Early Stage Startups Don't Need Money, They Need Customers

http://startupnorth.ca/2012/03/27/early-stage-companies-dont-need-money-they-need-customers/?__lsa=32115409

by woohoo • 14 years ago

99 30 14 years ago

dmix2• 14 years ago

The chart still shows that startups raised $227k on average in the discovery phase.

The problem is in Canada there's noone willing to invest at this stage, at all. The angels here are known to only invest in later stage startups.

Although I agree the focus early on be on customers... its still hard to be 100% focused on customers if you're also constantly concerned with how you'll pay rent.

enjo• 14 years ago

Attracting customers is rarely free as well.

swalkergibson• 14 years ago

It seems to me that the discovery phase is something that you can do as a side project while retaining a part-time job or contracting/freelancing gig. While it is often difficult to keep several balls in the air like that, it is a pretty good test of your own character/ability to be involved in a start-up anyway. The goal in the discovery phase should be "I'm too small to fail."

davidcrow• 14 years ago

Traditionally this is from savings, family and friends, borrowing against your home, etc. And it feels like there is more opportunity to this capital in other places, i.e., anecdotal evidence that lots of folks in other places will put up $5-20k to invest in a friends startup. This doesn't happen as much in Canada (tight accredited investor definitions, higher taxes, higher real estate prices and home borrowing).

dmix2• 14 years ago

Indeed, the valley has the benefit of having lots of successful tech entrepreneurs reinvesting back into the community whereas most other cities depend on more old school angels or gov financing who only focus on safer bets.

This is not to knock on angels in canada, but an important to note when comparing SV with anywhere else... its not just about having VCs with big funds.

untog2• 14 years ago

It baffles me to no end that the Canadian government is not leaping on the startup trend. It's an observable fact that a lot of Canadian talent heads south for more money and opportunities, but no-one seems to care enough to do anything about it. Meanwhile, the US passes the JOBS act to allow even more early-stage startup funding.

I lived in and around Vancouver for two years and absolutely loved it, but my visa expired and I had to leave. These days I live in NYC and, well, I love it here too, but my visa in the US is very restrictive- I can't start my own company, for example. The US seems to have an endless, protracted debate about immigration that has next to nothing to do with economic or political reality. Canada doesn't, and has a huge opportunity to attract international entrepreneurs that want to do business in North America. But I have absolutely no immigration routes back into the country, and there's no change on the horizon. So I won't be heading over the border any time soon.

swalberg• 14 years ago

Manitoba is trying. http://www.innovatemanitoba.com/ is a government sponsored body trying to increase entrepreneurship in the province.

I was on one of their programs last year where they brought in some prominent angels and VCs, and ran a 3 day course on how to define your business and pitch it. It was an amazing time.

This year they're increasing the number of programs and trying to get banks, universities/colleges, and some industry to come on board to provide mentorship and advice to would be entrepreneurs.

ahelwer• 14 years ago

Interesting, I had not heard about this program, thanks. I grew up in Brandon, where there is not much of a tech culture to be found (moved to and currently work in Calgary). Is there a tech community in Winnipeg?

lux• 14 years ago

Hadn't heard about this yet, thanks! Also good to see fellow 'peggers on here :)

zmitri• 14 years ago

Canadian in NYC on restrictive visa here. You can actually sponsor your own H1B now, but you need at least seed funding to be able to sponsor your own visa. It doesn't matter if you have users or paying customers -- you need to be able to show that you have the money to be able to pay yourself at least 50K-60K (for a developer) for 3 years.

untog2• 14 years ago

Yeah, it's a start. But there's definitely a Catch 22 situation whereby you have to convince an investor that you're worth the extra time and uncertainty involved.

wavephorm2• 14 years ago

Well the Canadian federal and provincial governments are basically just a collective cartel in control of every regulated industry in the country. They really only exist to protect the existing monopolies and oligopolies around banks, oil, electricity, telecom, tobacco, agriculture, alcohol etc. This leaves no money or interest in sponsoring new industries, and helps encourage anti-competitive behavior to crush small companies before they can grow.

