What evidence is sufficient to establish initial customer traction for an investor?
That really depends on the type of product or service you are selling, the types of customers, and the specific investor. Let’s break it down:
When you’re considering your product or service as it relates to ‘inevitability’ in your company, key factors include your ‘product development cycle’ and your ‘sales cycle’.
The product development cycle is a structured, iterative process of bringing a new product from initial concept to market, typically involving ideation, research, prototyping, testing, and launch. To get to a Minimum Viable Product (MVP), this may be a few weeks or a few months for a simple Mobile App that is being sold via an App Store. If you are developing a breakthrough semiconductor system-on-a-chip product, it may be two to three years.
Typically, customers won’t commit to buying something that they cannot purchase, so the MVP level is require to start the ‘sales cycle’.
The sales cycle is the time it takes to go from generating a customer lead to a purchase of your solution. In a complex enterprise sale, this could be anywhere from a few months to a couple years. In the automotive industry, even longer before you have significant revenue. In a simple lower-price consumer offering, it may be days or weeks, and on the shorter end of this if there is a freemium offering.
This is where it might get a bit tricky as it relates to your ability to secure outside investment for your company.
Some investors my be comfortable investing if you have signed a joint development agreement, a paid pilot program, or a non-recurring engineering (NRE) contract with a key customer that is representative of the market opportunity. Other investors may want to see ‘design-wins’, or a customer that has committed to purchase your product. If there is a contract to support this, even better. If there is committed minimum volume, even better.
If you are in the simple App business, it may be that the investor is looking for subscriber growth, conversions rate from freemium to paid, customer usage stats (i.e., are they just downloading the app, or are they actively using it?), and customer retention. Rate of adoption or ‘velocity’ is a key consideration.
Bottom-line, you need to consider the specific product development requirements and market dynamics associated with your solution development & deployment, your business model and your customer base.
You need to develop a customer journey process that converts and has repeatability associated with it. The further along you establish this, the investors will start to consider that you have established ‘product-market fit’, and have a clearly refined ‘go-to-market’ strategy.
What has been your experience in moving from pilots or MVP offerings to paid customers ramping volume?
#startup #founders #sales #funding #strategy
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