We asked entrepreneurs to tell us their biggest startup challenges and one of the main things we heard was, “Funding and what it takes to prepare to get the funding.”
“Funding and what it takes to prepare to get the funding.”
Here at 10xU we’re entrepreneurs first. We have a ton of experience starting companies, raising money, and figuring out lots of creative ways to pay the bills.
In fact, 10xU is a startup and we have the same challenges as the entrepreneurs we educate.
The best time to go after startup funding is when you’ve already found product / market fit and you can show traction in the form of repeat customers.
But what if you’re just starting out and you don’t have customers yet? What if you don’t even have a product yet?
Here are our best suggestions for early-stage startup funding
- Come up with a no-money plan and start executing it now
- Fund yourself
- Find paying customers before you build the product
- Start with friends and family
It’s important to set realistic expectations. Finding startup funding is an extra full-time job with no guarantee of success, and it’s even harder when all you have is an idea. Expect to spend at least six months (you can be pleasantly surprised if it happens sooner). Remember that you’ll still need to run your business and keep moving the ball down the field the entire time, which is where the “no-money plan” comes in…
One entrepreneur we worked with wanted to raise money right away. After talking to us he decided to hold off and work on growing his customer base. A year later he has enough revenue to support a team of five people.
Come up with a no-money plan and start executing it now
Investors want to get to know you, so you’ll usually have several conversations before you invest. Want to stand out from every other entrepreneur they’re talking to?
Show up with big news every time you talk to them.
“I just brought on an awesome technical co-founder!”
“We just launched our MVP!”
“We just signed our first customer!”
“TechCrunch just did an article on us!”
To accomplish this you’ll need to already be in motion. The alternative is showing up to every conversation simply asking for money. Smart investors will tell you “no” unless you’re generating your own momentum.
Bonus: One entrepreneur we worked with wanted to raise money right away. After talking to us he decided to hold off and work on growing his customer base. A year later he has enough revenue to support a team of five people.
Now he’s earned the right to decide when, if, and from whom he wants to raise money.
You’re your own best source of startup funding. Maybe you have some money saved up, or maybe you need to save some money before you get started.
You can also leverage your skills to do some part-time teaching, consulting, or contract work in order to pay the bills while you spend the rest of your time on your startup.
This has the added benefit of building your skills and network if you focus on the same industry as your startup. We work with entrepreneurs to pay the bills, and the experience we gain helps us do better work with entrepreneurs. It’s a virtuous circle that feeds on itself.
Remember that there’s always something great you can do with the limited resources you have right now.
Your time is your biggest contribution to your company right now. Look for other people who will contribute their time too.
If you need to build technology but you’re not a developer — find yourself a technical co-founder who will work part-time for equity. Lots of successful businesses were started by two people working nights and weekends for free, as long as they knew they would have an ownership stake when success finally came.
Find paying customers before you build the product
We met with a startup last week that will eventually be a technology platform for product placement via social media influencers. To get started they built a list of influencers by hand. They also do all of the outreach by hand. They’ve built only a small amount of tech, but they’re able to deliver results.
They’ve signed up a small group of paying customers who double their spend every month — and they’re still doing 95% of the work by hand.
They can pay their own bills plus they have a great story to tell potential investors! It makes sense that they need to raise the money to build the technology platform to support their paying customers who love the product and pay them more every month.
Start with friends and family
If you’re early in the game then you’ll probably have an easier time convincing people to invest in you, rather than in a company that doesn’t exist yet.
Who’s most likely to invest in you?
People you already know who believe in you.
They’ll probably give you a smaller amount of money, but that’s okay. Constraints actually encourage success, even if it doesn’t always feel that way. Now you have to convince that software developer to work for free rather than offering her a six-figure salary — but that’s more likely to lead to success anyway.
If you’re making money you may also be able to get a loan from friends and family. One of our team here at 10xU borrowed $20k from his dad to get set up with an office, computers, etc. — and then paid it all back within a year out of revenue he was already generating.
Next Steps for Startup Funding
Remember that there’s always something great you can do with the limited resources you have right now. Entrepreneurs have launched successful companies with less!
The trick is to always be moving forward no matter what. Use your constraints to spur your creativity. Find people to help you for equity ownership instead of cash. Lean on friends and family — as long as you know you can eventually pay them back.
We help entrepreneurs scale their startups. Learn more at 10xU.com.