Take a listen to the latest episode of the Organize Chaos podcast with MATH Portfolio company CEO, Chris Ronzio and Troy Henikoff. MATH made its first investment in Trainual in 2019, and Troy currently sits on the board of directors. In this episode, you can hear the story of how Trianual was built, how we met Chris, and some background on Troy. You can find this episode wherever you stream podcasts or here: Spotify, Youtube, Trainual.
The Future of MATH
Today, we are publicly announcing that MATH will not raise a third fund.
In MATH I, we proved our thesis that companies with an unfair advantage in customer acquisition will outperform. In MATH II, we honed our portfolio construction in a way that we believe will lead to consistent top quartile fund returns. Through MATH I and MATH II, we have the honor of working closely with 72 portfolio companies - 50 of which are still active investments.
Our decision was a difficult one. However, given the current fundraising environment, we did not feel we could get to a minimum viable fund size that would allow us to fully support our portfolio companies, construct the ideal portfolio going forward and continue sourcing/investing/supporting new investments.
To the LPs that have entrusted us to invest on your behalf, thank you. There are founders in our portfolio that without your commitment would not be thriving and growing. We remain focused on helping them as always and will deliver on your investment.
To the entrepreneurs that have allowed us to be a part of your journey, we are inspired by you every day. Our commitment to you is never ending - we will continue to support, coach and challenge you even after we have helped you to “Exit Right”.
To the broader tech communities in which we live and invest, we remain dedicated to building a vibrant ecosystem - where investors are true business partners and all founders have the support they need to thrive.
MATH has always focused on business fundamentals - customer acquisition, operating levers and capital efficiency - to drive business results. However, the real joy in venture does not come from a spreadsheet. It comes from having a front row seat to watch an unsure first time founder grow into a confident leader. It comes from seeing companies that nearly failed multiple times fight back and emerge even stronger. It comes from that one piece of advice that resonates and you know that you have helped a founder reach a positive, tangible outcome. It comes from the shared success of a well-deserved, meaningful exit. These are the moments that we will strive for as we continue to work with our 50 active portfolio companies.
While this decision means we will not be making new investments, our future is the same as our past - helping founders take their vision further and grow with greater certainty.
In shared success,
Dana, Mark and Troy
Nailing cold investor outreach
Venture firms live for deal flow. The more founders we meet, the more opportunities we have to find the few founders we invest in each year. Last week, I commented on a post by Elizabeth Yin from Hustle Fund about what funds are still funding founders at pre-seed and seed stages and I decided to submit my information. The flood gates opened and I was immediately underwater.
Email in this industry is almost as insane as when I worked at a Fortune 500 – I receive hundreds of emails each week with cold outreach from founders. I spend time reading and responding to each email and this can take hours and a toll on my aging eyes.
How do you cut through the noise to get to your *dream* investor?
Research
When looking at hundreds of companies a year, investors develop a personal WHY for each company they bring to the investment committee. Do your due diligence on the fund and the person you are targeting. Find out where you fit in their wheelhouse – do you come from similar backgrounds? What is their past experience – do they specialize in specific areas of a startup like finance, marketing, or sales? What boards do they sit on and what companies have they invested in? Does your company fit their *personal* investment thesis?
Take all of this information and use it to personalize your outreach to the team member. When you are reading a ton of email, something short recognizing that they are a human goes a long way. For example, one cold email recognized that I’ve written about community and channel partnerships and played off that information. I responded immediately because I could see that they knew their why for contacting me.
Crafting your opening statement
How you position your problem and solution statement have a large impact on how the investor receiving your email will evaluate your company and you as a founder. Many of the problem-solution statements I receive are full of jargon or are from the perspective of someone deep within the problem. Eliminate jargon and assume that the reader knows nothing about the industry, business model, or competitors in your space. A strong problem-solution statement should be understood by anyone walking down the street, even a child.
To achieve this, I suggest that you test your problem-solution statement with your friends or family who know nothing about the industry or business that you are building. Ask them to describe what you are doing back to you. If they can’t do it, you need to refine your statement. I love to tell founders to practice with their kids, ages 8+, because they will give you hard feedback on what makes sense and what doesn’t.
