We can debate all day if the chicken came before the egg. We can also debate whether it is smarter or not to have the carriage in front of the horse. But what is not debatable is the need for you to have sales, any sales, in order to get investors excited.
I know firsthand the challenges of building a business and needing money to do more things. But if you are going to look for that money from investors, it will be better positioning if your company is in a revenue stage in today's challenging and uncertain environments. There are pros and cons to being in a revenue stage so be careful in how you package your opportunity.
Let's step backwards and start with your business model being in a pre-revenue stage. The good news is that there are investors who are willing to gamble on a new idea. It takes a tremendous visionary to be able to promote the market opportunity, future business development, and customer sales in order to get an investor to part with his money. Also, the entrepreneur has to realize that he will give up more equity due to the fact that there are so many unknowns that the investor needs to consider. An entrepreneur has to be strategic with projecting the timeframe to get the company ready for sales, the true measuring device for customers seeing value in your product or service.
Do not fool yourself—you have nothing more than a vision if you do not have paying customers, so be receptive to investors when they come to you. And for god's sake, do not tell them that your idea is the next Google or Facebook. Because even if your idea is that big, how does the investor know that you are the one who can make it happen?
The revenue stage is an exciting time, for both the entrepreneur and the investor. From an entrepreneur's perspective, it is a great time since revenues can be applied toward operating costs. It is even a greater time for the investor since he now does not have to second guess if there are customers who are willing to fork over their money to buy your company's offering. The customer value proposition is proven with sales. This is a major Early Stage Milestone toward passing the Proof of Concept stage.
But be careful since entering the revenue stage will require a new level of planning when it comes to talking with investors. The most obvious will be how much and how fast you can increase your sales. Sure you will have operational concerns such as hiring new people, making product changes, etc., but the bottom line will be that you now have a company that sells something. Keep in mind investors are not looking to support a lifestyle business where you slowly increase sales in order to get a slightly larger salary and bonus. They want you to be able to figure out how you can quickly gain exponential traction in order to make a quicker exit strategy.
Everything in pre-revenue stage leads up to your first sale(s). Entering the revenue stage leads up to your ability to scale the revenue stream. At the end of the day, a paying customer is a paying customer and I will take the growth challenges any day over the pre-revenue stage challenges.
I am learning these concepts firsthand and the encouraging news is that I was able to find numerous pre-revenue stage investors to help us develop our product, get thousands of Free Users, and then enhance the model in order to generate our first sales. We have also been able to implement a recurring revenue model. It was no easy task.
Do not get caught up on how small your sales are when talking to investors. Be upfront that you have just entered the revenue stage, your sales are $X and you are now focused on scaling. Investors want to hear more about marketing and sales goals. Now you are in that mode and it will be more reasonable to actually listen to your plans.
Certain investors are bound to question how fast we can go, with and without their investment money. And I am sure there are other forms of investor questions that I am not prepared to answer. My suggestion is do not spend all your time trying to make investors happy on how you are going to scale the company sales. Instead, just start moving forward to devising your plans, trying new things, documenting what is working and what is not working, and keep scaling the sales as best as you can with the money and resources at your fingertips. Yes, the potential investor may not be happy with how you are scaling, but he will be happy knowing that you are selling and are moving forward, and that is a great start.
Brian Javeline is the President and CEO of MyOnlineToolbox.com. Brian has 20 years software-related experience with a focus on management, business development, sales, and marketing. He recently was a cofounder of InvestmentCafe, a collaborative solution for the Private Equity industry. Previously, he was an original employee and partner at Accelerated Computer Technologies, Inc. targeting small businesses in apparel manufacturing. Brian is also a founding member of the MIT Enterprise Forum of South Florida. He holds a BS in Computer Science from the University of New York, SUNY, Stonybrook, NY.
[Image: Flickr user Emma Brabrook]