Could not agree more! Thanks for sharing this.

Good stuff Dan!

Really great write up Dan. The thing that a lot of people don’t understand is that you have to put in your own money to get started as well. Initiating a round of raising isn’t everyone’s cup of tea either. There is a lot of different things that go into closing a successful round of funding.

You made some great points in the post and it’s definitely a worthy read for anyone from a beginner to a full time Angel.

Cheers

Thx Jeff – I had to get it out .. now I can just link to it when people email for advice

Arjun, you’re a great example of this … it’s awesome to see what you’ve created with http://www.retargeter.com !!!

Glad you enjoyed Jacques .. thx for the comment.

but how will I get on techcrunch if I don’t raise any money? JK, I love this article!

Exactly the type of advice entrepreneurs need. Very well done. Reminds me of the book Rich Christiansen is putting out on zigzagprinciple.com.

My question is: are there times when you’ve had a product you couldn’t make money with until you had significant funding? What did you do then and what kind of projects were they?

Exactly the type of advice entrepreneurs need. Very well done. Reminds me of the book Rich Christiansen is putting out on zigzagprinciple.com.

My question is: are there times when you’ve had a product you couldn’t make money with until you had significant funding? What did you do then and what kind of projects were they?

Great rant, Dan! 

I had a great conversation with someone interested in our product the other day, who was concerned about how many people might throw up a landing page, and consider themselves a startup. He had a great phrase from earlier in his marketing career when helped market a product to make it easier for musicians to create and record their music: ‘The Chops Aren’t In The Box’.I am excited about how well our landing page product works for our customers, but I am even more excited about the tools we’re building on the backend to–at the very least–help our customers build better communication and relationships with the people who are checking them out. Talking to your customers is still a long way from launching a product anyone want’s to use, but I hope (and believe) it is a step in the right direction.Thank you, again, for sharing your experience!

Great rant, Dan! 

I had a great conversation with someone interested in our product the other day, who was concerned about how many people might throw up a landing page, and consider themselves a startup. He had a great phrase from earlier in his marketing career when helped market a product to make it easier for musicians to create and record their music: ‘The Chops Aren’t In The Box’.I am excited about how well our landing page product works for our customers, but I am even more excited about the tools we’re building on the backend to–at the very least–help our customers build better communication and relationships with the people who are checking them out. Talking to your customers is still a long way from launching a product anyone want’s to use, but I hope (and believe) it is a step in the right direction.Thank you, again, for sharing your experience!

Great post!

Fantastic! I’ve been spending too much time struggling to find out how to raise money to sustain the individual markets we beta in and not enough time going out there and throwing the product at it and getting paying clients. This is the eye-opener I needed to help my team and I get Bidzuku to the next level. Thanks Dan!

Great article

Unless you’re doing biotech or similar – for most web startups .. the infrastructure cost is negligible.

Patients and passion is all that’s needed.

I like that ‘The Chops Aren’t In The Box’.  Thx for the comment.

Sell, sell, sell and make money $$$.

Thanks Ryan, looking forward to catching up in Oct @ FOWA

Completely agree with you Dan. But one thing I’d like to see more of in the startup world is some “wisdom investment” in those startups that want to do it this way. I’m happy to pass on seeking investment money and focus on those first 1000 paying customers, but could really use some wisdom from experienced founders who have already done it, instead of from those founders who skipped the first 1000 and went right to the VC stages.

Brian, there’s a bunch of them out there.  Mike at Freshbooks, Chris at Wistia and many many others .. and remember, it was less about 1000 paying customer – you could have 2 paying $10K/month each and be good if your team is 2 people.  It’s more about making $$$ first then raising.

Making money in itself is a skill.

If you want to learn how to do this .. read Neil Patel’s blog – he’s a straight up hustler (in a good way)
http://maplebutter.com/what-does-being-a-hustler-really-mean/

Brian, there’s a bunch of them out there.  Mike at Freshbooks, Chris at Wistia and many many others .. and remember, it was less about 1000 paying customer – you could have 2 paying $10K/month each and be good if your team is 2 people.  It’s more about making $$$ first then raising.

Making money in itself is a skill.

If you want to learn how to do this .. read Neil Patel’s blog – he’s a straight up hustler (in a good way)
http://maplebutter.com/what-does-being-a-hustler-really-mean/

Dan, love this. As a seed VC obviously I want Startups to raise $ but VC at any stage should be about acceleration and market leadership and the later you make that decision the better for you and your investors.

Shopify for example was profitable when it decided to raise VC. It had clear pe user economics and raised in order to own the market. It could have raised $ from any VC.

Nothing gets investors’ attention more than real customer traction

Mark, you said it best .. “clear per user economics”.  If more startups focused on making money – more would get funded, especially in Canada.

Dan this is inspiring! Thanks

Thanks, Dan.  For this post and for your support and similar advice over the past few years. 

Interestingly, it’s much harder to raise money than it is to make money.

Convincing a customer to do something clearly in their best interest is much easier than convincing a nervous VC to spend someone else’s money on a technology or product they don’t really understand.  Especially if you’re just asking for $50 a month versus 500K+.