Teasing with key facts
Give us the pot of gold to get the reader excited about speaking with you. Check out Troy’s video on the pot of gold. To summarize, you should show the investor that there is a huge opportunity in the area you are addressing – start with the market size but then make sure that YOUR BUSINESS will be large enough, and make sure you do a bottoms up analysis (none of the “if I just get 10% of the market…” analysis!!). Tell us about your traction today and a low risk path to achieving future results. Where will your sales be next year based on your pipeline? What partnerships do you have that help you accelerate your growth? Sell us on how where you are today will result in the pot of gold down the line. If you have some friendly investors you know, get feedback. Make it easy for us to say, YES I’d love to be a part of this opportunity.
How successful are you with cold emails to investors? What tactics have worked for you?
Let us know in the comments and make sure to follow MATH and me on twitter.
Benefits over Features: How to demo your product during fundraising
“I want you to imagine if you were the fire chief in charge. You’re outside of an active fire emergency. Peoples’ lives are on the line. Now I want you to imagine looking at a white board. This is the tool you use to track and manage your team’s movement.”
“We’re replacing the pen and paper tools with a digital platform that connects sensors to precise location technology in order to create the ultimate command center for firefighters.”
When Paul and Alex finished their demo of Ascent Integrated Tech, we were ready to make an investment. This is super rare - most demos drive us away from making an investment! (We didn’t immediately tell them yes, it took lots of diligence to confirm what we already believed.)
Paul and Alex brought us into the lives of fire chiefs and had us at the edge of our seats. They made us understand their real challenges and how they rely on Ascent to solve them. They showed us their understanding of how incident commanders and line firefighters use their solution, as well as how fire departments purchase technology. You could tell how much they cared about their customers. The whole demo took less than 3 minutes. Our eyes were lighting up. They made us experience the Aha moment!
The Ascent team truly understood something fundamental: A great product demo is ultimately a great story. It’s the hero’s journey of your customer – it’s not about you or your product! There is a challenge to overcome and a clear outcome on how your customer’s lives are so much better with your startup. This story didn’t come together overnight. The Ascent team talked to over 1,000 customers across the country before diving deep to build the tech.
We immediately lose interest when a founder focuses on their features instead of the customer benefits. Don’t take too long to describe a customer benefit or show us how to log in. We really don’t care why you decided to use a light blue background over a lime green one. The point is it doesn’t matter. Our thesis at MATH is companies with an unfair advantage in customer acquisition will win in the long term. When you are demoing your startup to us, all we care about are the customer benefits from the customer’s perspective.
A product demo to a venture fund is a demonstration of how you are communicating value to your future customers. We are paying attention and the last thing we want to hear is a list of features. Your goal is to impress us with the outcomes that your customers are achieving, not your taste in user interfaces.
Don’t waste any time in explaining your design choices - who cares about our opinion as long as your users are loving your solution! When we want to see a product demonstration during a fundraising decision, we really want to understand your users and why they do what they do. Simply put, your customer should be the center of the demo.
This isn’t to say design doesn’t matter. We LOVE teams who care about the look and feel of their product and brand just as much as engineering. This is super important for direct to consumer startups or companies that rely on product-led growth. That being said, imagine if your users are happily using the clunky version of your product. That’s the best signal that you can have that you will have even more customers at a higher price point down the road.
Start with a user journey. Tell a story on what outcomes the user experiences when using your solution. How is their life different before using your solution and after using your solution? What benefits are they seeing because you are now part of their life?
Show us a step by step journey of what gets them to try out your service, what gets them to commit, and why they stick around long-term. How much time do they spend on your product? What is the alternative to your solution if they had no budget to pay for it? When they do leave, what makes them leave? When they get to refer your solution to others, why do they do it?
Fundamentally, don’t just tell us why you care, show us why your customers care. Tell us why you can double your pricing tomorrow and whether the majority of your customers would stick around. Why? Why not?
