Get Over Your Money Problem

by Morten Lund, repeat entrepreneur based in Denmark, the chairman of LundXO and Tradeshift, and a prolific seed-stage investor. Backer of many of the most successful technology startups to come out of Europe, including Skype, BullGuard & Zyb.

Venture capital can seem like the single thing that makes startup companies successful and prevents bad ideas from getting off the ground.

Business journalists promote this concept to readers by rapturously writing about new investments and repeating the long-sighted prognostications of Silicon Valley’s elite investors. From what you read, it almost feels as though you can’t be a Google without an investment from Sequoia Capital or you can’t create Amazon if you don’t get Kleiner Perkins on your board. Which is why many entrepreneurs I meet with, especially those starting businesses in the U.S., seem enchanted with the idea of pitching venture capitalists and getting vindicated with an investment.

Though I’m happy to give advice on fundraising, I’m worried that more and more entrepreneurs seem focused on fundraising instead of building companies. I’d rather entrepreneurs ask my advice on how to get sales, build a brand or make their products go viral.

The truth is that venture money doesn’t take you anywhere. It’s a great tool to help you move faster, but it doesn’t forge relationships with customers, close sales or create a product that gets people excited. The money doesn’t do the work — you do.

Yet lots of people with good ideas and a lot of passion think that if they can just get venture capital dollars, they’ll have reached success. They’re focused on signing a deal, not building a business.

And that’s a big reason why the venture capital industry is in trouble. It funds too many companies with too little real technology making solutions for customers that don’t actually exist. Why? There’s a common belief that product comes before profits, and if you get the first right, the second is guaranteed to follow. “Monetization” can come later — if at all.

Yet time and again, companies with interesting concepts create something that there’s really no market for. Users aren’t buyers, and buyers are linked to a company’s long-term success. That may seem overtly obvious, but it goes beyond cash flow and comes down to a real and lasting investment that customers make when they purchase. They become invested in your company’s product and its success in a way that mere users can’t be. They’ve invested real energy and resources to select your product as a place to spend their hard-earned money. It sets the bar higher.

I’ve seen companies that got weak growing up with venture capital dollars. It kept them inside their own echo chambers and made it possible to create products with little or no input from customers. The money they raised gave the entrepreneurs a cushion and even allowed them to slowly fail without panicking.

That’s not to say that raising venture capital is bad. It’s not. It’s great for companies who need to ramp up sales and extend their product development. But before you go out and look for venture capitalists to meet with, make sure you do these three things:

  1. Go listen to customers. Find people who you think might want to buy whatever it is you’re working on, and talk to them about what they need. Steve Jobs famously said that “a lot of people don’t know what they want until you show them.” That’s true for cutting edge technology, but that doesn’t mean you should just go and create stuff and hope that customers will buy it. You have to listen to people’s problems and offer them a solution — even if it’s a solution that they couldn’t envision for a problem they were only dimly aware of.
  2. Find the people who can help you. That can be the right mentors, advisors or potential employees. Building a network takes more than connecting on LinkedIn. It means investing time and attention over months or years and proving yourself and your abilities to them over and over again. Pick people with high standards and impress them. If you’ve done a good job, impressing customers and partners will be easy by comparison.
  3. Stay focused. Entrepreneurs love to read the news and think that whatever is there is valid commentary on where they should be. That leads to crazy, mashed up products that don’t serve anyone. Chasing the flavor of the week shows a lack of real conviction and a clear sense of purpose.

Do these things before you even think about raising capital. The money helps accelerate you, it doesn’t do the work for you.

And just as the money won’t make things easy, venture investors themselves can’t solve your business problems. I know because I’ve invested in plenty of startups and worked desperately hard to help them grow. You can give advice, help with hiring and make introductions, but you can’t execute the business. You can’t grab the wheel and drive. Ultimately the success of any company comes down to the team and its ability to run right through the barriers that keep everybody else out.

My advice is to get over the idea that venture capital makes or breaks a company. If you’re looking for advice on raising money, see “The New Way of Raising Money” and the “Five Phases of Fundraising.” But if you’re looking for advice on how to build a successful company, it’s as simple as listening to customers, finding helpful people and staying focused. It’s simple, but it’s not easy.

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