Funding or Traction: A Founder’s Dilemma

Nathan Dichter
LeapMotiv

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Imagine you built an MVP and ran basic customer discovery for your new venture. You are ambitious and keen to move forward. Yet, you have no customers, no funding, no team, and no line of sight to profit.

You feel lost in the ambiguity of growing a start-up. So you say to yourself: what next?

At this point, most founders default to raising external capital, typically from venture capital. The common notion, true or not, is that “you need money to grow.”

You decide that you need to raise seed money, somewhere in the ballpark of $3M. You perfect the pitch, schedule hundreds of meetings, and network 24/7. Crickets.

Contrary to discourse on social media, raising money is no easy feat. Unless you have a unique experience or a highly novel idea, a lack of customer traction is probably inhibiting your fundraising efforts. The odds are stacked against you.

Back to the drawing board. Now what?

Photo by Tom Parsons on Unsplash

By this point, you probably know that the bridge to healthy fundraising is through customer traction.

But what does traction even mean? For investors, it means pilots, paying customers, and monthly recurring revenue (MRR).

For founders struggling to raise money or deciding where their focus should lie, here is how you can execute proper customer discovery. This process will unlock external capital and provide you autonomy to take control of your business.

First, let’s acknowledge the importance and challenge of customer discovery. As Rob Fitzpatrick notes in “The Mom Test,” “we know we ought to talk to customers. Many of us even do talk to customers. But we still end up building stuff that nobody buys. Isn’t that exactly what speaking to people is meant to prevent?”

It seems obvious that founders need to do this, but frankly, whether you are a first-time founder or a serial entrepreneur, the process is hard.

Let’s take a look at some easy-to-fall-into traps.

  1. Only speaking to friends & family, or your personal network
  2. Searching for a specific problem, instead of running open discovery
  3. Pitching the solution first
  4. Asking leading questions during customer interviews
  5. Not codifying responses and learnings effectively

As a founder, you are inherently biased toward the problem you want to solve. You might steer the conversation to match this problem or speak to people that re-affirm your hypothesis. With no repeatable structure in place to remove bias, heading down the wrong path without validation seems imminent.

Further, you might struggle to speak to customers because it is not your strong suit — and that is okay. Overall, your startup is your prized possession, and hearing “no” from prospective customers is frightening. All this to say that running customer discovery alone can be eye-opening, but it is rather easy to fall into the above mentioned traps.

So, what exactly does ‘good’ customer discovery look like?

  1. Proper hypothesis writing to clarify learning objectives
  2. Test different channels and messaging
  3. Establish interview guide to remove bias
  4. Letting the customer arrive at a problem, instead of feeding it to them
  5. Spending time to synthesize and reflect on learnings

In this case, you have spoken to a diverse group of prospects and uncovered objective insights. Right away, you learn what messaging resonates and what channels to use — whether it is LinkedIn, Email, or Facebook groups. After speaking with 10+ customers, you begin to see trends: what does their typical day look like? What are they challenged by? How are they solving this? Maybe 50% validate your original hypothesis, so you make iterations, and run the process again. Now 85% validate your idea, but a new issue has arisen. So you test it, speak to customers, and listen attentively to how they articulate the problem you are trying to solve. It can feel a lot like pulling teeth, but this process is key for sustainable growth.

Once you have nailed the problem and segment, you enter solution discovery and start sharing more about your product with customers. You show them a system diagram of what it may look like, and then walk them through a short demo. They already told you their deepest pain points, so your solution better addresses that head-on. You get the point, right? Things change fast, so you ought to adapt in real-time. By now, you’ve secured pilots and paying customers. Boom!

Remember that common misconception that you need money to grow? I think we can throw that out the window. Talk to your customers, find urgent problems to solve, and solve them by building a valuable solution.

You are a founder with a product, a validated problem, and early customer traction. So the question arises once again — what now?

Go for it — exchange equity for capital (at a higher valuation) to bolster growth and step on the gas.

Bootstrap your business with revenue and continue to focus on your customers. Slow and steady.

If you can, do both.

The point is this: customer traction through customer discovery creates more choices on the trajectory of your business and where you want to take it. It frees you up and lets you know, before it is too late, whether you have a good idea or not.

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