Founder & CEO, Adnexi. Prior of Seeker Health (exited). Author, New Startup Mindset
In 2015, I started a digital patient finding platform. In 2018, I sold the company for a nice multiple, while serving 40+ business customers. I didn’t raise venture funds – not at all, not ever. And the reason why I was able to build the company to the point of exit without venture funding is because I had done one important thing right: I got early paying customers!
Early-paying customers are a startup’s superheroes. Early-paying customers may be able to support the continuous development of your product and service. More important, early-paying customers allow you to learn how to maximize the value that you can provide to them. You begin by selling them A, and in that process recognize that they need B and C too, and you begin to build in that direction.
Here are the superpowers of early paying customers:
SUPER POWER 1: Accelerated Product Development. They are willing to buy a minimally viable product, and you can use this opportunity to gain insights on other needs they may have, accelerating product development.
SUPER POWER 2: Informed Market Development. They provide data on their problem and need, so you can continue to adjust your market fit to the segment most likely to adopt your full solutions. Some of these
early-paying customers may not be able to be retained as the company builds in a specific direction, and that’s OK.
SUPERPOWER 3: No Equity Required. They do not require you to issue
equity. Instead, they want their problem solved, and they are willing to pay for it.
SUPERPOWER 4: Referral to Additional Business. They may refer other customers, clients who may be just like them or better.
I can see what you’re thinking—you’re planning to raise funds anyway, so who needs early-paying customers. Well, if you end up raising venture capital in exchange for equity, then having paying customers will only help your case. In fact, even incubators and angel investors, who are willing to pony up money for the earliest stages of a company’s operation, are looking to invest in companies with some evidence of traction. The following are the requirements for a sample incubator:
*For enterprise or marketplace startups: $5,000 to $100,000 per month in gross profit with at least 20 percent growth, month on month
*For consumer products: 5,000 daily active users with at least 5 percent week-on-week growth
There’s no way around it: a brilliant idea is not a business. A business is an organization offering a product or service that a set of customers is willing to use and/or pay for. Acquiring these early users or paying customers requires passion, ingenuity, and determination, and this becomes a powerful engine for growing your startup—with or without venture funding.
You can learn more about this in the bestselling book New Startup Mindset.