Finally, use the current product as a scaffolding for where your future benefits will come from. Try to explain why your roadmap is the way it is based on what the product does today. What are ways in which your users are behaving that can make your product even more valuable tomorrow?
Hope this framing helps in your future fundraising conversations. What does a successful demo look like for you?
Please let us know on Twitter and remember to like and share this post if you want to see more founder tips from MATH VP.
Good, Bad, and The Ugly: How to build trust with venture firms during fundraising
My hand hovered on my cell phone. I nervously pulled up my address book to make a very scary phone call.
My palms were sweating with anxiety.
We had simultaneously received the term sheet we have been fighting for many months at SwipeSense for our Series A (an $8M raise!), and received a cancellation notice from our largest hospital customer within a 24 hour period.
I didn’t know what to do. Make the call to our investor and let him know that our sales numbers going in the model were off and risk the investment. Don’t make the call and have a VERY awkward first board meeting afterwards. The choice was simple. The call was hard.
I nervously dialed his number and broke the news. How it happened. What we are doing about it. It was direct and embarrassing. I ended with a very simple message. “If this news changes your view on the viability of this investment, we understand and will respect your decision to not invest in this round, no questions asked.”
His answer shocked me. “Mert - we are investing in YOU and your team as a founder, customers will come and go. It’s how you deal with them that is what we are buying into. We’re in.” I’ll never forget that answer. Over the years, we had our ups and downs, but we always valued our ability to be straight with our shareholders, before or after they invested in SwipeSense. It was at that moment we started to truly trust each other. It was at that moment, we went from investor/founder to partners in the journey ahead.
Our partner at MATH, Dana, wrote about this in her post titled Extreme Transparency. As your future partners, we want the following in our communication with you:
The Truth: No outright lies
The Whole Truth: No facts/circumstances conveniently left out
Nothing but the Truth: No B.S. thrown in to make it look better or worse than it is
As a founder, if all you talk about is the good stuff during fundraising, you’re missing out on an opportunity to build trust with your future investors. We are impressed and excited with your progress and growth, but we ultimately build conviction with how you deal with problems in your startup.
We get it: Fundraising is a song and dance to create FOMO amongst investors so you can maximize your valuation and time to close. I have given and received this feedback as an operator myself for many years, you want to ensure the energy is high in your fundraising meetings and the momentum keeps building towards a close. It is a sales meeting at its core, you are selling shares in your startup and the fund is selling why you should take their investment over others.
However, at some point in getting to know a fund, you should talk about the bad and the ugly along with the good. Practically speaking, no later than the second or third meeting with a fund, you should discuss the ugly things about your business. The soft underbelly. The costs that are higher than expected. The customer that canceled their contract. Anything that’s not going according to plan, and most importantly, what you are doing about it.
Here’s the deal: we know every startup has challenges. The goal of these discussions isn’t to go into the confession booth - it is to complete the picture of you as an operator. The best founders aren’t the ones without challenges, the best founders are the ones that know how to deal with their problems.
For instance, if your financial model assumes a $20 customer acquisition cost, and your average today is $35, this is a problem. However, this is an entirely different conversation if you highlight that discrepancy and your plan to get to $20 before we point it out in your financial model. If we are uncovering problems that you haven’t discussed with us first, we immediately worry about other problems that you are keeping. This is a bad impression.
On the contrary, talking about these issues and your plans increases our conviction in you - it allows us to build trust with you. And there is no greater way to build trust than to show vulnerability. It lets us build a mental model of someone who is going to keep a steady hand as challenges arise, and will be transparent with us as shareholders in the process. Your behavior today is the predictor of how you will behave tomorrow.
Finally, this goes both ways. Before you take an investors’ money, ask about difficult times with their portfolio. Ask to connect with founders who had to shut their doors or exited with small multiples. When things are going great, it’s easy to be an investor. The real work is when things aren’t going according to plan. You should diligence your investors with just as much scrutiny, you are picking a long-term partner who hopefully will share this adventure with you for many years to come.
