What Startups Really Need

Posted: June 30, 2013 by Tony Shipley in Ecosystem, Leadership, Startup

tonyshipleyFor those people who are connected to our community’s entrepreneurial ecosystem, you may remember the Regional Technology Initiative (RTI) created in 2001 that involved 200 people working for 100 days to create a master plan for entrepreneurial growth. Greater Cincinnati’s entrepreneurial spirit has grown phenomenally since then and the resources to support the goals have flourished.

So what do our region’s entrepreneurs really need to jump-start their businesses? Customers.

In every business, sales cures a lot of ills, and nothing of significance really happens until a company sells something. In startups creating sales is mission critical for success. Early customers provide tremendous value to startups. Sales provide much needed non-dilutive cash as it comes with no equity or debt strings attached. These transactions provide much needed validation that value exists in the product or service. No marketing study or survey can demonstrate that better than a customer exchanging their hard-earned dollars for a company’s product or service offering.

Product development benefits from early sales, because they receive feedback from customers starting on day one. Unless you have really nailed your product features, functions and benefits to meet all of your customers needs in each of their distinct ways, customers will tell you what is most important to them and how you might fix it. The good news is that you don’t need to solve all of their problems, just some of them. Your customers will let you know what other problems you can solve, so they can give you additional revenue to solve them!

Marketing benefits from early sales by observing the natural segmentation that occurs by like-minded customers buying your product. When early sales starts to provide enough data on the behaviors and preferences of customers, your marketing dollars can be better spent focused on clients more likely to buy. If you find that 1,000 customers are buying product the ‘wrong way,’ then you may want to adjust your marketing appropriately. And don’t forget word-of-mouth referrals – nothing is more powerful than a referral from a trusted friend.

Sales accelerate the capital raising process in several ways. Early investors value companies with revenue higher than those without. Investors have confidence that the product will sell because it is selling, and they can talk with actual customers as part of the investment due diligence process. Since investors perceive revenue-generating companies as a lower risk investment, you will likely have more investors interested in your company. Since you are generating revenue, sales can help cover your overhead costs – freeing up the capital you raise to be used for fueling growth. Investors love growth and sales – so this is a double win for startups.

Building a Startup Savvy Region

During my early entrepreneurial days, I found it almost impossible to get local companies to buy my products, even though we quickly had both National and International customers.  And, it still surprises me even today when I talk with entrepreneurs who experience similar problems.

If early sales help propel startups into successful companies, how do we as a region help them on the journey? The answer is simple – buy from startups.

You don’t have to take unnecessary risks and put all your eggs in the startup basket, but you can begin by working with startups on a pilot project, a trial phase or a small percentage of your current spend on the product.

The Cincinnati Business Committee created Cintrifuse to provide a sense of place, a fund of funds, and access to corporations.  The last pillar, access, includes buying from startups.  What better opportunity to accomplish that goal than to have a CBC member (or any of our region’s enterprises) actually pay for products and services with a startup in return for provided value?

Remember that William Procter and James Gamble didn’t start out with 129,000 employees – they started out with a few customers like you and me. Every company in Cincinnati should consider buying from startups to grow the region. The more they grow – the more jobs and success we will generate in the region. This creates a great dynamic growth spiral upward for our community.

Buy from an entrepreneur – you’ll be glad you did!

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