Get Out of the Basement Early, but Don’t Stray Too Far

Get Out of the Basement Early, but Don’t Stray Too Far

Get Out of the Basement Early, but Don’t Stray Too Far 150 150 Basis State - We Find Exits for Software Companies

In business school I had a new venture class in the school’s basement. During a group project, while we were devising overwrought strategies based on theory and not much else, the professor said, “I think it’s time for you to get out of the basement.”

Maybe he meant it literally, but I’ve used the expression figuratively many times since. “Get out of the basement” means go talk to some prospective customers, and do it as early as you can.

Where it gets complex is in balancing the need to talk to customers with not prematurely squandering resources on selling.

Let’s start with a few assumptions. I’m assuming that you are trying to build a product business that scales. I’m assuming your resources are thin; that you’re not working with a big team and a pile of capital that can be parsed to multiple pursuits at once.

The 3 main areas where an early stage company can focus resources: Product, Business Model, and Sales. How and when you shift focus between these areas is critical to maximizing your runway.

When a company gets stuck in the basement, they’re often iterating their product at the expense of time with potential customers. The product never manages to fit the market because the market is never understood. Product development is expensive, so this is a good way to burn through cash.

Alternatively, companies can get too far into the market too early, and the results can be just as dire. Oftentimes companies are putting way too much importance on hitting a growth or ARR figure they think they need to raise a Series A. They work the metric rather than the underlying business model that will fuel the metric.

Straying too far can create a couple of different outcomes. Outcome 1: in its desperation to close sales, a company will make ad hoc tweaks to the product to satisfy individual customers. It manages to sell and survive, but growth flattens. Without a product they can re-sell repeatedly, they have essentially created a services company. Outcome 2: they pour sales effort onto a flawed product, customers churn, and they continue to fill the leaky bucket until cash runs dry.

Ideally, you’ll get out of the basement early. You’ll spend the bulk of your early resources taking your MVP into the market and learning as much as you can about why it’s interesting to customers, how they are using it, how much it’s worth, and where it’s falling flat. 99.9% chance you had it wrong out of the gate, so you’ll be adjusting as you learn. Selling is a good exercise at this point, but in the interest of learning, not scaling revenue.

Once you’ve found the right business model, and have adjusted your product to address it, you can pour resources into sales and start significant product enhancement that keeps you ahead of customer needs.

By all means, get out of the basement as soon as you can. But make sure you’re doing it with the right objective in mind.