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The Experimental Method

Entrepreneurs have to be ready to innovate, not just with technology but also with business models.  I meet with a lot of start-ups that have boot-strapped their way to their first revenues.  As they start to look for venture capital, they commonly ask how they can avoid looking like a modest growth business to VCs.  Boot-strapped companies often grow relatively slowly due to capital constraints.  The entrepreneurs believe that the infusion of some significant capital will fuel much more rapid growth.  How do they show this to VCs?

For many entrepreneurs, they may have to run some sort of experiment to show how effective new capital will be.  For example, if the venture capital is to be used to fund the development of a direct sales force, perhaps one person can be dedicated to this sales model today.  Although this person may have to be diverted from other activities, having some data to show what sales lead times will be, what typical objections are, and how productive the sales person can be will be very helpful in getting VCs comfortable that their investment in a direct sales force will be worthwhile.  If you can't prioritize someone to do direct sales over some other activity, why should the VC invest there?

Another benefit of trying an experiement is that you may find that your assumptions aren't quite right.  If the direct sales approach above doesn't work, you may have to tinker with your sales and business models in order to succeed.  It's better to find this out before your potential investors figure it out on their own.  This will make your proposition much stronger as you approach investors.

I think that Marketing is an art that can be reduced to a science once there are proof points.  So, don't hesitate to run experiments with sales and marketing strategy.  Once you have a model that is shown to work, it should be easier to raise money to scale that model to build a bigger business.  This culture of experimentation is a great one to have throughout the company, helping to keep it innovative and sharp.

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