June 1, 2020  
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Raising Money


Startup Funding Tip

This startup funding tip is pretty simple: sell early and sell early often. That's the cheapest capital you'll ever find.

Time is money. That's very apparent to startup entrepreneurs who are building a new product while funding their startup businesses out of their own pockets.
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Until you make your first sale, your startup is, without a doubt, running in the red.

In the world of entrepreneurship, it's called your burn rate.

You rip through a certain amount of cash every month, even if you don't yet have your products ready to sell.

If your product development stalls out or is delayed, you can be in trouble.

For example, maybe you planned for six months of development time, and it turns out that it's going to take you a full year to finish creating the product.

That's six extra months of burn rate, which means the cash flow requirements will be burning a big whole in your wallet.

The trick then is to accelerate the time to that first sale. In a nutshell, and perhaps in a blinding glimpse of the obvious, that's our startup funding tip.

Get a beta version or a portion of that product built and sell it to somebody.

You may have to give them a discount, in recognition of the customer's having to help you debug the initial offering and refine it.

But, believe it or not, you can also charge a premium for early access. After all, they are getting early access to your amazing invention before their competitors can get their hands on it. It's all how you spin it, my friend.

In any case, whether you sell early at a discount or sell early at a premium, there are many distinct advantages to getting to market sooner rather than later.

  • Cuts down on your capital requirements. The sooner cash is coming in, the sooner less cash is going out. If your plan was to sell after six months and you can instead sell after three months, you are way ahead of the game.
  • Validates market demand for your product. Future investors, and future customers for that matter, will all be skeptical of your product's promises until some brave soul buys your product. Once you have your first customers, investors and customers will be more likely to buy into your story.
  • Access valuable feedback before it's too late. You might think you know exactly what your customers want, but history says you're wrong. Only by getting a product into the hands of real customers can you understand their real needs and desires and modify your product development plans accordingly. If you wait to sell until you think the product is perfect, you may find that you've wasted tons of development cycles on features that customers don't really want or need.

Again, this article was positioned as a startup funding tip. That might seem strange to you, but the reality is that many entrepreneurs who are looking for funding simply forget that the best and cheapest funding available comes from selling a product and collecting revenues on those sales.

If you sell early, and sell early often, you might even be able to avoid those pesky equity investors altogether.

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Want to learn more about this topic? If so, you will enjoy these articles:

Alternative Financing
Accountant's Role in Securing Financing
A Company That Helps Entrepreneurs
Obtaining Funding - How to Borrow Money

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