Investing in early-stage startups is very risky. There is a lot of uncertainty around the business model, the product-market fit, and the team’s ability to execute. It is thus no surprise that investors are understandably cautious and jaded, especially given the dismal statistics of the startup success rates.
In this article and the corresponding video, we discuss three strategies you can employ to de-risk your startup, calm investors’ fears, and position your company as a more attractive investment.
Strategy # 1: Validate product-market fit
Validating product-market fit is very challenging for a pre-revenue company, because your product may not be fully ready and, even if it is, you may not have the marketing budget to really test the strength of demand.
That said, there are two ways in which you can gauge the consumer’s appetite for your product at an early stage.
- Beta (or alpha) testing: If you have a minimum viable product (MVP), or a product prototype ready, you can offer it to a select group of customers or users for FREE. Your goal here is not to make money, but rather to collect feedback, understand what they like and dislike about the product, which features they would like to add, and, very importantly, how urgently they need it.
- Surveys and focus groups: If you don’t yet have a ready product, do not despair. Instead of beta testing, you can send out surveys to or/and run focus groups with your target customers. The goal here is to get feedback on the product you are GOING to build. The more thought you put into what information you present and how you ask questions, the more value you get.
Strategy # 2: Build a strong core team and a support network
Execution risk is the biggest risk all early-stage ventures have because you have to build a company from scratch, often without access to all the required expertise, and in a constant state of flux.
A strong core executive team can lay the necessary foundation in terms of strategy and its execution, especially if it’s supported by the unbiased and experienced Board of Advisors and Board of Directors. They are the integral support network that provides the required help and direction at the right place at the right time.
Strategy # 3: Develop a thorough go-to-market strategy
Many startups don’t get funded precisely because they don’t have a clear path to market. If you don’t have a go-to-market strategy, even the best team will fail, because it won’t know what to do.
You can formulate your go-to-market strategy as you create your business plan and further refine it when you transform your business plan into a financial model. During this process, you can also determine key performance indicators, or KPIs which measure the effectiveness of your plan and help you react faster to market feedback.
These three strategies address three major concerns investors have when investing in ventures as well as position your company to succeed.
To learn more how to model early-stage startups, check out Course # 2.
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