Founders - do you find yourself only talking about the positives during fundraising? What are other ways to build trust with funds?
Please share your thoughts with us on Twitter, and give us a follow if you enjoyed this.
What are investors REALLY thinking about when they ask about your CAC…?
Some investors ask a LOT of questions about LTV, CAC and KPIs. Knowing the numbers you have today is important, but investors are looking for something else… Check out the latest video from Troy to find out what investors are REALLY thinking when they ask about your LTV, CAC and other KPIs.
Time to Quit Part II: When to Go All In on your Startup
Part II
This is the second part of our 7T framework. For Part I, check out the post here.
Truth: (A tracked metric that is an honest measurement of progress)
One of the dangers of being a founder is drinking your own Kool Aid. Let’s face it, founding companies suck.
No, I mean it - you are constantly looking for more resources, you are underpaid, underappreciated, and underslept. Your customers tell you that you need to do better, your days are long, and success seems far away.
In those dark days, you need a light that keeps you going, and there is no brighter light than progress. Progress is motivating. Progress lets you know that there is only one step in this journey that matters: the next one. If you can see how far you have come, then you can imagine how far you will go.
However, there is no way to do that unless you have an objective measurement of what success looks like. Think of this as a weight loss journey throughout which you need to weigh yourself Every. Single. Day. But you need to be looking at the progress over time. There will be ups and downs. Progress is not linear, but without the measurement, you won’t be able to see the trend line. Your investors are going to be backing that trend line above all else.
This might be revenue for your startup, but it likely isn’t granular enough to tell you a story. This can be cash in the bank, but honestly, you are in a good place as long as that’s going up. Money alone doesn’t tell you enough about strategy.
Think about conversion metrics. These metrics resemble some action divided by outcomes: clicks becoming customers, current customers willing to pay you more over ones that are leaving you, your customers leaving five-star reviews after you completed your jobs with them.
I call this an alpha metric, a constant measure of truth that tells you whether your actions today are getting you closer to your goal or not. Use that to adjust course. One of your superpowers as a small company is your ability to move FAST. Unless you are constantly iterating, you are leaving money and progress on the table.
Additional questions to explore on this topic are:
What are effective tools to keep track of your core metrics?
What numbers matter universally, and what numbers are useless?
How do you set up small experiments to demonstrate progress?
Who “owns” this metric across your company?
What is the right amount of progress with your alpha metric that tells you your idea is good enough to quit your job for?
Target: (Thesis, a WHY, a purpose that you are willing to spend years working on)
You should always have a goal that you are rallying towards. This includes your team (who you hire next), your customers (what they pay you for next), your product (what feature you build next) and obviously the metric you are tracking.
However, you should also have a mission. A raison d'être, as the French put it: a reason to exist. A singular purpose that you are willing to devote your life to.
I’m not talking about making a living and generating wealth, I’m talking about a reason to get out of bed in the morning. Something to care about, something greater than you that you can be a part of. A change that you want to see in the world. A wrong that needs to be righted.
Great companies are founded by missionaries, not mercenaries. You will need a fanatical belief that you deserve to exist, against all odds. You won’t get there simply by wanting more money or fame. That’s just not authentic enough to get around.
This mission is your single most powerful recruiting, sales, and motivating tool. It’s the call to arms that attracts people who want you to be successful. It’s because of this mission that you will draw up the courage to steer out of the known path.
This is an itch for change. This is an urge for progress. This is a calling towards a better future for people you care about.
It’s different for every founder - the right company for you to start is completely different from mine, and that’s a wonderful thing. This is where startups get personal. What is a mission you are willing to devote your life to? The answer looks like a concept called founder/market fit. It’s the signal that out of all the people in the world, you were the one called to build your startup.
A lot can change over time–your tech, talent, customer profile, even cofounders come and go. However, what makes a company a company is the belief in the mission that everyone can circle around. This is essential, and deserves deep reflection before you make the leap to becoming an entrepreneur.
Additional questions to explore:
What are exercises to define a company mission?
What is the difference you make in your customer’s lives as a result of your product?
