Startup Diary: Why it's crucial that market demand exists for your startup
This week I'm going to write about the most difficult slide in your entire pitch deck. This particular slide outlines the evidence that you have a real business, by showing that a market demand exists.
Even if you have a real business, with real customers, and real traction, it may not be enough, especially for later rounds of funding.
At the seed stage, which is where we are now, unless you've stumbled upon something wonderful, you won't even have the luxury of real, statistically significant, numbers.
I should emphasise that you need to be very careful here.
I consider seed funding to occur mostly at the pre-revenue stage. You might have some custom consulting engagements, but that's not really revenue that proves the model.
All you've done is prove the need in a particular case. Some investors might want you to have shown some traction on your core business model before raising a seed round.
This is possible if you decide to monetise your Minimum Viable Product (MVP).
Thus, you'll need to make a strategy decision long before you start putting together a pitch deck.
Either you're going to use focused pilot projects as trials to understand your customers and generate some market validation, or you'll open the shop doors as soon as you have anything on the shelf, and try to sell as soon as possible.
Which strategy you choose is determined by who pays for your product.
We are talking about Business-to-Business Software-as-a-Service in this diary, as that's what Voxgig is. I don't pretend to know much about building consumer businesses.
If you are targeting small businesses, or freelance professionals, or narrow functions within a business (say, social media automation), then I think it makes more sense to monetise your MVP from the start.
If, like Voxgig, you're trying to build a cross-functional solution, and a solution that will cross organisation boundaries, then I think it's better to focus on pilot trials - you really need the deep understanding of the customer pain points that comes with high-touch engagements.
The evidence that you present on your pitch deck to show that there is a growth business is going to be based partly on the results of these different strategies. In the 'monetise-early' case, you're really going to need to have good growth in user registrations and conversions.
You're going to want to show how your meagre advertising budget, guerrilla marketing, and energetic hustling has delivered good growth with obvious potential for more. You may not be at product-market fit, but you should be providing some utility to your customers, and be able to show it. Think of the early days of companies like Evernote, Github, and Mailchimp.
We've chosen the other approach: private trials. That means we don't have much in the way of actual user numbers. You won't even be able to register on voxgig.com until January next year.
What you can use are the pilot trials themselves - if you can't get people to use your stuff for free, there's no hope.
You should also be in the process, or at least preparing, to turn those pilots into paying customers - they did find your product useful, right?
You must however remain painfully aware that pilots (which you probably found via your network) do not prove your business model at all.
That only comes later when people who've never met you visit your website and buy from you (which is just a wonderful rush, by the way). You mention the pilots, they do provide some evidence, but you'll need more.
The way we've addressed this problem is to start our marketing activities long before releasing the product. That's why we have the newsletter for public speakers and that's why it was our first 'product'.
The growth in subscriber numbers is proxy for demand from conference speakers for better ways to collaborate. Our success here has led us to double down on this activity and we'll be launching a second newsletter for event organisers and a podcast, in a few weeks from now.
This early marketing activity does give us some real evidence that need exists in the market. If you are building a more enterprise-level system, necessarily you'll be taking longer to get to the point where it can be used at all (all those base-level enterprise features, like groups and permissions, need to be built).
Early marketing activity, and I would count our little search engine MVP as part of this, can both help you understand the market, and show that it exists.
Perhaps now you see why this slide is the most difficult - if you haven't got the evidence, then you're reduced to putting 'lipstick on a pig'. There's only so much you can do with market research reports.
Unfortunately many technical founders end up in this position, where the system is relatively complete, but there's still huge market risk - it may not exist at all.
There is nuance here that you should observe: market risk (will anyone buy?) is not the same as product risk (does the product meet the market need?).
Voxgig has higher product risk than market risk at this point in time - have we built the right product for a market that we have strong evidence for?
Our goal in 2019 is to remove this risk by reaching product-market fit.
The strategies that we have chosen in Voxgig are not the only ones you can use to build evidence.
I've been very lucky to provide advice to some great startups over the last year, and those founders have used some great approaches.
In one, case, the founder put in many hours participating in the target online communities where they would find their customers, becoming a trusted community leader.
In another case, the founder found a way to service a small focused market using people rather than software, validating the larger market.
In both cases, they were following the maxim of Paul Graham (the founder of the ycombinator startup accelerator): do things that don't scale.
At first you shouldn't worry about the technology at all.
First, you should build evidence that a market exists.
And you shouldn't just do this for investors.
Do it for yourself. You're investing so much of your own time, and money (in saving and lost wages), that you also, as founder, need good evidence that you have a business.
(Newsletter update: 3,939 subscribers, and an open rate of 13pc. We are back on track with improved processes and measurement. Good incident reports lead to great outcomes.)
Richard Rodger is the founder of Voxgig. He is a former co-founder of Nearform, a technology consultancy firm based in Waterford