Nearly every technology company leaves Canada as soon as they can because they know the Canadian business environment is hostile to startups and small businesses. Canada wants innovators to leave their monopolies alone.

samstave• 14 years ago

>...a collective cartel in control of every regulated industry in the country. They really only exist to protect the existing monopolies and oligopolies around banks, oil, electricity, telecom, tobacco, agriculture.

You just described almost every government in the world except in the US, you'll need to add Defense Contractors :)

tensor3• 14 years ago

This sounds an awful lot like political talking points without any substantiating evidence. Most tech startups on this site don't overlap with any of the big regulated areas you've listed. It's also the case that you do not see new startups in most of those areas in the US either.

jdc• 14 years ago

I won't deny that there's more opportunity in the US, but I'm not sure we can fault the government for that. The British Columbia Innovation Council (a Crown agency) seems to care enough to do something[1]. What would you suggest they do differently?

1. http://www.bcic.ca/programs

woohoo2• 14 years ago

I think there aren't enough resources for Canadian startups but at the same time, I agree with this post that once you can show some traction, then funding is not as hard to come by. The trick is figuring out how to get to that point and pay the rent.

asanwal2• 14 years ago

While it is not as sexy, it's worth noting that "funding" from customers is generally cheaper than funding from investors. Plus, once you have revenue, you generally become more interesting to investors and have more leverage in those conversations because you may not need the money to survive the way you do early in your company's life.

We're a "revenue-backed" startup so I'd say that if you can do it, it is a great way to control your destiny. The challenge with this method is that growth comes after revenue, i.e. you spend generally after you have sold the product which means growth is slower while fundraising allows you to spend ahead of revenue.

Nevertheless, good to see this advice on HN.

onemoreact2• 14 years ago

Revenue also opens the door for loans which can be a great if dangerous source of funding as you don't give up equity and can still scale slightly ahead of your growth curve.

asanwal2• 14 years ago

Great point albeit unexplored by us. Are you talking about loans from traditional banks?

I've perhaps unfairly assumed traditional banks won't fund SaaS companies because of unfamiliarity with non-asset intensive businesses. Or that they'd require me to put up my house, wife and child as a personal guarantee?

seanp2k2• 14 years ago

Agreed. That's the type of startup I'd want to work for. While it's fun to watch the Groupons and Pets.coms of the Valley come and go, profitable /experiments/ are, IMO, much more interesting.

Maro• 14 years ago

Depends on what early-stage means. If that means no funding money, then this statement is simply not true in many cases. Suppose you're tring to sell software and support. How are you going to sell a 1-year support contract if the customer can tell there's no guarantee you'll be around in 3 months? I'm speaking from personal experience. OTOH I'm sure the situation is better for web startups that are selling a service on a monthly basis.

joshklein2• 14 years ago

In reality, the problem ("what founders fail to do") is far more pernicious because it always seems like you already know the problem you're solving and what your target customers want. But then you go out and talk to people who are deeply interested, but who don't buy for some reason. And you wave your hands and explain why they aren't an exact fit, assuring yourself that the faceless others you know to exist are your real targets. But there are no faceless others, just more people who all have their own bizarre edge cases that don't quite fit how you genericized your vision before you had any customers.

tensor3• 14 years ago

It seems like you are trying to say something, but it's not clear exactly what it is. Are you speaking from personal experience? Or guessing at the mindset of others?

It seems pretty obvious that if people are not willing to pay, then there is some sort of problem. Either your business plan isn't quite right, or perhaps the market you thought exists doesn't, or maybe your salesmanship is just very poor.

Part of doing a startup is figuring out which of these is the case. Try asking people for that "some reason". Try changing the price. Try changing your sales pitch. Get feedback and advice from others. Focus on getting answers.

joshklein2• 14 years ago

To understand my comment you must refer to the section of the article I have cited.

jrodgers• 14 years ago

Woohoo gets the karma on my post! Unfair ;)

woohoo2• 14 years ago

Ah the world isn't fair is it? Oh yeah and you're welcome ;-)

Early Stage Startups Don't Need Money, They Need Customers

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