Why Revenue is your Best Investment
Having worked with many startup companies I have come to learn, albeit the hard way, that generating revenue is your best investment - Market Validation - is key to your success. I have been part of many companies that have had great ideas but wasted valuable time and precious dollars spending most of their efforts trying to raise money instead of selling their product.
(1) Generate Money First
Generating revenue proves you know how to deliver a product/service that the market actually wants vs merely what you thought they needed. Receiving and pivoting critical customer feedback on your product/service shows investors that you can adapt. Building the best route to market via partnerships and revenue from distribution channels shows that others believe they can make money with your product.
(2) The Biggest Hurdle
If you are exchanging your product/service for $$$ you have overcome several important obstacles in building your business.
- A real product or service to sell
- Validated that you are solving a problem or fulfilling a need
- Customers who are willing to pay for you product and service
By generating revenue, you are strengthening your ability to grow and determine your own course. Remember you are selling a piece of your company for their investment. The higher the risk - less proven product and little or no market validation – the more of your company you will have to surrender in exchange for the capital.
If you are lucky enough to be generating enough revenue to cover your overhead you will maintain ownership of your entity.
(3) Take Control
Since investors are attracted to growth potential - you now have what it takes to draw them in, if you so choose. If you are interested in accelerating growth and are seeking an investment you will be able to negotiate more favorable terms.
You will be able to tell them that:
- Their money will be used to expand revenue growth
- You know your market and your market knows you
- You have proven that you and your team are willing to go through the ebb and flow of starting up a company, investing your time, money and effort.
Yes, there are VCs that will lend to early stage ideas but you will spend more time finding, and then convincing them of your value vs building and selling your product/service offering. Generating revenue is your proof of concept and market acceptance demonstrates that your opportunity is viable and a worthy investment.