How can you create a narrative that ties together all of your efforts towards a mission statement?
What does a great mission statement look like?
How can you define cultural values around your mission statement?
Time: (Breathing room. Savings.)
You need money set aside that you can live on until your startup can start paying you. Ultimately a deadline in which you will quit unless you are successful.
You need a deadline. You need a time slot that you are willing to do anything in, but anything above that is self-destructive. Especially as you go later in life, startups can wreck everything you have built so far: your savings, your relationships, your health.
You need to define what you are willing to bet before you start. Usually this is as simple as putting up a certain amount of money in savings, enough to live comfortably but not luxuriously. You start by making a personal budget and dividing your monthly needs with how long you can survive without progress. This gets way more complicated once you have others you need to take care of, such as children or aging parents with healthcare needs.
This timeline can be extended indefinitely once your startup starts generating income; that’s why it’s so critical to reach revenue as fast as possible. You can use that same time window to raise money from investors, but it becomes so much easier to find investors once you have a growing list of customers. It's almost not worth it to waste your time doing anything but finding early signals of traction.
You won’t be successful if you are worried about rent. Period. Once you run out of your savings, taking additional gigs or side hustles puts you into a negative feedback loop. Because you spend less time, you lose out on progress, and because you lose out on progress, your startup’s survival becomes even more difficult. This death spiral is best avoided with an honest conversation about resources and time.
This isn’t to be confused with timing - most great ideas don’t look like great ideas at the time. Perfect timing means early, so waiting for the right time is usually not a great strategy. This simply means having enough breathing room as you figure things out.
Of course, ideally your startup starts paying you from day one. This is why expert founders will likely work nights and weekends on their checklist before they make the entrepreneurial leap. It’s so much easier to switch ships when the second one is moving already. Ideally, your startup is able to start paying you survival money immediately because you have secured early adopters, a reasonable first product, and team members who are helping you get started.
Remember that this isn’t meant to be a full replacement of your current income, or your potential income if you were to follow a professional commitment. Most startups end up paying their founders and early employees below market salaries for a while, and make up the difference with equity ownership.
Being generous with how much time you need is super important, because when that time runs out, you need to change directions with your startup. That’s the ultimate signal that things aren’t working out, and it’s best to cut your losses early and move on to the next thing (part of the same startup or otherwise). Use this time constraint as an advantage. Deadlines move people, and there is no immediate deadline greater than covering your basic needs.
Additional questions to explore:
What does it mean to be “ramen profitable” and why does it matter for your startup?
How do you put together a personal budget with basic needs that can stay consistent?
How much time should you give yourself until you start making “survival money”?
How do you justify this early investment you are making in yourself?
Trust: (Belief in yourself)
After all of this scientific, measurable progress, here’s a totally unscientific faith that leads to success beyond your wildest dreams.
You need to trust that it’s all going to work out in the end. Startups are hard. This is going to be a bumpy ride, and in the early days, success will seem forever away. Don’t lose faith. It takes years–sometimes decades–to become an “overnight success.”
There are LOTS of things outside your control and comfort zone, and the one thing you can control is your attitude. Have the conviction that your success is a given–that the universe wants you to succeed in your mission.
We never see the real struggle of successful entrepreneurs. Most of the journey isn’t glamorous. We all go through the dark days, the moments of doom, the feelings of loneliness and despair. It’s the great ones who face the struggle and continue with the journey who end up being successful in the end.
As Ben Horowitz eloquently articulated, the struggle is what keeps you up at night. The struggle is the emptiness in your stomach when your hot shot hire quits. The struggle is when your champion customer asks for a refund. The struggle is the guilt you feel when you need to lay off half your company. All part of the journey, all part of the playing field.
All of the items in this list are elements that improve the odds, but you still need to play the hand that you are dealt. And no matter how great the hand is, it’s still a gamble to start a company. There is no shortcut to success, you need to grind to make this happen. You need to crawl through a mile of mud to come out the other side. You need to trust yourself that it’s all going to work out in the end. Without this, you won’t make it to the finish line.
