Startup Company – New Product Roll Out – Now Or After Raising Investor Capital?

“Should I start selling my products and services now – or should I wait until after I have raised my angel investor capital from my private placement?  I want to do the roll out in a big way before tipping off my competition.”

This question came up yesterday – and it’s one I often hear.  The answer is:  it depends.

Like most things with start up and emerging companies, there are always exceptions to every rule.  However, in this case, if your company is a true start up with no sales and no experience in the marketplace AND you have already finished one or more products and services, then, in my opinion, there is only one answer:

Get Traction – Now!

Even if you have a great business plan produced by yours truly or by yourself or anyone else…you are still predicting the future with unknown and unestablished products and services.  And, prospective investors know it.  Think about it:  you are asking them to believe your projections are realistic when none of them are actually based on reality.

If you and your team have already gotten even one of your products and services ready for prime time – so that it can be delivered to a real customer with an outstanding customer experience, then start selling now…and sell as many as you can afford prior to raising investor capital.

Your Competition

Generally speaking, if you are a start up, you are so far down in the noise that most of your competition won’t even notice you until you start spending real money on your advertising and PR. 

If you really have a new product or service to sell today, one that is really ready for prime time, then your competitors will need time and money to catch up to you.  During that interim, you drive sales, gain traction in the market place, impress prospective investors, get your capital raised and then do your big roll out – all before they can even get past the design stage. 

Besides, if you are never able to raise your money, you probably will never have that big roll out that you anticipated – so your bootstrap sales approach to gain traction may be the only option you have – and the only way you will generate cash flow.

Seven Reasons – And More

Besides the obvious benefit of generating cash flow, which is almost always a premium for every start up company, selling now has several immediate benefits:

1. It shows that you can actually get wallet-share by selling your products and services to real human beings or to real companies at the price point your business plan shows.
2. It gives you a chance on getting real customer testimonials – for your web pages and for the eyeballs of prospective customers and investors. Remember:  pioneers are the one face down in the dirt with arrows in their backs. Many prospective customers usually don’t want to be pioneers – they want to see what other customers have to say about your products and services. 
3. It shows what your direct cost of sales really are.  You guessed what the cost would be for each incremental sale – this way, you know for sure.
4. It shows you what needs changing.  This includes everything from your flow of work processes to your fulfillment procedures to your after sale customer support.
5. It shows you what needs to be improved.  Your customers will tell you what changes they want, what works well and what does not.  If you can make the changes on this side of the funding, then do so in order to already have an improved product or service for today’s customers and tomorrow’s prospective investors. If those changes take more money and time than you currently have, then you have a feature and benefit list for version 2.0 to show prospective investors.
6. You can start to calculate what your customer acquisition costs are.  In other words, how much on average does it cost you in advertising, marketing, AdWords, etc. for each customer who ends up giving you wallet-share?  Is it $10?  $100?  $1,000?  Once you have this number, you can at least approximate how much you REALLY need to spend on marketing and advertising to drive the sales forecast in your business plan.
7. Even with a meager roll out, you can start to see where your constraints to growth will be.  Is it back office support? Fulfillment? Sales force limitations? Advertising? Enough of You? Or, is it just enough money to go do what you want to do?  My guess is that it will be more than one thing if you project out even one year.  The more constraints to growth you can anticipate now, and plan for now, the more insights you will have for your business plan.

These are just the Lucky Seven benefits of selling now and not waiting until after the investor funding.

Update Your Plan With Your Newly Gained Reality

Another key benefit:  Take all you learn from these seven – and go back to ALL of your driving assumptions for your financial projections and tweak and tune them to better reflect reality. 

Drill down on every assumption and question if it best reflects the new reality after chasing real wallet-share.  If not, change the numbers for your assumptions and generate new projections based on your real life experiences.  Then, update your plan’s narrative to discuss what you’ve learned and why you think the newly generated financial projections are better.

Not only will your projections end up much more realistic, you will be smarter about your customers and your costs – and your prospective investors will get better answers from you when they start asking you the hard questions. 

And, the revenue traction you show them might, just maybe, be enough to get them to stroke that check for your funding.

All the best,

Robert

PS:  This is just one of many pivotal strategic and tactical decisions you face with your new company.  Check out my Deviled Details and my Kick Start Planning Services for more information on how I can help accelerate the implementation of your vision.

Forecasting Sales For A Start Up Company

As I get questions from readers, I will take some of the questions that I think might have a broad audience and post them here on the blog.

This one is filed under “Dragons – Sales: How Do You Forecast Revenues For A Start Up Company?”

Question:

I am working on a quickie Excel spreadsheet I developed for a business plan for my Internet startup company and am clueless how to even start getting a handle on my guessing my revenues for the first year, let alone the second and third years of my new company. I obviously need to hire you for a lot of what I’m doing since I am also clueless about a lot of things and how to implement them – and it looks like you really have already done it all! But I want to at least have a guess on revenues before I take the next step and start spending money. Help!

Dennis

Answer:

I haven’t done it “all”…but in three decades, I have done a LOT when it comes to start up companies! Working with 2,000 start up companies can do that for you!

In answer to your question, projecting future sales for ANY company can be challenging – but it can be especially difficult for a start up company with no history for guidance.

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