What to do with your first 100k

Pravin recently tweeted asking how start-ups should spend the first 100k of angel money. Since we’ve been doing just that at Unbxd, I’ve developed a point of view based on our experience. Please keep in mind that the points below are based largely around a:

• B2B product start-up;
• Serving e-commerce companies.

During the months following the funding, your sole focus should be on the product. The focus should be on executing the plans needed for delivering a product. It should be geared for winning the initial sales and reference customers for validating the product. This is easier said than done. Executing on the product needs a supporting back-end, which includes:

• Product Vision
• Sales
• Market
• Team

This means a couple of things on the ground. Product Vision Having been in fund raising mode, you obviously have an idea of where you’d like your product to go. You don’t necessarily need to have every single detail worked out but a vision tells you a couple of things:

1. Who will it be targeted at, you should have at least figured out who in a business organization the product is aimed for, i.e. who will be using it? Someone in the engineering team? Or the sales and business development? the engineering management? marketing department or the leadership in the form of the CXOs?
2. Usability, how accessible will the product be for them, what kind of use cases would you like to handle.

Sales Your goal in this phase should be to win as many customers as possible. Since your resources are limited, it will never be possible to chase up every lead. Reference Customers Instead, you should be focusing on winning those few reference customers. They’re extremely useful because they:

1. Push you and the engineering team to solve pain points that exist beyond what you have or had imagined. The trick is in separating signals from noisy inputs. Not every pain point might be within the ambit of your product vision and not every signal may be possible with the given resources you possess.
2. Validate your assumptions about the product. Yes, you have to separate signal from noise, but you also need to ensure that you’re also validating existing functionality. Just because you have a product vision is no guarantee that someone will pay for it.
3. Are a beacon for other prospects. These are generally larger customers who push the product from being a rudimentary prototype that you built for validation, towards being a whole product. Solving their pain points qualifies your product to solve pain points for customers in the same market segment. The prospects in the same segment look to these reference customers for industry leadership and minimizing their own risk.
4. Help you find out how much people will be willing to pay for your product.

Generate Leads You may have to spend money on lead generation or spend money travelling and generating demand. In either case, do qualify your leads before spending time and money. Try doing as much remotely as possible. Use your investor networks and cold-connects on LinkedIn. Attend and present at conferences but spend wisely on them. Be specific about what you’d like to achieve at confs and triage through the confs to attend the most relevant ones. Plan your expenses for confs well ahead so you are not surprised on hearing of a highly relevant conf and not have the budget support the expense. Market Sales is one part of the equation of getting someone to pay for your product. You still need to understand the structure of the market you are selling in. This means a couple of things: Identify the Segments You can’t sell your product to everyone. This is as much a problem of product fit, i.e., the usefulness of the product, as well as your resources and bandwidth. Knowing that there is always a temptation of trying to sell your product to as many people as possible, you must resist this temptation because it takes resources to do so and also dilutes the focus in your product. Identifying segments in the market helps you understand:

1. Who your target customers are. For instance, not every prospect may be able to pay for your product. You’ll have to identity which ones to go after based on their ability to pay.
2. Who your competitors are. Not every product similar to yours in technical specs may be your competitor. You’ll have to identify competitors based on target market, pricing and support models.
3. How much will a prospect be willing to pay. Every segment’s capacity to pay is different. You may choose to go after one segment or multiple segments depending on how much they’re willing to pay and the expected returns.
4. How to position your product. Different types of messages echo differently to different segments. A business-person might look at the ROI, an engineering manager might look at the cost, an engineer might look at product performance. You’ll have to determine the characteristics of different personas: user, buyer, influencer and appeal to each one differently to attract them to your product.

Identify the Buyer Within each customer organization, there will be different people involved around your product. One among these groups will be the end user. Identify the positions in relevant departments who will be using your product. This group may or may not be the same as the people who understand the business consequences of the product. This group will be the people who will influence the buying decision. There may be a third group who will be ultimately paying for it. Depending on the size of the customer, all the roles may be played by the same or different individuals. Team Since you have a general idea of how the product will look like, you should be able to estimate how much work it will take. Here are some of the things you’ll need to keep in mind: Office Get a decent office. Working out of a smaller place is fine before the funding. You really need a decent office to interview candidates and give them a sense of your company. After payroll, this generally ends up as the biggest expense. In Bangalore, it is easy to see security deposits shave a few percentage points off of your funds, so negotiate the amount and payments carefully. Keep in mind that you don’t want to be in a situation where you have to look for another office soon. It is a huge time-sink and you do not want to put in so much time again to go office hunting. Lead Time If you have identified the candidates already then you’re good to go. If not, start interviewing and identifying the candidates early. You will need the lead-time to help them settle affairs at current jobs. Once they’ve joined, it will take longer to understand the product, the company’s vision and start working in a new team. Skill Sets You know what you want to build, so you should have figured out what knowledge is assumed from the roles versus what can be picked up quickly. Experience You will need to determine how much experience you can afford to hire. It is always best if you can arrive at a balance between equity and salary for the experience you need. Keep in mind that you have to think about how diverse the team’s experience should be. You may not want everyone to be a fresher or an experienced engineer. This really depends on how much money and time you have and the complexity of the product. Head Count Hiring a great developer is a good move, but there are limits to how much is humanly possible with a few great developers. Keep in mind that there are things that need to be done in parallel. Think about what all needs to be done in lockstep, what can be serialized, then take a decision on how many developers you’ll need. The head-count also depends on how much runway you have. If the product vision exists then you know how much time you’ll need to develop it. If not, I suggest keeping payroll (and preferably all other) expenses low till the product vision clears up. While planning head-count, always assume attrition. Someone is bound to leave and you do not want to be in a position where product development comes to a halt or that in a particularly critical phase you have to go recruiting again. End Game All four: product vision, team, sales and market work as inputs into the production function. Ultimately, focus on the product once you’ve converged on a sustainable monthly outflow. Keep in mind, the money won’t last you long; it always takes more money and longer time to build, so decide priorities wisely.