Screw Investors, Get Customers!

-Check Signing-

“We can believe that we know where the world should go. But unless we’re in touch with our customers, our model of the world can diverge from reality. There’s no substitute for innovation, of course, but innovation is no substitute for being in touch, either.” ~Steve Ballmer
It’s a common belief among entrepreneurs: the answer to all their problems is access to investors. While well connected investors can often provide a tremendous amount of value, an even greater amount of value is gained from your first customer. During a presentation this afternoon at a Government & Technology event, I listened to Eric Ries extoll the importance of sustainable business models and customers.

Over the past few years I have met with numerous entrepreneurs, many of which were pitching businesses ideas to investors rather than pitching the product to clients. Stop doing that! Instead, spend some time figuring out who your clients are and ask them what they want.

U.S. Government Caters To Its “Clients”

Also speaking at the event this morning was a gentleman from Obama’s organization (or the DOD, I can’t remember who he worked for unfortunately) who was asked to go to Rwanda with a colleague to figure out how they could resolve 4 key problems in the region.While I won’t go into details about his emotional story, there was one thing that stood out to me (and to Eric Ries who made a comment to me after the event): the government first went to research and ask the President of the country what was needed.

Rather than just offer cash, which is one of the most obvious solutions to be provided by the U.S. government, they got on the ground in the country, drove around with the police and interviewed the President. In this case the U.S. government was serving their “client” by finding out what was truly needed.

A Startup Closes Its First Client

Last night I had the opportunity to speak with some personal friends who recently sold their startup to a company out in Los Angeles. They were now in the process of starting a new business (which I won’t go into the details of in this post) and were in town meeting with potential investors and possible new clients. Just recently the company had accomplished something priceless to any startup: closed their first client for $20,000 a month!

So how did this company start? They used a software which helps build product wireframes which cost them $79! Yes, you heard that right, $79 and a few hours of times in building out the wireframes helped these two co-founders get a first client worth $20,000 a month.

Minimum Viable Product

Eric Ries, who I mentioned earlier, has been branding the concept of “minimum viable product”, although the general idea of it has been around for some time now. I’ve been preaching this concept for the past few months to all startups that have asked for my advice. One company that I’ve been advising, went after funding to build the first iteration of their product and had already paid some development agency $50,000 to build it.

At one of our recent meetings I told the founder that any money not spent on development yet should be put on hold and instead, the time should be spent finding out what the customer wants, and have them fund it. This particular founder did not take this advice well but my ultimatum was this: I won’t work with a company that’s not listening and developing based on what their clients are saying.

It’s a personal decision and some founders are confident enough that they believe the customer doesn’t even know what they want. While a legitimate premise, it’s extremely risky and under my own constraints, I don’t have time to take such gambles.

Get Customers First, Investors Later

If you are in building your own business then you need to focus on closing clients before anything else. While you’ll need to build your “minimum viable product”, in most instances you can fund the majority of that with your own time and capital. All you need is access to digital production tools and knowledge of how to use them and you’re off. Don’t know how to produce your product? Find some people that can build it and come up with enough money to pay them!

So where is this money that will fund the first iteration of your product? Often times a customer will pay for you to build out a product as long as you can show them the idea and make a good presentation. You’re providing them with a service and while your product may not end up exactly as you’d like it to be, the customer just funded the first iteration of your product.

You can now use that product to sell it to new clients. The next steps are determining whether or not you want funding in order to scale more rapidly and recruit top talent. The investors can be extremely valuable if used properly but if you’re an entrepreneur looking to start a business, stop thinking about how you can pitch the investors and start thinking about how you can close your first customer.