“Your not a scrappy startup” is NOT the reply you want to hear when pitching an investor! Trust me. Investors expect you to use their capital efficiently. It’s your job to convince them you will in your financial model. But we all know “actions speak louder than words.” So a potential investor is going to look at how capital efficient you’ve been in the past with your own capital or a previous round. And since startups are a dime a dozen for investors they are looking for certain signs to exclude you from consideration. Don’t give them one.
Be a Scrappy Founder
Let’s say you’ve got a great idea to solve a problem and you want to build a company around it. No problem, right? Today, it’s easier to build a startup with insanely low technology costs. You can launch an initial website with a functional front-end on the WordPress platform for less than $100 to attract customers, and manually perform the back-end functionality to prove your idea has merit.
Launch a private beta with a small number of customers. Find out if you really understand your customers’ pain points by asking for feedback every step of the way. Make tweaks until you prove your business model through positive customer feedback, repeat users and most importantly – revenue.
Yeah, yeah, I’m sure you already know this. You’ve read The Lean Startup and are already implementing these strategies. Good for you.
But don’t ever forget that cash is king, and investors are going to look at your use of it. You need to know your burn rate and fume date at any moment. Use your sales skills to bring in expertise without hiring (i.e. advisory roles). Understand when to outsource and when to do it yourself.
Here are 10 signs you are NOT a scrappy startup:
- You and your co-founder(s) are paid market salaries
- You have a CEO AND COO
- You’re a tech company with several non-tech founders on payroll
- You have several non-tech founders on payroll and you still outsource bookkeeping
- You have a customer service team before you have customers
- You sign a multi-year office lease
- You pay cash to your advisory board members for work
- You expense fancy lunches
- You stay in high-end hotels on business travel
- Your marketing campaign consists of billboard and/or television ads
Some of these may seem obvious, others not as much. Just remember, as a founder, it’s your job to make sure capital is spent wisely. Every dollar spent extraneously is a dollar wasted.
I’ve listed just ten signs that you’re not a scrappy startup. My guess is there are hundreds out there.
I’ll ask the investor community to weigh in and add to this list in the comments below…
2 thoughts on “You’re Not a Scrappy Startup”
You haven’t tried any of the other ways of financing your startup before approaching angel investors
You ask for investment funds but have no good idea what you are going to use them for (see #1)
You spend half your time community building
Thank you Ed. Can you elaborate on other financing you would like to see founders try before pitching you?
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