“Lean Startup.” “MVP.” “KPI.” "Product-Market-Fit“ “Traction.” Yada, yada yada.
Every startup founder has obsessed with these core entrepreneurial concepts because their mentors – if they are lucky enough to have (good) ones - have admonished them to abide by these cherished entrepreneurship principles. However, concepts are fine but reality, as they say, has a way of laying the best laid plans to rest.
While there is no debating that Eric Rie’s Lean Startup and MVP philosophy is a prudent way for most startups to pursue their early stage ventures because it imposes a strict ROI and conserve cash approach on founders, the problem is that it doesn’t address more practical issues like whether to focus on growth, or monetization. Without figuring this out, founders can easily flounder, focusing on the wrong key metrics only to find out that they are running out of cash – before they’ve built a usable prototype.
Running a startup is always an exercise in trying to prove traction versus trying to survive, but startups must quickly figure out if they can bootstrap by becoming cash flow positive or whether they will need to raise money from investors to bridge them until they become profitable. Most startups will not have the luxury of bootstrapping to profitability, i.e., they will need to raise money. So for most startups, the most prudent strategy is not just blithely focusing on building an MVP but rather to focus on what investors will need to see in order for them to consider investing, at a respectable valuation.
These days, East Coast VCs are rarely investing “pre-revenue.” Silicon Valley VCs might do so, but they will need to see some pretty impressive organic growth to overlook a lack of revenue. So for most startups, generating revenues is the new North Star. Put up consistent MRRs and you have proof of concept that most VCs insist on seeing before they’ll invest in your fledgling venture. While it might be daunting to put up numbers while your team is severely resource constrained, it is not only the most likely path to become institutionally investable, it is also the path to profitablity and thereby having the ultimate leverage in negotiating with VCs.