I have been playing with some questions this past week. The biggest question I have regards networking: Why do startups seem to network with each other? Is it because they don’t know how to network outside the startup community? Or is it because they think they will find an investor at startup networking functions?
I believe that existing businesses that could hire startups don’t know how to find startups to hire. I have rarely met a person from an existing business looking for a product to buy at a startup networking event. Existing businesses are not plugged into the startup community. They just aren’t.
I spent a lot of time in the Southern California venture community and have been spending a lot of time in the Portland Oregon startup community. One thing I have learned is that most startups could have a product to sell but are focused on getting venture funding rather than getting customers. There seems to be a belief that spending the time to find an angel investor or a venture capital fund is time and effort well-spent. I am not so sure.
Face it: Getting someone to plunk down $2,000,000, $200,000 or even $20,000 is a huge and often disappointing task.
Venture investors want to see proof that your business idea is likely to create profits. To create those profits, you need to do business with customers.
Revenues should be your primary concern. Most investors are people who understand how difficult it is to start a business because they either got their money by starting their own businesses or have run businesses for other people. They respect an entrepreneur who knows that revenues are the first order of business.
Your second concern is controlling your expenses. If you can bring in revenues and control your expenses, venture investors will be most impressed. However, if you can do those things, you won’t have such a need for venture investors.
I attend a lot of startup networking events and hear a lot of lofty goals that require million$ to implement. What I rarely hear is how startups have a modest first-step revenue-producing product, which will bring in money for the development of the lofty goals.
When you network with other startups you are spending your time with people who don’t have any money to give you.
Networking with existing businesses, however, puts you in front of people who just might become customers. Not only that, the owners of those businesses might like your product enough to invest in your company.