You can stop planning your IPO now.
Count me among the growing number of entrepreneurs who think that the startup-related outside investment model is highly problematic and should be reformed. The path that seems to be marketed (and I use that word purposely) to entrepreneurs is as follows:
1) You come up with an idea.
2) Angel investors fall over each other bringing you competitive offers.
3) You grow your user base using Twitter magic.
4) Due to your meteoric growth, VC’s send you a term sheet sight unseen.
5) You join NetJets.
You might wonder: Who benefits from the well marketed but false path laid out above? Without laying blame on any particular group along that path, I can say it’s not the entrepreneurs who benefit. Marketing this dream (or some version of it) to entrepreneurs has become an industry in itself. Just type the search term “entrepreneur” into Amazon and see how many books come up.
Invest in What?
The reality is much more stark. There is a lot of hard work to be done before your business is ready for angel funding or, later, venture capital investment. Many businesses can be solidly profitable by skipping outside investment altogether. Some would argue that focusing on outside investment may be a hinderance to the growth of your business. I would argue that even if your business does require investment, you probably don’t need it yet.
I’m not arguing that some businesses aren’t capital-intensive and don’t require outside investment. However, if you’re a first-time entrepreneur without background or connections, creating a business that requires a lot of outside investment to succeed is a recipe for failure.
There is an opportunity cost for everything, and the opportunity cost for seeking outside investment just might be creating a product that is good enough for people to buy.
Go with What You Know
It seems that many businesses here are “stuck on start” while the founder seeks someone to execute on his or her vision. “I have an idea for an app that will change the world,” they say, as my eyes start to glaze over.
Inevitably, of course, they need investment to find a programmer to build the actual app. Surprisingly, no one will do it for the generous apportionment of ownership stock that the founder is offering. Maybe this, instead of being an investor problem, is a qualifications problem? The founder isn’t qualified to start that business.
Owning an iPad no more makes you an apps expert than flying in coach makes you an airline pilot.
I frequently say that I don’t know anything about businesses that actually make a physical product. I don’t start businesses in that realm. All of the business I’ve been involved in are SaaS businesses, or function on a similar model. I start businesses in areas I understand.
The Customer Knows Best
There is something you can do as an entrepreneur that will bring you revenue, move your business forward, and make future investment from angels and VC’s less elusive: Get a customer.
I know it seems old-fashioned, but nothing is more important to the future of your business than getting a customer. Customers provide you with a number of important things besides short-term revenue. Getting a living, breathing, paying customer is validation that your product is actually something that people want and will spend money for.
Instead of going down the prescribed, and often fictional, path of entrepreneurship, go get a customer. In fact,
Instead of working on your funding PowerPoint, go get a customer.
Instead of improving your pitch, go get a customer.
Instead of looking for a technical co-founder, go get a customer.
Instead of attending yet another meet-up, go get a customer.
It’s amazing how much more seriously investors, other entrepreneurs – and even you – will take your venture when someone is paying you for it.
Mark Lassoff is the founder and CEO of LearntoProgram, a publisher of online coding tutorials, and a frequent contributor to The Whiteboard. Founded in 2011 and based in Vernon, Connecticut, LearntoProgram has over 50,000 paying customers to date.