So I found myself in a funny situation a few months ago. I invested in and helped incubate a company, a company that will remain nameless, a little while back. This company started life with a specific mandate – to a provide a service to a specific customer base where we had built in, well customers. We put in a small amount of capital to start the company, which was all that we thought we needed. We got off to a quick start and immediately put some revenue on the board.
Then things started to slow down. New customers weren’t closing. We kept getting verbal yeses but no contracts. Our customers became less profitable and overall we faced challenges. Many of the challenges were really growing pains as we didn’t fully understand the nuances of how to sell our product. We new the product and we knew the market. Together, that doesn’t mean you understand the product/market fit sales psychology though until you try it out. It turns out, myself and one of the other investors kept asking each other, “what can we do with more money?”, “Should we invest more” and other similar questions. We were willing to. However, we couldn’t figure out how to spend it. We would brainstorm ways to use capital and the only utilization that came up was to pay more people – yet we couldn’t figure out how that would actually lead to growing faster. Yes more headcount but not more revenue.
So what happened? We didn’t invest more into the business and it kept chugging along finding its way until customers starting really biting and now it looks like it will start scaling.
What’s the lesson? Capital doesn’t solve problems. Understand your business and product/market fit does though. Talk to your customers. Solve their problems. Don’t raise money to figure out what their problems are.