Do you really need outside funding? A group of experienced IT directors in Europe were starting a new venture using some software that had been in hibernation for about six months. The previous owners had gone bankrupt and the product was finished but needed launching. It was a blue chip product that enabled companies to put together secure and potentially complex Web forms in 1/10th the time it took normally. Everything looked great except that they felt very insecure without regular salaries during the startup and refused to make a move without the backing to provide it. Writing a Wall Street standard business plan took time, but given the odds and timing, nothing was forthcoming. If they had used the same time to court the numerous leads they had between them, they'd have gotten their first orders under their belt and the product could be living again.
Funding solves the money question, but not for very long. Access to funds may seem prodigious on day one, but a false sense of security can insulate you from the real world. What you have isn't wealth; it's a wealth of debts. Being forced to sell your product from a very early stage, on the other hand, brings you continually into contact with customers and makes the firm customer-centric. Pick your customers carefully so the product's destiny coincides with the customers' requirements; otherwise, you'll be pulled in every direction by each one of them wanting specials. If nothing else you'll end up with a lopsided product. Remember, they're meant to be subsidizing you, so keep your eye firmly fixed on your own targets while remaining ever tactful.
Ironically, this technique of getting the project started against real orders is becoming the base requirement for a number of VCs that want to see an initial track record before they invest. This is after you have taken the greatest risk. The beauty of it is that you do not have to give equity away. The trick is not to be greedy at the start.
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