Why focus on your first sale first?

July 31, 2009 at 12:59 am Leave a comment

To have a successful business you will certainly need customers. You may need professional investors. If you do need professional investors, they will want to be convinced that you know what you are doing. Of the many questions they will have, some of the most fundamental are:

  • What problem are you solving for whom?
  • How much does the problem cost them and are they motivated to change?
  • Where are your target customers and how will you reach them?
  • Why will they choose your solution?
  • How much are they willing to pay you for the solution?

Obviously, the best way to convince them that you know your market is to have customers. In fact, if you have a single customer you will know far more than someone who has only read analyst reports, perhaps conducted a survey, and pontificates about his “value proposition”. As a quick aside, in the early stages of building a business all we have is a “value hypothesis” not a “value proposition”. Just using this term reminds us that there are many things that we don’t know. The faster we can test our hypothesis and learn what works the more efficiently we can build our business. The key is to do it fast and on the cheap.

Impressing potential investors is not the only reason to focus on your first sale. In developing your business there is no path that is more capital efficient. Choosing the right set of features for the first commercial version of your product or service, determining who to ally with, learning how to position your offering against your competition, and how much to charge are best done in the context of trying to sell to a real customer. The prospective exchange of cash for promised value focuses the communication on what really matters. You learn more in a 20 minute sales call than you can in a *polite* exploratory interview. This translates into a focus on actions that are responsive to customer concerns and objections and on winning the sale. All the other “stuff” that tends to occupy our attention just goes by the wayside – creating a customer focused, capital efficient and entrepreneurial organization.

Third, if you can fund your development by convincing customers to pay you in advance of your delivering the solution, something I call getting customer capital, you will end up with fewer restrictions on the structure and direction of your company.

In addition to the logical reasons for focusing on the first sale first, I know from personal experience that there is nothing like the rush and boost in confidence that comes from receiving that first check. When that happens, you just *know* you’re on the right track.

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Entry filed under: new venture, raising capital, startup.

Where do you start? Should I try to get a customer before an investor?

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