

Early Stage Startups Don't Need Money, They Need Customers - woohoo
http://startupnorth.ca/2012/03/27/early-stage-companies-dont-need-money-they-need-customers/?__lsa=32115409

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untog
It baffles me to no end that the Canadian government is not leaping on the
startup trend. It's an observable fact that a lot of Canadian talent heads
south for more money and opportunities, but no-one seems to care enough to do
anything about it. Meanwhile, the US passes the JOBS act to allow even more
early-stage startup funding.

I lived in and around Vancouver for two years and absolutely loved it, but my
visa expired and I had to leave. These days I live in NYC and, well, I love it
here too, but my visa in the US is very restrictive- I can't start my own
company, for example. The US seems to have an endless, protracted debate about
immigration that has next to nothing to do with economic or political reality.
Canada doesn't, and has a _huge_ opportunity to attract international
entrepreneurs that want to do business in North America. But I have absolutely
no immigration routes back into the country, and there's no change on the
horizon. So I won't be heading over the border any time soon.

~~~
swalberg
Manitoba is trying. <http://www.innovatemanitoba.com/> is a government
sponsored body trying to increase entrepreneurship in the province.

I was on one of their programs last year where they brought in some prominent
angels and VCs, and ran a 3 day course on how to define your business and
pitch it. It was an amazing time.

This year they're increasing the number of programs and trying to get banks,
universities/colleges, and some industry to come on board to provide
mentorship and advice to would be entrepreneurs.

~~~
ahelwer
Interesting, I had not heard about this program, thanks. I grew up in Brandon,
where there is not much of a tech culture to be found (moved to and currently
work in Calgary). Is there a tech community in Winnipeg?

~~~
kerryfalk
Small and growing. It's a bit fractured at the moment and there are many
places to focus one's attention, but that's better than the alternative of
nothing at all.

I see things improving for us over the next few years.

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asanwal
While it is not as sexy, it's worth noting that "funding" from customers is
generally cheaper than funding from investors. Plus, once you have revenue,
you generally become more interesting to investors and have more leverage in
those conversations because you may not need the money to survive the way you
do early in your company's life.

We're a "revenue-backed" startup so I'd say that if you can do it, it is a
great way to control your destiny. The challenge with this method is that
growth comes after revenue, i.e. you spend generally after you have sold the
product which means growth is slower while fundraising allows you to spend
ahead of revenue.

Nevertheless, good to see this advice on HN.

~~~
onemoreact
Revenue also opens the door for loans which can be a great if dangerous source
of funding as you don't give up equity and can still scale slightly ahead of
your growth curve.

~~~
asanwal
Great point albeit unexplored by us. Are you talking about loans from
traditional banks?

I've perhaps unfairly assumed traditional banks won't fund SaaS companies
because of unfamiliarity with non-asset intensive businesses. Or that they'd
require me to put up my house, wife and child as a personal guarantee?

~~~
onemoreact
Yep, traditional banks. As long as the revenue is stable enough you don't need
a personal guarantee from a traditional bank. They can be just as intrusive as
other investors and even require thinks like the company take out life
insurance on key employees. But it is a real option you may want to look into.

Another option many small companies don't consider is net 30 - 60 day payments
from key suppliers. You generally get a grace period after an initial bill and
can often work out a deal where you either have say 45 days to pay while still
being considered current OR get a discount if you pay within a week of getting
a bill.

One company I worked with had the equivalent of a 60k loan from CDW due to the
rate they where buying equipment plus the grace period.

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woohoo
I think there aren't enough resources for Canadian startups but at the same
time, I agree with this post that once you can show some traction, then
funding is not as hard to come by. The trick is figuring out how to get to
that point and pay the rent.

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joshklein
In reality, the problem ("what founders fail to do") is far more pernicious
because it always _seems_ like you already know the problem you're solving and
what your target customers want. But then you go out and talk to people who
are deeply interested, but who don't buy for _some reason_. And you wave your
hands and explain why they aren't an exact fit, assuring yourself that the
faceless others you know to exist are your real targets. But there are no
faceless others, just more people who all have their own bizarre edge cases
that don't quite fit how you genericized your vision before you had any
customers.

~~~
tensor
It seems like you are trying to say something, but it's not clear exactly what
it is. Are you speaking from personal experience? Or guessing at the mindset
of others?

It seems pretty obvious that if people are not willing to pay, then there is
some sort of problem. Either your business plan isn't quite right, or perhaps
the market you thought exists doesn't, or maybe your salesmanship is just very
poor.

Part of doing a startup is figuring out which of these is the case. Try asking
people for that _"some reason"_. Try changing the price. Try changing your
sales pitch. Get feedback and advice from others. Focus on getting answers.

~~~
joshklein
To understand my comment you must refer to the section of the article I have
cited.

~~~
tensor
If reading that section helped, I would not have needed to ask for
clarification.

As near as I can tell, you are trying to say one of two things: either that
the tasks laid out in the article are hard, which is true, or that founders
typically _think_ that they are doing those things, but are really not.

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Maro
Depends on what early-stage means. If that means no funding money, then this
statement is simply not true in many cases. Suppose you're tring to sell
software and support. How are you going to sell a 1-year support contract if
the customer can tell there's no guarantee you'll be around in 3 months? I'm
speaking from personal experience. OTOH I'm sure the situation is better for
web startups that are selling a service on a monthly basis.

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dmix
The chart still shows that startups raised $227k on average in the discovery
phase.

The problem is in Canada there's noone willing to invest at this stage, at
all. The angels here are known to only invest in later stage startups.

Although I agree the focus early on be on customers... its still hard to be
100% focused on customers if you're also constantly concerned with how you'll
pay rent.

~~~
davidcrow
Traditionally this is from savings, family and friends, borrowing against your
home, etc. And it feels like there is more opportunity to this capital in
other places, i.e., anecdotal evidence that lots of folks in other places will
put up $5-20k to invest in a friends startup. This doesn't happen as much in
Canada (tight accredited investor definitions, higher taxes, higher real
estate prices and home borrowing).

~~~
dmix
Indeed, the valley has the benefit of having lots of successful tech
entrepreneurs reinvesting back into the community whereas most other cities
depend on more old school angels or gov financing who only focus on safer
bets.

This is not to knock on angels in canada, but an important to note when
comparing SV with anywhere else... its not just about having VCs with big
funds.

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jrodgers
Woohoo gets the karma on my post! Unfair ;)

~~~
woohoo
Ah the world isn't fair is it? Oh yeah and you're welcome ;-)

