2 Fundamental Rules All Startups Need to Secure Funding
Follow these two rules for a head start on scaling your startup.
PHOTO CREDIT: Getty Images
Every Startup is of course different, with its own challenges, its own wins, and its own rules. Anyone who tells you there are rules to startup success is lying. Period. Full stop.
There are no rules to follow that will turn you into the next Facebook. There just aren't. What there are, however, are rules, that if not followed, will prevent you from ever becoming the next Facebook. Two rules, to be precise. Let's discuss those rules.
The Home Run Rule
If you're not into baseball and prefer to shoot hoops, feel free to replace "Home run" with "Slam dunk". The Slam Dunk Rule. What is it? Well, putting it simply, every startup with zero exceptions, needs at least one home run. One thing that will capture the audience almost instantly. Every startup needs at least one wow factor.
If you are meeting an investor, a journalist, or a potential strategic partner, and you open your app, hand it to that person to look at, and the person begins to drool because your app is the most beautiful thing they have ever seen, there is your home run. You captured their attention. Now you need to discuss how much money you need, at one valuation, how you will go to market, and how you will eventually monetize. But before all that, you have that person interested.
If your product looks okay, at best, and the person is not impressed but you then explain that in two weeks since launch, you have accumulated hundreds of thousands of users, there is your home run, your traction.
And if your product or traction are not home runs, perhaps, your team, which is comprised of stars, is your home run. Or maybe it is an investor or a board member you were able to recruit to your mission. Every startup needs a home run. Why? Because the premise of all marketing/fund raising is four letters. F.O.M.O. Fear of missing out.
If that person sees an amazing product before their eyes, or extraordinary traction, or an A Team, or a huge trillion dollar untapped market, or anything else that you would consider a home run, that is when the F.O.M.O. kicks in, and the check books come out. The Home Run Rule. Before going to market or raising capital, sit, alone or with your team and ask yourselves "What is our home run?"
Over the years, I have met and helped many startups that didn't yet have traction or even unique technology. What they did have, their home run, was their execution, a truly beautiful product, which led to great investors, which led to talent joining the team, which eventually led to a large sustainable business.
The 'Head Nod' Rule
After you established your home run, the next question you need to ask yourself is "How will I get an investor to nod her head in the first 10 seconds of our meeting?" If you start the meeting with the follow four words, you are not getting a head nod: "We built an algorithm..." No one cares about your algorithm.
What people do care about is a pain point. You should start every meeting with the following three words: "You know how...?"
You are building a wearable device so parents can track their kids' location, you can start the meeting by saying "We built an IoT wearable device using low every Bluetooth 5.0..." and you have already lost the person to whom you are speaking. Alternatively, you can and should start the meeting with "You know how you were in the park that time and you were afraid you lost your kid? "Yea, we cracked that." Now you have their attention, and their head nod.
Pause, let it sink in, let the person digest, and then, only then, go into more detail about product, marketing, and finance. Ten seconds. That is the amount of time you have to get the person you are sitting with, whether it is an investor, blogger, or partner to nod their head in agreement with the pain point you set out to solve.
Many years ago, I met an entrepreneur who built an app that helped organize the photos on your phone. Pretty straight forward. When I asked the CEO to pitch me on his product, he began to tell me about his algorithms. I quickly stopped him and explained that he should focus on the pain point he is solving. "You know how finding an old photo on your phone is incredibly difficult? We solved that." He pitched his startup that way from that day on and eventually built a tremendously successful business and was later acquired.
So, to sum things up, figure out your home run asap and then figure out a way to communicate it in a way that will get anyone to identify with the problem. Create F.O.M.O. by both presenting a home run and scratching an itch the person you are pitching feels strongly about. Follow these two rules and you are off to a good start.