Here is the third most successful way I see how software startups get across the Traction Gap from MVP to repeatable revenues.
But most new tech founders I talk to think it’s the first.
Remember, the first and most successful way to cross the Traction Gap is to buy time and tries by self-funding your startup by not quitting your day job or using profits from your services business, with creative frugality. #selffunding
The second most successful way I see is founder selling where the founder quickly generates enough revenue from sales to get traction before hiring a salesperson. #customerfunding.
Here’s the third way: angel funding.
Outside funding from friends and family and generous angels in your network.
Raise a few hundred thousand and try not to die to get your sales going before funding runs out.
It’s not an investment yet. It’s a donation.
Surprised this isn’t the most successful way to get revenue traction?
It’s not. Here’s why:
For most founders, especially entrepreneurs new to the software startup sport, raising ANY outside capital to fund your early startup experiments actually decreases your success rate of getting to traction.
Many do it successfully, but most startups who raise any outside capital before traction don’t make it.
More self-funded and customer-funded startups make it to revenue traction.
How can that be?
Isn’t “start with outside funding” what everyone is doing?
Here are the biggest reasons why any outside funding decreases the overall odds of getting to MVP and then revenue:
1) Traction is all about making something that customers love and will pay for.
Funding, even a little bit, is a major DIS-TRACTION for founders in this critical startup phase.
Most founders are spending more time learning to raise money and talking to investors than loving their customers and building great enough products.
2) Once you raise any money from outside investors, even your rich uncle, you have decided to SELL YOUR COMPANY and the clock is ticking to get that done.
More time and more experimental tries are the superpowers of early startups.
Hurrying up and acting like you have it all figured out for your investors are the opposite of the customer care and patience needed to get to product-market fit.
3) This is the most serious one that nobody is telling smart, savvy, and visionary new founders:
Raising any outside funding at this stage is like taking opioid painkillers.
Sure these drugs are prescribed and helpful for a short time. And everyone seems to be doing it.
But outside funding easily misguides and addicts founders who don’t use funding with extreme care.
Funding always runs out faster than founders think.
And funders are happy to be there with a little more funding (or not) for as long as you run an unprofitable business.
Can you win with early pre-revenue funding?
Absolutely. But be careful.
Outside funding for pre-revenue startups should be the exception, not the rule.
Here are all 5 parts of the series on funding your way across the traction gap.
- Crossing the dreaded Traction Gap between MVP and sustainable sales
- Funding your startup across the Traction Gap with your day job or services business
- Funding your startup across the Traction Gap with sales revenue aka customer funding
- Funding your startup across the Traction Gap with angel investors
- Funding your startup across the Traction Gap as a 2nd time founder