There is a lot of talk about preparing to launch a business and getting a sufficient war chest to do that.
In Silicon Valley, where businesses operate in stealth until they are ready to launch, apart from the engineering costs, most of the capital goes into the marketing spend – burning tens of thousands or even 100’s of thousands of dollars each month. The question, I often ask myself – is this precision spending or a mere race to burn the rocket fuel.
It is true, I am biased. I have always operated in Europe and perhaps the most conservative of countries of the Old continent – UK.
Me and my team have raised funds here to build and market Flow City. Any fellow founder reading this, will perhaps have a little sigh about the size of seed rounds here being in thousands rather than millions.
I have made nearly 100 pitches to funds and angels with a success rate of 1:10. Didn’t accept every offer on the table, but as we weren’t addicted to capital, we could afford to choose the best investors to support our growth. When it comes to smart money, I think we managed to get the genius level – yes dear investors here is my gratitude which I perhaps didn’t offer often enough.
I had a different idea for the June blog but I wanted to share my thoughts after chatting to a very knowledgeable investor, who also happens to be a close friend. He asked me what is the single most important thing in my opinion to making a product a commercial success? He asked me both as a founder and a strategist.
My answer was simple – embrace austerity.
The best products tend to be launched in unfavorable circumstances. Do it when it is difficult; when competition is none or scarce. Where Hacks and cheap testing are likely to move the needle because you are not fighting for the attention of the same group of customers.
Perhaps we were too early with our proposition but that meant we had a lot of time to experiment, test our assumptions, test and perfect our product. So when the market ripens, we will be ready to ascend.
The difficult part: There is little money available when you are in this phase, so you have 2 choices: Bootstrap or self fund. Bootstrapping means that all the founders have the skills required to build the product so you don’t have to pay anyone until there are funds to do so. Self funding means investing your money to hire essential talent. In both cases the funds are limited or non existent, so securing your first customers equates a lot of leg work.
But what about the launch phase? Can you do it without the rocket fuel.
You can and you should. Don’t launch, prepare to ascend – focus on one channel and watch it closely to identify what works. Think about fuelling a balloon to take you over the Channel rather than firing a rocket into space.
This is the chance to show a real competitive advantage. You shouldn’t have to spend your way to acquire customers – they should choose you. That is the real proof. And if you don’t have the funds to cheat your way to growth – than that is a good thing. Fail early and pivot if necessary.
When you are first to market, you’re the only choice. When there are few others, you should be the obvious choice. Having a small marketing budget teaches discipline which will evolve into culture when you are ready to go after a bigger market. That rigor should stay with you whether you have £1,000 or £1m to spend.
I remember our last round, I said specifically to our investors that we want to spend 80% of the round on marketing. They didn’t agree with us, but said nothing at the time. So we closed the round and shortly after we met to go through my assumptions.
It turns out that my strategy was easy to copy – which meant any player coming in with 10 times the budget could crush us. Their advice? You are so early you can afford to be unscalable with your approach and that’s why we backed you. Test more scalable channels and when you have a winner, launch it when you are ready. Forget the hockey stick – we are in Europe so showing profitability is both desired and attractive. It shows you know how to deploy marketing budgets and can be accountable for the results, and most importantly, it doesn’t make you addicted to external capital.
I now understand the importance of that advice as it shaped us and prepared us for the next growth phase.