The many stages of “Early Stage”… Part 2

In my previous Early Stage post, I took you from day one to the first smackdown by an investor.

So what happens from there?

A Taste for Punishment / aka: smackdown #2, #3, #4…

Okay, so you’ve convinced yourself that the first investor simply didn’t "get it".  If you’re lucky like us, the first smackdown occurred in a semi-safe environment (we pitched at a CED STREAK session, which is basically akin to a group beating that doesn’t leave visible scars).

But not getting it can always be fixed by a new business plan and powerpoint deck, right?  As you dig in to both, you realize that maybe you weren’t quite as clear as you thought.  But this time out, you’re going to nail it.

Fast forward to the next VC pitch.  This one should be a good one…  Except it’s not.  Now there’s some meat on the bones, investors are ignoring the fact that they don’t understand what you’re up to and instead focusing on the things they hate about your pitch.  They don’t like the name, the market, they think your figures are wrong, you haven’t talked to customers.  It’s a long list.  But rest assured, they’re interested and would like to be kept updated on your progress…

<sigh>

What’s worse, each person you meet with tells you something different.  And wrestling with the difference between "need" and "pain" is making your ears bleed.  Your quest for clarity has lead to your biz plan ballooning to far too many pages and a powerpoint deck that needs to be gently put to sleep…  Time for the next stage.

Righteous Indignation / aka the quiet period…

You know you’re making something cool.  Why can’t they get it?  The light did go on briefly with that one guy… maybe there’s something in that.

Time to go quiet and work on what you’re building… and re-write the business plan… and update the Powerpoint deck.

If you have a spouse, this is where they start politely asking "when do you think things will get going?".  Whatever date you give here doesn’t matter, you’ll still be wrong.

Ugly Baby! / aka one step forward, two steps back…

It’s ALIVE! Ha ha ha ha haaaa.  And It actually does stuff.  It’s ugly like a hair on a wart on a bunion, but it works.   You show it to some customers.  Well, okay, you show it to your Mom, friends, former co-workers and anyone else that has some reason to indulge you.

And suddenly, feature creep is upon you.  Yes, you’re a hammer and every problem looks like a nail.  But there are some really good reasons why you should handle many different types of nail.  You probably ought to handle screws too.  And maybe make holes for screws and nails.  While we’re at it, you should be able to remove nails, screws and possibly other kinds of adhesive too.

And the fun is just beginning.  With renewed optimism, you show It to an investor.  They seem a little perturbed that you are, in fact, keeping them up to date on your progress.  What’s more, they now realize they understood even less than they thought about what you’re up to, and are correspondingly more able to tell you exactly what they don’t like about everything you’re doing.  And they do all that without actually saying "no, we pass" of course!

You have Einstein’s Brain recreated in C++, running as a service on a LAMP stack.  The underlying code understands the meaning of life, the universe, and well pretty much everything.  But your GUI is fresh from the 70’s.  Let’s be honest, it’d be a command line if you could get away with it, but the pesky biz-oriented co-founder insists that there must be a UI.

No AJAX?  Shame on you.  Go directly to being unfunded.  Do not pass go.  Do not collect seed funding.

And so the madness continues.

I’m going to skip a few stages here.  But in the months after Ugly Baby, you’ll see some pros and cons.

Pros: 

• You’ll finally get some friends & family-style funding in place.  Not much but enough to actually pay some bills.
• If you’re lucky, you’ll attract some good board members who will attempt to patiently corral you into writing a real business plan that someone genetically unrelated to you will understand.
• You’ll implement a fancy new GUI that makes the whole thing look sexy.
• Your product will go through cycles of becoming more complex, but resolving to something simpler as common threads emerge
• You’ll become increasingly convinced that you are, in fact, on to something.

Cons:

• You’ll talk to some allegedly "Genuine Early Stage" investors, who’ll tell you that you need customers and revenues before they would even consider investing. 
• You’ll send pitches to Angel Groups, who’ll tell you that they don’t know much about tech. 
• You’ll apply for grants and loans, only to be told that you’re not quite the kind of business they like to fund.
• Your swanky new UI will unleash a sh*tstorm of browser bugs that are outside your control.  Insert weeks of stupid "If IE 6, then X, if IE 7, then Y, if Firefox PC, then Z" testing, rewriting and asinine bug hunting that has nothing to do with your technology and burns your days faster than Jenny Craig burns b-list celebrity fat.

Git Sum Luvin’ / aka Making friends in the blogosphere (and elsewhere)…

Finally, somebody loves you.  Someone somehow finds out about what you do and thinks it’s cool.  Suddenly there’s a wave of interest that leads to some more serious discussions.  If you’re really lucky, you might get to talk to someone that was on your top 5 list of "people who should really get this".

What’s more, real people are now using the product.  There’s even a release date in sight. 

On the personal front, things are getting squeezy — every last coffer has been raided, including ones that shouldn’t be.  But if you’re lucky, your family are nothing but supportive.

The Holy Grail / aka someone paid you money…

An actual customer paid you money.  And for your product, too!  And they’re not the only one!  Having paying customers turns crazy times into insane-turbocharged-ultra-mega-mojo crazy times.  You’ll have to finally cave in and read "Crossing the Chasm", because everyone tells you you should.  You’ll also have to consider getting a real office, a phone system, people who do things and all that crazy stuff.

You also get to feel less like a bum — you’ve made a product that people will pay for.  Cool beans!

Rapid Growth / aka madness, madness and more madness…

If you’ve got traction, you’ve got growth.  And boy does that get crazy.  It took you 3 years to make your first $500k, and you’ll make more than that this month (well done, by the way).  By the end of the year, you’ll have 40 employees, health care coverage, a 401(k) and revenues of $5M.  Maybe profitability is even in sight.

Hopefully by now you’ve found investors that have backed you to this point.  But rest assured, there will be plenty of "genuine seed stage investors" that are now desperate to talk to you, because they are "excited about your space", "knew you were on to something big" and just plain "have the utmost respect for what you’ve done".

I hope you’ve enjoyed my slightly(!) sarcastic look at the joys of being an early stage company.  In all seriousness, I love every minute of it and wouldn’t do anything else.  I’ve been lucky enough to be surrounded by good people that support what I’m doing.  And like any real venture, our success (or failure) will be a team effort.

2008 will be an interesting year for us.  It begins with one of the most important meetings we’ve ever taken.  Several other potentially world-changing (for us) discussions are also underway, with results expected early next year.  I’m not sleeping much (and neither is Logan), bills need paying, and we’re always short of time.  But life is good.