At this point, there is only one question that matters:
Do you believe in yourself to win against all odds?
Time to Quit: When to Go All in on your Startup
This is Part I in a series.
It’s hard to know if/when you should quit your day-to-day responsibilities to go all in on your startup. Whether you are a student or an executive in a tech company, we all struggle with this core problem: Is my startup good enough to quit what I have now? Unfortunately, too many people YOLO into a startup and hope for the best, while others wait for the perfect moment to get started.
The reality is that the only way to know is to do it - give it a try and see. However, there are things you can do WAY before you quit to even the odds and stack the deck in your favor. By making progress in these elements before your journey starts, you greatly level the playing field.
I want to get something out of the way right from the start: raising dollars from venture investors is not a good first step if all you have is an idea. Unless you are a super seasoned operator, the risks are simply too great. You may have a shot at getting into an accelerator if you have subject matter expertise, but raising venture dollars is going to be a tough bet. In addition, if you aren’t all in on your idea, why should the investors be? Venture funds get to make a handful of investments per year, and a founder who isn’t committed to the idea is an easy pass.
Think of this as a checklist, the more you have completed, the more you are likely to secure investors who add value to your journey. Venture is a risky business because there are always folks who are willing to make earlier bets. In some cases, elements such as a superstar team are enough to get an investment, but the goal isn’t to raise a round–the goal is to build a solid business for the long term. (It goes without saying that the terms of your round will be significantly better if you have more from the list below.)
I came up with 7 T’s - elements that you should have in your back pocket. The first part of this post will dig deeper into the first three: Team, Tech, and Traction. The second part will discuss Truth, Target, Time, and Trust. Let’s dig in!
Team: (People: early employees, cofounders, mentors, investors, advisors)
You need to have supporters. Whether they are cofounders, mentors, early employees, initial investors, or an unofficial board, you need people in your corner. These are your allies–folks that want you to win with your idea.
Starting something early is a team effort, and a team comes before the good idea. Talent is attracted to good ideas. If you think your idea is the next best thing since sliced bread, yet no one around you wants to join you, you should question that idea. Especially if you are surrounded by people smarter than you, you want their honest input in what you are doing.
Finding a cofounder seems like the first step, but that’s a HUGE commitment. Way before a cofounder, finding your allies helps you a great deal. They will push you to hone the idea, and it is way better to recruit someone from that group to be your cofounder, rather than hope that the first person you decide to work with is magically the best partner for your startup.
For instance, if your startup is in the food space, you should try to find an already successful food entrepreneur in the industry, preferably with a few successful exits under their belt. Share your ideas with them, and ask for their guidance and support. They likely have made way more mistakes than you, and can give you concrete advice on what to do, and more importantly, what not to do.
Their advice comes first, and if you find that useful, they will appreciate the relationship, too. It’s way easier to turn that person into an early investor or a powerful recruiting tool for their past team members.
At some point, you’ll need to start paying people. However, early on you need to be the missionary that gets others to believe. Find people who are as passionate as you are about the problem you are solving for your future customers.
Bottom line is this: it all starts with the people. You want to be part of an early cofounding team that shares this feeling: “Everyone in here is smarter than me. Everyone here is working harder than me. I need to step up to the plate to make sure I deliver.” Imagine if everyone on that team, in their respective fields, feels this way towards the others. This level of expertise feels like you are part of the avengers initiative.
Ps. Honestly, if you have a solid enough team, that is more or less enough to get you started… certainly enough to raise a preseed round to get things off the ground.
Here are some follow up questions worth exploring:
How do team members earn equity early on? How are you vesting it?
What are methods of receiving feedback with discipline?
What questions should you ask each other before committing to becoming cofounders?
How do you keep each other accountable, while respecting the boundaries of each other’s expertise?
How do you handle compensation when you have no funding or revenue?
How do you get someone to quit their job to join your startup?
Tech: (Product, means of delivering value to your customers.)
A product doesn’t make a business, but there is no business without the product.
