The startup game for investors is pretty much about this:
“What do we know and what do we not know yet about this founder, their team, their product, the business model, and the market?”
This is why early traction with paying customers, product usage, sales pipelines, and marketing funnels is so important to investors.
There’s just a HUGE difference in knowing between, “Someday we will sell a lot of our new thing” and “We already have 500 paying customers with lots of consistent data.”
Investors know that founders who pitch them don’t know as much as they think they know about their likelihood of success.
“Nobody’s doing it now but someday everyone will be doing it and we’ll be the market leader,” says the fanatic founder.
“Hmm. I’m not so sure about that. Show me more proof,” says the dubious investor.
Many founders tell me, “These investors are not really early-stage venture investors since they are waiting for a company to hit $100K or $500K revenue before they invest. All the risk is gone!”
No more risk? Hardly.
Investors know the odds are just slightly less awful at this stage, but they think they know how to play the game to win with a few savvy investment bets.
So much of entrepreneurship comes down to questions like:
- What do you really know for sure?
- What are you not sure about?
- What don’t you know yet?
- What do you think you know that you really don’t?
The normal world doesn’t operate like this most of the time.
But entrepreneurs have to start before it’s obvious and figured out already.
That’s why there are opportunities all over the place.
And good reason for healthy skepticism.
We think we know things before the world does.
- This is a real problem that hasn’t been solved.
- These people care about this.
- I know this will be big someday.
- They told me my idea was interesting so that they will buy something from me.
If we knew the answer to all our startup questions, then we’d know beforehand if our startup would succeed or fail.
But we don’t know these things.
I agree with the Lean Startup approach of asking, “What is the most important question we need to test and prove to ourselves that will drastically improve the odds of our success?”
Proving it to yourself as a founder is MUCH more important than proving it to skeptical investors or anyone else.
You don’t know as much as you think you know–yet.
You know?
#practicalfounders
