Unveiling the Funding Stages: How Solopreneurs Can Learn from Startup Progression
If you're a solopreneur or someone building in public, you might think that funding stages are not relevant to your journey. But hold on, there's valuable insight to be gained from understanding these stages and their goals. Ultimately, both startups and solopreneurship share a common goal at their core: Building a sustainable business. Let's dive in and explore each stage, relating it to the world of solopreneurship.
💡 Test Idea first - Landing Page Test
[Pre-Seed Stage]
At this stage, you're focused on proving the "Problem Solution Fit." - Stage 0.
You have an idea and you want to start a business around it. Sounds familiar?
However, many solopreneurs often get stuck at this point. It is no secret there is a popular Startup Fallacies: “If You Build It, They Will Come”. This is the typical scenario of building something for 6 months only to realize no one wants it.
They focus on their ideas as "solutions" without diving deep into the underlying problem they aim to solve, if there's even a problem to begin with. It's common to get caught up in cool AI integrations or incorporating Github libraries, hoping they'll magically solve someone's problem.
Instead of jumping straight into building your solution, start by identifying the problem it solves. Ask yourself who your target customer is and how your solution addresses their needs. Set up a landing page to articulate your idea. Run a quick landing page test. Engage with your potential customers, learn from them, and build a solid foundation before investing significant time and resources.
Example 📚
Idea: ChatGPT enabled email template AI
Questions you should ask: Who struggles the most with writing a good email? Engineers who are not wordsmith? English as a second language workers? Entrepreneurs who need to send cold emails? People who are negotiating in job offers?
How can you determine if a problem is genuine? Well, if someone isn't already investing effort or money to solve the problem, then it's likely not a real problem. Merely expressing a "desire" for something doesn't guarantee they'll become paying customers, as their desire may not be strong enough to prompt immediate action. Let's say someone is currently paying $20 per hour for a ghostwriter five times a week. If your solution offers comparable value at just $20 per month and includes instant email generation instead of waiting for a ghostwriter for two hours, trust me, they'll come running to you.
How do I know if they are putting effort or not? Go join their community and ask. Send DM to connect. Do a google search trend on "engineering update email templates" and see if people actually look for it. Be creative and try to see if you can pick up any strong signs of their effort to solve the problem already.
While it's true that sometimes building a quick Minimum Viable Product (MVP) and testing it can be beneficial, it's not always necessary to validate your hypothesis. Back in 2017, I embarked on my third venture in the chatbot space (No, there was no ChatGPT or a popular LLM at the time), and we validated 'Problem Solution Fit' without building anything initially. The outcome? The validation process provided us with a solid roadmap for three months, and we developed exactly that as our first product release. Within six months, we soared to the top spot in the Facebook Messenger Store, secured millions in funding, and ultimately got acquired after two years - I'll share the details of our success in a future post.
Ask yourself how you can validate before start building. Maybe a landing page test. Maybe hooking up bunch of no-code tools like Zapier. Be creative.
💼 Achieve Product Market Fit (PMF)
[Seed Stage]
During the seed stage, the ultimate goal is achieving the famous Product-Market Fit (PMF) -Stage 1 + 2 + 3. To understand if you've reached PMF, consider the mechanics of your business: traffic, conversion, and retention.
In any business, it is all about
How are you driving users to your store / platform? (Traffic)
How effectively are you converting them into paying customers? (Conversion)
And how do you keep them coming back / continue subscribed? (Retention or Churn)
The key to building a sustainable business is optimizing the ratio of Lifetime Value (LTV) to Customer Acquisition Cost (CAC). Your CAC represents the cost of driving traffic and converting them into paying customers, while LTV is determined by the price users pay multiplied by the number of months they remain subscribed.
Your goal is to increase the LTV/CAC multiple as much as possible in a repeatable manner. One-time surges from Product Hunt or viral Twitter posts don't count.
You need a consistent and repeatable channel, whether it's through paid ads, content marketing, or a popular Twitter account. Ultimately, you want to create a machine that can generate a positive return on investment, where the money you invest in user acquisition yields a higher LTV.
“Okay. If I put in X dollars on acquiring user and their LTV is X dollars on average - it is X times return!” ( Remember your sweat effort in time is also $$$)
To achieve your goal, it's crucial to focus on each stage I've outlined.
First (Stage 1): Landing page conversion. Aim for a good conversion rate of 2-5%.
Second (Stage 2): Retention or Churn. Keep your churn rate around 5%.
Third (Stage 3): You can only rely on one time viral hypes and paid ads so much. Start investing in building brands and awareness. Start writing contents. Start talking about the problem in your Twitter. Start building reputation in your domain communities. Master your marketing strategies.
If your conversion rate is low or churn rate is high, investing in marketing efforts only (Stage 3) without addressing these issues is like pouring water into a leaky bucket. Start on building your channels and contents (it takes long time), but your primary goal should not be solely increasing Monthly Recurring Revenue (MRR). While you may achieve short-term gains in MRR, if your business suffers from a leaky bucket due to LTV/CAC ratio, it won't be sustainable in the long run.
On the other hand, even if you only generate $500 MRR, but focus on building a repeatable system that yields an LTV/CAC ratio of 4, that's where the real success lies. Imagine someone offering you a chance to make a four-fold return on your investment of time or money. Wouldn't you eagerly seize that opportunity? I would rush to the bank and secure a $1 million loan tomorrow.
📈 Rinse and Repeat. Scale and Grow
[Series A Stage]
Series A funding is all about scaling your business. At this point, you present your LTV/CAC metrics and demonstrate a reliable machine that generates returns.
Series A pitch is literally, "This is the problem we are solving, here is the solution. This is the market size. Our LTV/CAC multiple is X with our marketing channel being A, B, and C. Give us Y dollars so we can do more A, B and C to multiply your investment X times."
While this stage may not be as relevant for solopreneurs, you have the freedom to choose your path. You can seek investors, hire professionals, or continue growing organically without external funding.
💥 Expand to a New Market
[Series B Stage]
In the Series B stage, you've conquered your initial market and are ready to expand into adjacent markets or verticals. This could involve entering new countries or targeting different customer segments. It's an opportunity for growth and diversification.
🔑 Focus on Validating Your Idea
Remember, ideas alone hold little value. Execution is everything, and FOCUS is crucial at each stage of your journey.
At Stage 0, your main objective is to pinpoint the ideal problem for your idea and identify your target customer. Your sole aim should be to secure 10 paying customers (pre-sales also count) or have 10 prospects eagerly inquiring, "When will you build it? When can I have access?"
Sorry to break your heart but “Waitlists” don’t count 💔
Without a clear definition of these elements, you'll encounter significant challenges when it comes to creating highly converting landing pages (Stage 1), determining priorities and product enhancement strategies (Stage 2), and identifying your target customers and establishing effective marketing channels (Stage 3). It's crucial to establish a solid foundation in order to succeed in these crucial stages of your journey.
Avoid getting caught up in metrics like MRR until you've nailed down the earlier stages.
Fix your leaky bucket. Master each stage, and success will follow.
Stay tuned for more in-depth insights on each stage in upcoming posts. Your entrepreneurial journey is just beginning! 💪
