by Bret Waters
Bret Waters is a Silicon Valley-based entrepreneur, CEO, investor, and academic, who currently spends his time teaching entrepreneurship at Stanford University, running the 4thly Startup Accelerator, and coaching startup CEOs at the Miller Center for Social Entrepreneurship at Santa Clara University. We asked Bret for advice as to how founders should prioritize their efforts.
"Your Stanford students were great," my friend David Carlick said, "but tell them to spend their time selling customers, not selling investors."
David and I were walking back to the parking lot together after Pitch Night in my Stanford class on entrepreneurship. I had asked David to be a guest judge — he has had a long and successful career as a Silicon Valley venture capitalist, and he's one of the smartest guys I know. I knew the students would appreciate his input.
And indeed they did. Each student gave their 3-minute pitch that night and David provided lots of helpful input to them. He was very supportive and encouraging to each of them.
And, yet, as we walked to our cars afterwards, I could tell he was troubled by something. David said, "Their pitches were built around trying to impress investors, but the thing that impresses investors most is having actual paying customers." He continued, "That's the signal an investor is looking for, so that's really where any entrepreneur should be focusing their efforts."
I think this is a really good observation, and I realized that maybe I had made a mistake by having my students prepare pitch decks for investors. It's easy to get caught-up in the venture capital fantasy, especially here in Silicon Valley. Every wannabe entrepreneur thinks that success is all about getting some of that yummy venture capital. They think their life will be complete when they finally take their pitch deck to Sand Hill Road and come home with a wheelbarrow full of cash.
So, my students often ask me questions like, "What sort of projected profit margin should I put in my slides in order to impress investors?" or "What's the CAC:LTV ratio that investors want to see?"
This is an upside-down way of thinking about building a business, really. One really should think about building a business that successfully delivers value to customers. A business with a sustainable economic model. A business that you will be passionate about running.
The fact is that 95% of the successful businesses in this country have been built without raising a nickel of venture capital. Even many super-successful tech companies have been bootstrapped, built by hard-working founders who grew their companies by taking care of customers, not by taking care of venture capitalists. Take a look at MailChimp, a $2 billion company where the founders still own 100% of the company because they built it on sweat equity, not VC equity. Or Farmgirl Flowers, built by one hard-working founder and zero outside capital, now ranked as one of the fastest-growing companies in Silicon Valley.
Peter Drucker said, "The purpose of a business is to make and keep customers." Focus your efforts on that. Put your energy into selling customers, not investors. If you do that successfully, investors will be lining up at your door (and maybe you won't even need them).