I’m all lean startup, just like you. I love being efficient and building things and MVPing them and getting out of the building. I love setting up analytics and iterating and learning and experimenting. All of that stuff is awesome. I recommend it to the founders I work with, I teach it in the class I teach, I love it.
But I think this idea that all you need to pitch a VC is a product demo has gone a bit far. It was great when we ditched the inch thick prospectus for the 30-page business plan. It was okay when we ditched the 30-page business plan for the 15-page deck. But when we ditched the deck for the demo we lost something extremely valuable.
I understand that showing a product best demonstrates to a bunch of addled VCs what your product is. I have sat in that seat and listened uncomprehendingly to a founder carefully explain their business, then seen the screenshots and said “oh, that’s what you’re doing.” All that proves is that I’m occasionally as dumb as the next guy. If what VCs want is a demo–the path of least resistance for everyone, really–then the worst that can be said about the founders is that they’re enabling bad VC behavior. I’m putting the blame here at the feet of the VCs, though both VCs and founders suffer from it.
Startups don’t fail because they can’t build their product. I read that in one of those books about Lean, Ries probably. Let me paraphrase what I remember reading: “startups don’t fail because they can’t build their product.” In my experience, close to 20 years of investing in, starting, and advising startups–some 60+ companies–none of them has failed because they couldn’t build their product. They failed because they didn’t understand their customer, because they didn’t understand their competition, because they didn’t understand their market. Technical risk is a big risk, sure, but it’s also the easiest risk to evaluate before investing. Whether the thing the team is building can be built and whether the team that plans to build it can really build it are straightforward questions and the answers can be determined straightforwardly. Whether people will use it, pay for it, cry tears of joy and relief because of it, those are hard questions. Figuring out whether those are true takes some real work.
Why do some VCs only want to see demos**, which prove only that the team can overcome the technical risk, instead of hearing about all the customer and market research the founders have done? Mainly it’s laziness: why do the work of understanding the market, just watch the demo and make a gut decision. Partly it’s pandering to the natural product-orientation of technical founders: who wouldn’t rather show the product than talk about whether dogs will eat the dogfood and if in fact dogs actually exist. Here’s the thing: VCs’ gut instincts suck* and pandering is pandering. It’s not only bad for VCs, but it’s bad for founders. It’s like going to a parenting class where the class leaders do nothing but ooh and aah over your baby. Of course you love it, but it’s a frickin waste of your time.
VCs should do founders a favor and make them write a business plan that talks about the customer and the market and how they hope their company will salve pain and endlessly scale. It will not only force the founders to think it through personally and think it through jointly with their co-founders, it will allow the VC to give something back to the founders during the pitch–not product feedback, VCs aren’t good for product feedback, they’re not your customer–but market and business model feedback. I love product demos, they’re easy on the eye and on the brain, but maybe talking about why your product is a business is due for a comeback.
* And so do yours, by the way; research shows that “gut instinct” sucks in general and is really just an excuse for slackers.
** Post-publish edit to add “some” before VCs to address Mr. Wilson’s concerns.