And it’s even easier than convincing an angel investor that yours will be in the 10% of startups that don’t outright fail, and possibly even in the 1% that make them back more than their initial investment.(Informed) investment is really about accelerating proven business models, not for experimenting with unknown ones.

while i would have loved to agree with this post, i can’t.  the problem with most investors is that companies that make money, have figured out their unit economics, and achieved traction run the risk of appearing as pure play arbitrage businesses.  for the most part, what investors don’t want to admit is that they are slightly uncomfortable with companies that make money because it actually distances the chances of an exit (company is profitable, why sell?)

while i would have loved to agree with this post, i can’t.  the problem with most investors is that companies that make money, have figured out their unit economics, and achieved traction run the risk of appearing as pure play arbitrage businesses.  for the most part, what investors don’t want to admit is that they are slightly uncomfortable with companies that make money because it actually distances the chances of an exit (company is profitable, why sell?)

while i would have loved to agree with this post, i can’t.  the problem with most investors is that companies that make money, have figured out their unit economics, and achieved traction run the risk of appearing as pure play arbitrage businesses.  for the most part, what investors don’t want to admit is that they are slightly uncomfortable with companies that make money because it actually distances the chances of an exit (company is profitable, why sell?)

Can’t agree more with you, Dan!
Fund raising can be very distracting.
Given that the resource of a startup is very limited, it should be utilized in a way to maximize the benefit for the company, for example, get the product polished based on customer feedbacks.
Only a good product can sell. And only with a good product we see the scalability of business.

Awesome post. I wrote a similar thing, except mine has Shakespeare and hookers!
http://www.sco.tt/scott_yates/2011/08/now-is-the-august-of-our-discontent.html

Great article and I agree with everything except for the 2nd last paragraph.  The 1,000 number is completely made up and has no relation to anything about the company.  I’m building a successful company that may end up with just 1 paying customer to start – but that customer is going to be paying $20 K / month.  

The overall message of focusing on revenue and profitability is bang on.  In the end, it doesn’t matter how many customers you have, as long as you have enough to make money, and there’s enough others that present a large enough potential to grow.
Mike

Great advice… I’ll go back to focusing on my 1000 customers now! Or trying to get them at least.

“As soon as you raise money, there’s usually only one outcome. Public offering or getting acquired.” I count two, there.

 Great post. In most cases, a startup needs to prove they can generate cash before they become a viable investment. If a company is already making revenue/profits, I am A LOT more confident I will see the returns I expect.

Julia, glad you found it informative … honestly, wasn’t meant to be inspiring per se – just hoping to share some knowledge

Thx for the comment.

100% agree .. the more you de-risk the opportunity – the higher your chance of raising money.

Exactly… for 85% of the startups – this is the right way.  Either get revenue, or commitments from customers with signed letters of intent (+ deposits! .

Mike, my bad – should have made it clear … the 1000 customers was in reference to a subscription business charging $10+ dollars per month.  You’re right .. if you can get any variation of 4+ customer paying you $X to make up the same number, then cool.

The big idea is that it might actually be easier to do that then raise money – and the upside to getting to break even is you own your destiny and learn important skills along the way – like making money $$$$ .

Thx for your comment.

Love it Gene … but no “trying” – time to close some deals!

My bad .. updating now

Most things can be argued to extremes with the truth lying somewhere’s in the middle.  Again, for most first time entrepreneurs – I still believe they’re better focused on making $$$ in some capacity before raising capital.

Great post Dan. As a serial startup entrepreneur, I am seeing both sides of the fence. 
In my first startup we took money. It was a very long drawn out process, that consumed massive amounts of brainpower and time. Also the constant challenges of educating a investor who did not understand the marketplace. (Our mistake…getting the wrong investor)
In my current startup we are bootstrapping and trying to find the customers. This is a much more  enjoyable and creative process. It also provides quantifiable information from our user base. I had the opportunity of seeing Eric Reis and his perspective on this really changed my approach.

Taylor, great insights .. thanks for sharing.  Any interesting in writing a post on that experience for Maple Butter?

Thanks Dan! Really appreciate the shout out. 

Awesome post Dan!.. Really like how you can off on a strong end with making money and getting a business built. Here’s the deal.. either you’re gonna get it done or you’ll look like an average marketer trying to figure out what to sell to make money online

I love it. Preach it brother!

You’re exactly right Dan! 

Nothing wrong with actually charging (gasp!) people to use your service. Just ask my son! http://jeff.io/posts/business-lesson-from-a-6-year-old

You’re
saying don’t try to make money even if you can, because that makes
investors uncomfortable (supposedly).  This would mean:

a) You should start up to chase VC, as opposed to because you actually
have something tangible to sell.  Or you know your startup can never
really make any money.
b) It also suggests that it’s impossible that investors can be impressed
by the best traction sign (sales) and can see potential for your
product to make more money with the right scaling tools (including
capital). 
c) Also ignores the fact that depending on the scale, high profitability
in itself is an exit – whether from profit sharing or from selling
one’s stake (profitability will naturally produce premium pricing). 
Entire company does not have to be sold before returns can be generated.

Roj, you misinterpreted what I said.

My post was also in reply to Roj.

my bad .. threaded discussion fail. sorry

Good stuff!  100% agree.  Every entrepreneur should have this mindset.

I had a doubt this week while talking funding with someone. This doubt is now gone! Thanks!

Good stuff Dan.