How to Spend Your First $50k as a Startup
At the beginning that looks like a big chunk of money depending on where you are located and what do you plan to do especially if your previous balance was zero. The reality of the situation, however, is that its very little and you have just started the overall journey of startup life. Having raised similar and more amounts with a few of my ventures I will share with you today a framework of thinking forged by many failures and successes on how to best move forward with your startup on your early stages and get maximum results while spending the least money as possible. These are no actual examples for your case, treat it more like a framework you can apply to any startup spending before Product-Market Fit.
As Elon Musk famously said building a startup is like chewing glass and staring into the abyss, nothing could be truer especially before you have achieved product-market fit. Before you go out there with your product and ask people to pay for it you are basically in the dark with only two groups of opinions:
- skeptics — who will try to shut your venture down and
- supporters — usually friends and acquaintances who will elevate the idea and support you
However, in your quest of finding a real product-market fit, they are both equally unusable except for the much needed emotional support.
The question remains: How do we make the big leap into a validated product?
Start With Your Goals
It’s important to have a few goals when you start a venture, you can get them by answering questions such as:
- Why am I doing this?
- If everything goes exactly how I want it to go, what would it all look like in the end?
- If I could have it all, what would it look like?
These questions can lead you to answer different questions, the answers to these questions you should hold on to for a while. When I founded Decissio the goal was to help investors make better investment decisions, now with all customers and additional raises, the goal still remains the same. Similarly, at Blocknify we aim to help people authorize and approve documents without sacrificing their privacy. These answers will be your background drum-marching music for quite some years so choose them wisely and let them guide you through your journey. My reasons for starting each of the companies is that I believe that venture funding should have higher rates of success and that I am frustrated when I have to print documents, sign them and mail them using physical mail to my bank every time I make an accounting change. Both of these are answers to my why’s. If “I could have it all” I would have it that every single investment decision is run against Decissio and every document is signed and approved using Blocknify. Fall in love with “If I could have it my way” exercises as a founder, really. They can help you solidify your vision outside of the daily grind.
As I am sharing my answers to these questions use them to find your own venture goals, or your northern star so to speak. Think of your whys and which ones resonate true to your core as an entrepreneur.
Cool, you got your goals narrowed down now what’s next?
During our entrepreneurial journey, we talk with customers, investors, co-founders, mentors, and acquaintances. We write blogs like this one and we test to see which of our messages stick in the world. The process of getting it out there gives us some feedback on what’s working and what is not, and through these iterative process, some founder doubts are born.
If you are a founder and you have a doubt about your business, give this article a clap! All founders I’ve met have had their doubts about their company, product, and their process. Some of these are human mind-rumination that are not that important, the rest is pretty important.
As we are deploying our new application I sat down with my co-founder and we discussed what are some of the doubts that we have in relation to our private signature product and business. Before getting into it make sure that these are legitimate doubts that to some extent are confirmed from your investors, customers, and business partners too. As we are post-MVP now, we laid down that we needed to know if:
- Our B2C product is usable (do customers love it, or feel like ‘meh)?
- How to measure the success of public beta (what are the actual numbers)?
- Are we an attractive investment to crypto funds (all your ethers belong to us)?
- What about angel investors (Can we convince 10 people to give us 10k each)?
- What about our CEE region (Low startup funding, can we make it)?
These are some of the known unknowns that we had and now this is where the money comes in. In order to run a startup, you need to burn cash, every single month. Usually, as an entrepreneur, you have very limited resources and especially cash, so the main job of an entrepreneur is to make the maximum use of every unit your bank account shows. Large companies such as Microsoft and Apple can make a few mistakes, waste some money and still survive it all. In early stage startups, you are constantly 2 to 3 bad decisions away from a complete, devastating death of all your dreams and aspirations. That’s why the question of how should you spend your money is very important.
Whereas there are loads of unknown — unknowns that await you on your discovery journey, my point is that you should focus your time, money and energy on cracking down on your doubts and picking up the activities that will provide the most value to the company on answering these questions. After all, every early-stage startup is to an extent a product-market-fit experiment and if you are the founder, you are the scientist in charge of the lab. The cure you are looking to find with your experiment is a $1B+ evaluation. Anything below that, to place it in spiritual terms, means you are a seeker and not yet a finder.
After you have identified your legitimate doubts, its a good idea to brainstorm activities and tie resource values to them.
For example, if you do not know if your product is fully useable you can pick and choose from the following activities:
- Perform user tests (paid and free, record the user interaction with your app)
- Implement application user-behavior analytics (let the data do the talking)
- Perform A/B testing
- Find a company to do a pilot with
These sub-experiments should be done in such a way that in the end it provides a boolean answer to your doubt, answer in this case is: Yes our app is usable or not really.
Now, these are good ideas but a resource allocation should be placed next to it. Meaning — how expensive is each one of them to get an answer from?
If I get 5 friends to test my app and record it while they do it, I might have to buy them each a coffee or lunch, including my own time that might take me 3 hours to coordinate them, 5–7 hours to run the tests and a total of $100 in lunches. We have a number of hours and money involved to do that. If we do these tests we will get a clearer view of how people use our application.
The second one requires us to implement backend and front-end functionality, therefore, costing us a potential 80% of a sprint or a whole sprint — which is much more expensive.
Continue until you get all the options and all price tags next to them. Then run it down against the main goal and decide which one of them will bring the most of the results with the least of resources spent.
If you manage to run each decision through this lens, have reliable low burn rate $50k can take you a long way on your product-market fit search.
I have grown to look at product cycles as a Super Mario game, you need enough lives to move to the next level, and then you get a boost. The same goes for startups, you start with a little and if you can manage to validate and get traction well you get the “magic mushroom (read: funding)” to boost you to the next level. There are times though when you can get stuck on a particularly hard level for a long time, in this case, see and reevaluate what is working and what not.
On this challenging journey, I wish you the best! If any of the above points resonated with you, give it a clap and follow me for more maker stories!
Source: Dite Gashi: https://goo.gl/W3NAdM