You need to have a product that serves your future customers! I use the word tech deliberately. It doesn’t have to be fancy tech - if you are starting a cookie business, your oven is your tech. However, you need to be able to deliver value, or at least have a clear path to delivering value with technology and a product you understand.
The early version of your business should be able to deliver value without being fancy. Imagine making a painting tell a story, just by using stick figures. Imagine a melody, no more than a riff, waiting to become a song. This is critical, because no matter how much you plan, the moment your product hits the real world, it will need to change. It’s imperative that you get your idea out fast with a version that you aren’t proud of, just so that you can ask your customers about their experience. If you ask for them to pay, they will even be more honest.
Finally, this also weeds out ideas that you have no clue about. I hate to break it to you, but if you have never been involved with a hardware project, it's probably not a good idea to build a cell phone as your first startup. Being an outsider to an industry or a market can be an asset, but having no clear plan on how long it’s going to take you to develop an idea (or how much it’s going to cost you) is wasteful.
We can spend more time exploring the questions below:
How do you build cheap prototypes (both in time and money) that validate key assumptions on your idea?
What are effective ways to manage a technical team if you are a non-technical founder?
How do you avoid problems downstream by making effective product decisions in the early days?
How can you use the “jobs to be done” framework to ensure your product is inevitable?
When tech doesn’t work in the early versions of your product, how do you manage your early adopters?
Traction: (Early customers that pay a fair price for the value they receive)
You have a team, and at least a theoretical path to making a real product. Now you need sales. Most people wait until they have a “real” version of their product before they talk to their customers.
If there is one thing you take away from this post, it is this: There is nothing–and I mean nothing–more important than early sales to validate that you are onto an idea worth quitting your job for.
Whether it is a successful Kickstarter campaign, thousands in presales, folks signing up for pilots or early deployments, or hundreds of people on your waitlist waiting to sign up for your iOS app - you are onto something. First and foremost, it means that you will have a hungry group of incredibly motivated people willing to give you honest feedback.
This is invaluable because unlike your early customers, most people who want to support your startup will be nice to you. People you are already close to, people that love you, more often than not, aren’t amazing startup operators. I’m talking about your friends and family - it’s tempting to give feedback that lives on both ends of the spectrum. They are either:
Overly protective and want you to never venture out of the safe path,
Or they are overly supportive and want to give you a pat on the back, even when your idea is stupid.
Early customers don’t care about your feelings - they simply want their job to be done. Think how bad they must need your product. They are willing to take a risk with an unproven founder and a brand they don’t recognize. The fact that they signed up is an amazing signal. They are telling you that they have an urgent need that they are willing to pay to meet.
If you fail on your promises to them (i.e., miss your deadlines, compromise on features, deliver a buggy experience), they will let you know, immediately and effectively. I’d rather listen to my early customers than anyone else to give me product guidance.
There’s a clear art to how you do that. The old saying by Henry Ford is accurate: “If I asked people what they wanted, they would have said a faster horse.” (In effect, they would be right. A car is a faster horse after all.) I recommend the Jobs-To-Be-Done (JTBD) framework pioneered by Clay Christensen and Bob Moesta to interpret early customer feedback into a winning value proposition.
Above and beyond feedback, this is also your path to a salary. It’s way more reasonable to assume that your first paycheck from your new startup will come from a customer, instead of an investor. So work for it, and give yourself the flexibility that allows you to take a detour from the proven path.
Finally, early customers show that whatever means you used to get them can likely get you more customers down the road. Whether you are going to grow with your profits or an investor who can fast track you for a price, you will need a credible story on where your next set of customers will come from. This means more cash to grow, and more feedback to make a better product - all good things.
Here are other questions worth exploring as part of traction.
How can you create a trusted partnership with your early customers?
How do you price your product for the first time?
What are effective ways to get customer validation that aren’t measured in dollars?
Who should lead your early sales efforts?
What happens when your early adopters leave you?
Stay tuned for Part II in this series to read the read of the 7T framework on when to go all in on your startup. What do you think of the first 3 considerations? Let us know in the comments.