March 12, 2017 MarkModica

Biggest Mistake Founders Make When Introducing a New Product

As a founder you’ve done everything right. You have a great idea that solves a problem or creates opportunity for a fairly large market. You’ve built the first gen of your product, platform or app. You have raised money from friends and family or a small seed round because there is a lot of that money around, but not easy to get. You may even have some customers and some decent revenue or traction in your market.

You should hold a big party and congratulate yourself because these are great achievements. It will be something you can remember fondly in the future after you have shut down your business and gone on to another career or another startup. Congratulations you have built a bridge to nowhere.

99% of all startups make the same mistake. They don’t calculate the amount of money needed to complete their bridge (fund their company) and whether enough people will want to use it to make it viable since you are building a toll road. But you say you have been frugal, not taken a salary, only spent your resources on the most important, most valuable asset in your startup, the product. All you’ve really done is create work for developers in other countries, venture lawyers and incubators (all great businesses!!).

The biggest mistake a founder will make is investing small amounts of resources they have raised into their product. There are hundreds, if not thousands of companies chasing an A round funded by a deep pocked investor who can help them finish the bridge, fill it with traffic and then sell it to the people who highly value their bridges!! Your chance of getting their attention is pretty dismal.

You probably don’t live in Silicon Valley and your first round wasn’t from Mark Cuban or Peter Thiel so your network is limited and your chances of getting the syndicate you need to fully fund your market is near impossible. I would be a billionaire if I could bet on the losers in the tech space, or restaurant space, or any startup for that matter. They would be the ones with the cool products or concepts who have used all the money on the product or concept, not in raising more money, or proving a market (not scaling a market) or even in telling their story properly.

I see 5 to 10 great startups with these attributes every week. They have no money to spend on getting to my network and even if they did, they don’t have enough evidence to prove that their story is real; and forget about the cap table issues.

My last company ran into this problem even though I had thought I had reduced the risk and need for capital. We raised $1.5M from non-institutional investors (small family offices) and had a strategic customer who through their purchases of product and commitment to use our technology in extremely strategic pilots would give us the bridge to institutional money and ultimately Unicorn glory. Delays within their billion-dollar organization with all of its bureaucracy have put this company on life support. Who could have seen that coming???

Great product, nice traction with a few customers and yet a bad outcome. As Seth Myers would say late at night . . . “you’re dead.” But at least save enough money for a really good shutdown party. Oh and stay off that bridge . . . it is a really long fall.

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