The Evolution of a Startup

How do you make progress in the marathon of marathons?

Lately, I’ve been mentoring some early-stage startups. Some have a minimum viable product and a few customers, others are still working on the underlying science of their offering. They are all pre-seed, surviving on funding from the four F’s: founders, friends, family and fools.

This stage is one of the toughest because you’re caught in a chicken-or-egg dilemma. You don’t yet have enough traction to raise serious capital. But without capital, it’s hard to finish the product or win the customers you need to show traction.

A startup, at its core, is an innovation in search of a business model. And finding that model takes time, iteration, and a lot of work before investors are ready to write meaningful checks.

The Traction Paradox

Many first-time founders get stuck at this initial stage. They believe that if only investors gave them money, they could move the business forward. That may be true, but unless you’ve already built successful companies, investors want proof before they invest. The exact proof isn’t as important as the principle: venture investors need evidence of momentum.

Here’s the part that doesn’t get said enough: every stage of a startup is hard.

I like to compare it to running marathons. When you sign up, you know you’re choosing something difficult. You train with the understanding that the suffering is part of it. I ran marathons for ten years, and I reminded myself during training, that I was preparing for race day one mile at a time. Every mile repeat, every hill meant less suffering on race day.

The same is true in startups. The more you understand your customers and their problems, the fewer needless detours you’ll experience while building your company. But no matter what, there’s no such thing as an easy startup.

Every startup I’ve been part of has had its share of ups and downs: missed quarters, product delays, outages, new competitors, customer churn, internal drama — you name it. From the outside, successful startups look like a straight line of growth. On the inside, it’s always messy.

As an early stage founder, you must

• Build a team

• Get product / market fit

• Grow to the next stage without running out of money.

One thing that can help you focus your efforts is to think of your startup as passing through a series of gates. While there are lots of twists and turns along the journey, you must focus on exactly what will move you from the current stage through the next gate.

At the pre-seed stage, you might convince friends or family to invest because they know you and you’re an expert in a specific domain that has helped you identify a significant market opportunity.

At the seed stage, you need to show that you can execute on the vision by delivering a working product to happy customers.

At series A, investors want to see proof there is product/market fit. For a B2B company, that’s typically crossing the $1M revenue threshold along with evidence that there’s a large overall target market. For consumer apps, the yardsticks are different: perhaps 100,000 monthly active users with strong daily engagement.

At Series B and beyond, you need to prove you can build a profitable business. You want to show accelerated growth, improved margins, and the ability to scale the operations beyond the founding team.

Also, keep in mind that investors are not customers. They care more about your business than about the features or patents you have under development. You need to show more than just a product strategy. You need a compelling business strategy that shows you can expand revenues, distribution and margins over time.

Focus On Your Current Stage

The lesson for founders is simple but not easy: you don’t get to move to the next stage without proving your way. You’re moving from proof of concept, to product/market fit, to scalable operations. For investors, each gate you pass through is reducing the risk on their investment.

You need to figure out how to get momentum at each stage through creativity, hard work, salesmanship, luck or all of the above. No investor is going to rescue you.

In fact, investors are looking for exactly that combination of determination and creativity that enables founders to keep going no matter what obstacles arise.

Don’t make the mistake of trying to optimize for tomorrow’s problems today. In particular, it’s easy for technical founders to get caught up in building advanced features before getting customers into production. When your number of users is in the hundreds, investors will not care that you have an automated multi-region failover architecture that uses the latest open source technology.

Get Things Working, Optimize Later

There are many things you must do to get the things off the ground in the early days that are not necessarily scalable when you have a $100m business. That’s okay as long as you have a plan to improve it later. Don’t try to optimize everything from the get go. The most important thing to consider is: will it help you to move to the next stage?

For example, early customers might require a lot of technical handholding and unanticipated product workarounds to get them into production. That might not be very efficient with your first batch of customers, but once you understand the issues, you can figure out how to optimize for the next batch.

While it’s possible that the first version of your product or service is perfectly correct, it’s likely that you’ll need to change over time as the market evolves and customer needs change. A successful startup is one that is constantly experimenting and improving.

When things are hard, when you’re really not sure how to proceed, have the humility to meet with customers and prospects. Ask them about the problems they have. Listen carefully. And consider whether you are solving the right problems.

It’s easy to fall in love with your product ideas. But what matters most is that your customers fall in love with your product. If it’s not happening, consider what problems you could solve that would most excite your customers. (Hint: ask them!)

Remember, while no startup is easy, none have ever died from too much customer focus. The surest way to get your business to the next stage is to build it one customer at a time.

For companies that are beyond Series A and have product market fit, you want to be thinking about how you can systematically make operations more efficient every quarter, every year. Look for ways to reduce friction in the organization, whether it’s in the customer acquisition process, sales cycles, customer deployments and so on.

It requires conviction and hard work to adopt a mindset of continuous improvement but it is much better than the opposite.

The picture above was from the Bayshore Half Marathon in Traverse City, Michigan. Anyone looking for a flat, fast Spring marathon PR should consider it.