How much money do I need to raise to build my startup?
Go to Market Strategy, Product Management Oct 09, 2018
That’s a great question, and the answer can be pretty nuanced, but I’ll attempt to give it a shot here. Most startups don’t have the luxury of starting with a lot of capital. Part of the name of the game with a start-up is that you start really small and you incrementally grow your product and your user base over many many months and many years.
I’ve been fortunate to be a founder of a couple startups that actually started out as a side projects – so don’t limit yourself to ideas that you have to immediately quit your job to pursue. If you find yourself in a spot where you’re obsessing over an idea, or you find a hole in the market that you think needs a solution, then you have an opportunity to get to work.
I believe the best way to go about building something from scratch is to work with what I call a “Market Testable Hypothesis” or MTH. An MTH is the simplest execution possible that you use as a way to validate your idea in front of real users. You need to think about what problem you are trying to solve, and come up with what you think the most basic amount of feedback you need to get is to validate that there is a market for your solution, and start there.
I’m reminded of a a workshop that I did with someone a while back who had an idea to build a mobile application. She had been thinking about a concept for a few years, and came in with sketches and a concept based on characters that she had developed on paper as well as digitally. She initially wanted to build a pretty extensive product that was essentially a game (not an easy thing to build with a limited budget) wrapped inside of a deep story about characters she had developed. We talked about her capital situation and realized that building a mobile application that was in the format of the game was probably going to cost way too much to get anything off the ground.
So we talked through the mechanics, and worked continuously to simplify the product until it could be produced quickly and easily in static form. Over the course of 2 days she was able to get her idea into prototype format using free open source tools, and was able to actually build a static – but realistic looking – mobile “app” that she could bring to people to show, and let them quickly experience the value she thought her application could bring. She had this static application on her phone and was able to go to coffee shops and other places and actually hand the phone with the application on it to people to get feedback.
That was the basis of her MTH – we got to a point where she could hand something to a stranger and get feedback on her idea in the span of 2 days.
Contrast this with some startups who have been able to raise a ton of money – perhaps because of the founders have been successful in the past – or perhaps they put their own money into the company. They dive right in and start building software right out of the gates, but at that point they’re not really sure if there’s actually a viable model or not. And with that comes a lot of risk. So there’s a lot of importance to actually getting out early in your ideation stage and talking to people about your idea, showing them mocks, and trying to validate that there is actually a market for your product.