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Startup Thinking

Being customer funded first. 

 

Ian H Smith

The current economic climate reinforces a number of key things facing tech startups. Investor confidence moves from one extreme to another. Today, investors have become cautious again and raising money is challenging for early-stage startups. I work with tech startups who find venture capital a non-starter and where the best funding is customer funding.

As I found with Tangle.io, positioned as an Integration Platform for Salesforce, allowed me to monetise the UK National Health Service (NHS) as an early adopter customer. This is an example of a very small tech startup with a handful of employees beating established software publishers in a large, inherently conservative organisation. See Success Story.

So how?

The Tangle.io win at the NHS was really based on presenting a clearly differentiated, yet low-cost quick-win outcome, and then growing from within, as confidence was built across a broad range of stakeholders. We solved a big problem that could have been solved by many other, larger software publishers. The differentiators were: 1. cost advantage - 10x+ v. competition; and, 2. tech advantage - ability to run an existing app workflow directly inside a new app (here it was Salesforce).

Is there a method here?

Our success with Tangle.io at the NHS was based on applying our sales method to this real world environment: Design Thinking In Sales. As this blog post on our sales method describes:

"With the Value Proposition created through applying the three Design Principles, the buyer can now safely and clearly engage with the seller through the five steps of Design Thinking in Sales, starting with step one: Empathize."

Empathy is key to engaging with prospective early adopter customers. Specifically, this means engaging with early adopter customers through Mutual Value Discovery, where receptivity, rapport and trust is generated between buyer and seller. With trust established, the truth may be revealed in the Mutual Value Discovery process - quantifying and qualifying win-win value outcomes.

 

Mutual Value Discovery allows a tech startup to determine the right Pricing Model for its new product or service, applying Value Engineering as a structured approach to determining an Economic Basis of Decision and Emotional Basis of Decision. This allows for a Future State to be compared to the Current State, with/without the investment in the new Value Proposition. To counter deal slippage, this also enables the buyer to validate the Cost of Delay or Cost of Doing Nothing.

Although I always argue for customer funding first, I can see that venture capital and industrial investors are important. The key, of course, is timing: when do you go for venture capital? In turn, this forces out another hard question: are you building an investment vehicle or a lifestyle company? The former says you should work towards timely venture capital and an exit. The latter suggests organic growth and probably no need for venture capital. Either way, customer funding first is what I help tech startups accomplish.

Here is my Startup Checklist. These are questions I have gathered from the many venture capital leaders I have worked with over the past forty years.

Startup Checklist

Investor Perspective

Are you building an investment vehicle or lifestyle company?

What is your exit strategy?

Problem Being Solved

What problem are you solving?

Why are you best placed to solve this problem?

Ability to Execute

Is your ability to execute feasible for an unknown small start-up?

Tangible or Intangible Assets

What are your tangible or intangible assets and how do they offset risk for investors?

Sustainable Competitive Advantage

How are you going to effectively compete with established orgnisations and other challengers?

Return on Investment

What is the clear path, timeline and the return for the investors?

Do you have any early adopters, and if so, who are they?

Can you survive on monetising early adopter customers?

When does the company become profitable?

What size will the cash burnrate be until profitability?

What are the quantifiable grants available and when?

Culture and Values

Who are the co-founders of the business and why?

How many hours per week will the co-founders put in to the business?

How will the company conserve cash and get all of its associates to think like owners?

What compensation packages does the company intend to offer co-founders?

Are the incentives of key executives, co-founders and investors aligned?

What essential elements define the company’s culture?

Risk Mitigation

What can go wrong and how will you survive it?

What alternatives are available to the company if a major risk materialises?

Which of these risks could be fatal to the business?

What alliances could help the company mitigate risks?

Sales and Marketing

Do you have an experienced sales and marketing player in your leadership team?

Are you investing in sales coaching?

 

 

 

 

 

 

 

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