Fundamentally, every startup is evaluated by investors based upon three pillars:
The team
The product
The customers
You are a group of individuals, that exist to sell a specific product, to a target customer group.
Of these three pillars, most first-time startup founders believe that their product should be more important than their team to investors. They lament again and again how unfair it is, that a company with a product that is absolutely crappier than their own has received a valuation of millions, while their own superior product and startup is unable to raise a first round.
I get this. Because it used to puzzle me, too, when I first got started. It seems so damn unfair. But it is not. It actually makes perfect sense. Let me explain.
Imagine two football teams came before you (and I am referring to USA football here, as it most closely parallels the startup life in many, many ways). One team is a professional team that has been in the championship three times. They understand that the field is won by smaller 10-yard sprints to get the next first down (funding rounds), they know how to play both offense and defense, and when to do what. They know how to read the opposition (opposing market forces), and how to make moves to get around obstacles before colliding with them. They know how to hold onto the ball even as they take a vicious hit, and how to recover the ball if they momentarily lose control. They have endured cracked ribs and concussions, and where other mere mortals would crawl off the field, they ferociously demand to stay in the game and deliver the winning play.
The other has never played pro football – at best they have only played friendly games in their local neighborhood.
The team that has played pro has beat-up second-hand gear, and the balls are only half filled with air. The newbie team has brand-new A-class gear, and fully inflated footballs. Both teams swear to you that they have evaluated the playing field and the opposition, and they are 100% confident they can win.
Who are you putting your money on?
Not even a question. 10 times out of 10, it will be the same answer – the proven, pro team.
Until you have been on that field, taken hits, been fouled, had your ribs cracked, recovered from bad plays, pivoted mid-field, come back from under – until you have successfully made touchdown after touchdown, and completed endless 10-yard plays to the next round of funding, you just don’t know what’s coming.
The spirit of newbies is beautiful, and yes, we were all there. But a 2nd-class product in the hands of a pro-team that says that they have scoped the field and they can win, is always a better, more attractive bet than a 1st-clas product in the hands of an as-yet unproven team.
So what to do if you are a first-timer?
There are short-cuts that make a big difference. Here are a few examples:
Get some proven players into your inner circle. Recruit them to your Board of Directors or Advisory Board. (Advisory Board is easier, as it entails less liability and a nice equity incentive for the industry leader you are recruiting)
Get some customers or design partners on board. Nothing changes your status or the betting odds like a bit of traction. (Crafting a no-risk LOI or MOU for an attractive partner, and offering them a limited exclusive market runway can create a no-brainer handshake that will transform your startup’s optics)
Essentially, we all start as first-timers. You are what you are. And even if this is your fourth rodeo, early-statge is still highly risky. But you can elevate your personal credibility and your company’s attractiveness by moving other important business levers that demonstrate you are a trustworthy, already-performing business operator.
We’ll get into this more in the the chapter about “The Five Levers That Create Shareholder Value”, and in the chapter on “Claim, Safe, Proven”.