Over the last year couple years I’ve helped several startups after they’ve raised a modest seed round and searched for product/market fit. In every case, the entrepreneurs were too optimistic, drove product development hard, and fell well short of their revenue goals. Fundamentally, the mistake is believing that once investors write the check, everything is going to go according to the spreadsheet model. That never happens.
Here are four reasons startups need to stay lean after the seed round:
- Product Development is Never Finished – Entrepreneurs always cite product development as the main focus for the seed round. Only, with a small seed round, adding one or two engineers seriously increases the burn rate. Product development is never finished, so know that product/market fit comes with having the most fit, not the most features.
- No Repeatable Sales Process – A handful of unaffiliated customers is far from a repeatable sales process. Building a repeatable sales process is harder, and slower, than expected, so plan accordingly.
- Plan for 24 Months – Most entrepreneurs burn through whatever capital is raised in 12-16 months, as they’re optimistic and see opportunity. Instead, make the money last 24 months so that there’s more runway to course correct. It’s always easier to ramp up than it is to ramp down.
- Scrappy at the Core – Creating a resourceful culture starts on day one. Each round of financing creates an internal tension around how much of that scrappiness needs to let up in search of faster growth. Stay scrappy through the seed round.
Startups needs to stay lean even after raising a seed round. Focus on customers and ensure enough runway to hit the key milestones.
What else? What are some more reasons startups need to stay lean after raising a seed round?