Get traction first, investors later.

In this environment, it’s especially important to get “traction” (i.e. progress toward your ultimate goals for the business) before raising capital from outside sources. Here’s an example:

I worked with a client recently I’ll call Kelly. She developed an innovative concept for a line of fashion accessories. She and her friends loved the product ideas, and she had a simple prototype. She came to me thinking she needed a business plan in order to raise startup capital. But as we got to talking, it became clear that she hadn’t proven that demand existed. Would customers in her target market buy the products, and at a price that would let her turn a profit? She just didn’t know.

Before convincing investors, she needed to convince herself. Unfortunately, she couldn’t afford to hire a company to conduct market research and testing. Instead, we came up with a bootstrap alternative:

  • She got a friend in brand management to help her define the characteristics of her target market, and conduct focus groups with consumers in their neighborhood.
  • The focus groups helped her identify certain target consumers that were most likely to purchase the accessories. With more help from her friend, she created a survey and used a web-survey company to get quantitative feedback from hundreds of consumers in each target profile.
  • She couldn’t get appointments with buyers at the big chain stores, so she found ex-buyers, and owners of smaller “mom & pop” retailers. She created a survey, and interviewed them one by one, asking whether the product would sell, how it would have to be priced, packaged, displayed, etc.
  • Once she honed in on the right stores to hit her target consumers, she negotiated test campaigns with them. She produced a small quantity of products (knowing her costs would come down with volume later), and had the stores sell them on the condition that she’d buy back any unsold inventory. She also got permission to mingle with customers in the stores, getting their feedback on the product – including why people didn’t buy.

Kelly’s still following the plan – the whole process will take a few months. But afterwards, she’ll have a much more compelling story for prospective investors  – and more confidence that she’s sprinting down the right path.

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One Response to Get traction first, investors later.

  1. David, this is a really great bootstrapping method for everyone, especially in this economy. I agree, you have to prove demand or even better yet actual revenue and traction before having hopes of getting investors. From what I hear from the front lines, even seed and angel funds, who used to invest in pre-revenue companies are now looking for revenue. The only people who are getting money based on an idea are very proven entrepreneurs who have had huge and successful exits. This is not to stop anyone from proceeding forward, but just to be really creative as you suggested.

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