What do Acquisio, Freshbooks, Hootsuite and Shopify all have in common? Well, for one, they are all kick ass, high growth Canadian startups. For another, they all started out as web agencies. i.e. service companies.
Each has a different story for how they transitioned from services to product. But each one had the benefit and luxury of starting from an existing, profitable business and taking the time that was needed to develop and validate their vision.
None of them approached VCs out of the gate. And for those that did raise VC, I’m pretty sure they had a (relatively) easy time of it. Why? Well, they did not *need* it (because they had services to subsidize) and they had time to build traction, giving them funding options.
As a seed investor I meet many entrepreneurs with fresh new companies that are going to “change the World” in same way. And since we are venture fund, we do need to see big visions. But in most cases these visions are hallucinations because the founders don’t know what they don’t know yet. If they had been in market for a while, funding what they were doing with friends and family / angel money or subsidizing through services, then they would have a lot more validation to back up their grand plans.
While VCs on average fund 1% of the companies they meet, I am sure if you dissect the data the % is way higher for those companies that walk through the door, not needing those $, but wanting them, and having the ability to say ‘no’ to a VC.
So, what am I saying? Am I suggesting you put your startup on hold and start a web agency? Not necessarily. But what I am saying is:
– Good things usually take time. Don’t feel the rush to serve up some huge vision
– Investor discussions go better when you pitch what you *know* to be true, not what you hope will be. So, starting small and/ or being in market already is powerful. Now, for sure you have to be building ahead of actual market demand, so there is some leap of faith required. But it’s better if that leap is based on actual domain experience and traction
– It all starts with one segment. Facebook dominated Harvard, then other Boston universities and grew from there
– Investors want what they cannot have. If you don’t need them, they might just want you more
– Vision without domain knowledge and actual traction can sometimes be hallucination