does that leave Atlanta?
1) we put in a chunk of change ourselves ($1M+ from our own pockets and from our parents, cousins, etc. - "friends, family and fools")
2) we did consulting work for Time Warner Cable, the second-largest cablee operator, to help them define and implement their next-generation architecture for interactive TV services, generating $1M in revenue in our first year.
It's always difficult to build a product business ( in our case, a software product) when you are doing consulting/services work to keep the doors open, but in our case the consulting work HELPED US DEFINE OUR PRODUCT. By being so close to a key player in our industry, we were able to understand where the cable industry was going (toward video-on-demand) and what big painful problems needed to be solved in that industry (huge integration costs to stitch together the components of a VOD system). That big problem DEFINED OUR PRODUCT FOR US, and we built a plug-and-play services architecture to enable all of the components in a VOD system to be compatible, thus commoditizing VOD servers, billing systems, and other components.
So the lesson I draw from this is that consulting/services revenue can not only provide funding to build the business, it can enable you to get close enough to real customers so that you will understand what real problems they have and can then go about solving them. Too many startups have a grand vision for their product/solution without first finding a real painful problem that needs solving.
wayt