Brock Blake, Contributor, Forbes
On the way to work this morning, I had a call with a fellow entrepreneur (we’ll call John for the purposes of this post) that is getting his tech startup off the ground. I’ve been very impressed with the vision of his company and his approach to validating the idea in the market. During a lunch meeting he had yesterday, a wealthy friend of his liked his company so much that he offered to invest $100k to help him finish product development and get the idea into market. While John was excited about the offer, he was filled with nervousness because he didn’t know how to respond. He wasn’t sure if his friend was his first choice for a new investment partner, but didn’t want to dismiss the offer either.
Funny enough, as I got to my desk and opened my email, I also found the following email from another friend of mine:
‘I’ve been building _______ for a couple years now, and am ready to raise a seed round. I’m a rookie at fundraising, so if you’re willing, would love the chance to get any advice and guidance you can provide.’
I figured that if 2 of my friends were asking the question, it’s probably relevant to other entrepreneurs out there, so… here we go.…
1. Customer Validation & Traction
Before you ever consider talking to potential investors about seed capital, get out and meet with potential customers. When I say ‘potential customers,’ I don’t mean your friends, family, and neighbors. You can guarantee that they will tell you exactly what you want to hear. ”A restaurant that serves cold cereal?! Sounds like a great idea! In fact, I eat cold cereal every day for breakfast!” That type of ‘validation’ doesn’t do anyone any good.
Customer validation means spending as little resources as possible to be able to show a prototype. Then, I would encourage you take a good month meeting with as many as 20-30 potential customers that are not friendlies. The best validation is to get the potential customer to sign a Letter of Intent. If that’s not possible, try to get some type of commitment from them (e.g. they agree to be an alpha customer, they agree to buy when it’s ready, etc.). During these meetings, take detailed notes on their comments and feedback. Ask them what they like and don’t like, and what you are missing or …