What’s wrong with pitching “we got some customers without spending a cent on marketing”?
It’s a big red flag for most investors and a small orange flag for me. You can keep thinking it but you should stop saying it – at least, to investors.
It’s adorable, and as an ex-product manager myself, I understand how good it feels but now I wear an investor’s puffer, when I hear that’s the plan, it doesn’t sound like you’re a team hungry to build a billion dollar business.
And while I may be one of the few early-stage investors in AU/NZ who wants to back founders building world-class technology products, I still owe the investors who back me a venture-scale return on their investment, and that’s why it’s still a small orange flag for me when I hear you say it.
What an investor hears when you say this
“We’d like you to give us money to pay product and engineering team salaries so we can focus on making this the tech product of our wet dreams.”
Investment is an exchange of value between the investor and the startup. You are saying, “you give us some money and we hire a guy and go add new features to our product” and that would be a great deal for you, but it is something that very few investors are interested in.
What investors are hoping to hear is that you’re going to build a more valuable company, not a better product, even if those two goals are related.
As soon as your kludgy product is good enough for some ‘organic growth’ (some customers will try it even though you’re not spending a cent on marketing and sales) you have to start figuring out how you’re going to market and sell this faster than the rate of organic growth, so it continues to grow at venture scale.
You need to use some of the capital you raise in this round to begin doing growth marketing and sales experiments in such a way that you start reporting on your CAC per channel so that you can set and chase some customer and revenue growth goals.
You don’t have to stop product development, but you do need to start learning sales and marketing experimentation.
You’ll stand out in a sea of other software startups if you’re able to say to an investor “if we spend $X in marketing in this channel, and $Y in sales, we get Z customers at a CAC of $A at an average MRR of $N and a forecast LTV of $P”.
We all start out thinking this is all about building a world-class product, and I wish it was only that too, forever (even at Google, it’s mostly about internal-politics-and-building-a-product).
At some point, if we’re going to use someone else’s money to fund your progress, you have to accept this is mostly about building a world-class marketing and sales machine. All that machine will need from us is a product good enough to be marketed and sold.
Do that well, and your reward can be getting to spend some of your time making the product even better.
Yes, you can get this on a t-shirt and support a charity.
