How do I sell a startup that has a validated solution yet neither users nor revenue?
Among the primary FAQs within startup incubators and of advisors, is how do I get my product funded? You know the question through the variety of ways in which it emerges:
- How do I raise startup capital for my idea?
- I have a patent for the product we’d like to commercialize, how do we get investors?
- How do we get acquired the SaaS web app that we built?
Through MediaTech Ventures and our work with universities and economic development offices in countries throughout the world, we frequently encounter brilliant founders with products built, often underwritten development thanks to the government, hoping to get the product sold or company funded.
Why does it seem so hard to get such things funded? How does one sell a startup that put Product first?
Not easily, if at all.
The 1800 & 1900s left a horrible legacy on entrepreneurship; the notion that an idea or even a finished product is worth a lot.
It isn’t. It never has been. It wasn’t even in the 1900s.
What happened before the turn of the millennia was that ideas and products were worth more because of fabricated monopolization of IP, thanks to governments that would protect such developments at the behest of companies.
As human history emerged from mercantilism through the industrial revolution, we witness the Company become the dominant business structure. Armed with lawyers and political lobbies, Companies set about ensuring that any old idea they had was protected, and by extension, products, recipes, and inventions held the same protections.
These protections fabricated value.
An aside, don’t let me mislead you. Of course, such protections started to exist well before the Company and the emerging legal and economic changes of the industrial revolution. The U.S. Patent Office was created in 1790, for example, largely to make it clear that ideas and works were “not a privilege bestowed from a monarch” but indeed owned and therefore protected by the creator. My point is that it was with the explosion of the Companies in the mid-19th century that we saw the race for parents and protections accelerate
The Double-Edged Sword of Patents
As the Industrial revolution evolved humanity from tradecrafts and localized production, manufacturing, supply chains, and shipping emerged, requiring far more capital, coordination of human resources, and organization of process, to produce and move goods throughout the world. This led to the boom of the Company structure, and with it, much more pressure from companies to force their governments to protect their so-called intellectual property and products.
Immediately following that, we witnessed the quantity of Patent filings explode
The Industrial Revolution was the transition to new manufacturing processes in Great Britain, continental Europe, and the United States, in the period from about 1760 to sometime between 1820 and 1840.
So, appreciate the clear correlation. Many will argue that Patent protections exploded because it was an era of great invention and innovation.
And that’s true.
But what is also true is that humans have always invented and innovated. It wasn’t until the Company, Lawyers, Lobbyists, Crony Capitalism, and Politicians conspired that people started fabricating value in mere ideas.
The impact on the world today is evident in your question.
Entrepreneurs throughout the world continue to lead pitches with, “I have an idea and a patent, who will invest in that?”
- Universities have massive commercialization offices merely to license and make money from the inventions of students and faculty
- People hold portfolios of patents they’ve acquired, merely to litigiously pursue any infringement of their owned patent, making millions for doing nothing more than holding a government protection of the idea
- Founders are encouraged by lawyers and advisors to secure a patent, as though a patent does anything at all to make a successful company (or that a startup could even afford to defend a claim on the patent in court)
- And countries, not just yours but throughout the world, hope to help their entrepreneurs make something of the brilliant minds of their country, with a product ready to go.
And yet none of that, NONE of that is actually any real value.
Read that quote again, more or less backwards.
Since everything a company does except marketing and innovation is a cost, that means marketing and innovation creates the value.
The thing doesn’t. The idea doesn’t. A patented idea, or for that matter an idea, is actually worthless. The government protections of something are what fabricate value; extrinsic value — that although the protection makes it valuable, that doesn’t mean it’s actually of any value at all.
The market does. And ongoing innovation of the solutions provided enable a product to retain and continue creating value.
A customer created is an indicator of success.
A customer created is evidence of value from developing the market and innovating ongoing.
Economist Peter Drucker even noted this, “Business success is not determined by the producer but by the customer.”
What you have is a thing that you think has value or is likely unique in the world, but the idea of the thing and the production of that thing, is worth only what it takes for someone else to create the same thing — the nominal cost of recreating it.
Any other impression of value is because society has been misled by the last 150 years, that the idea and the product are valuable: they’re not, that’s a fabrication thanks to legal protections put in place by governments.
In a global economy, one in which such protections are meaningless across most borders, we start appreciating this fact. Many countries throughout the world culturally encourage their society to copy and recreate other ideas and products — why? Because the thing itself really isn’t worth anything; it’s what is done with it that is valued in the market that is worth something.
Look at our patent chart again, into the 1940s: a slight trough. The world didn’t cease innovation, what happened was the World Wars of the early 20th century opened countries up to the world as never before and people discovered the value in ideas shared rather than horded. As communication between people throughout the world increased, innovation flourished but efforts to protect those innovations waned, relatively, since people realized the protection itself was rather futile, if not hindering people elsewhere in the world from benefitting.
This is the world in which Drucker grew up and from which his observations in the 1970s, as an adult, were made. That, these ideas and products aren’t really what’s creating the value in the world — it’s the market and continued innovation.
Notice what happened again, after 1990, in that patent chart.
The revolution of our economy again to The Information Age. The dawn of the internet.
Indeed, the internet gave rise to another explosion of new ideas and inventions, and it’s because of that and the persistence of the Company that the race was again on to fabricate value.
And sure, people have made billions thanks to the innovations of the internet, but as a moment in time, at the Idea or release of the Search Engine, the CRM, the Social Network, a SaaS Solution, etc., was the thing worth anything? No. Not at all.
Had those inventions failed to continue innovating, they’d be left behind, and perhaps even gone (see MySpace, Yahoo!, Geocities, and on). Did those products protected prevent competition elsewhere in the world? No, of course not. The only thing that created any value at all in all of those ideas and products was that they developed a market, customers, by doing the marketing to create and maintain value.
So, what then is the value of a validated SaaS Solution with no users or revenue? Not much, if anything at all. What needs to be done is a company and market created — that’s what’s valuable.
Troublingly, we continue to see this kind of question and these hopes throughout the world. I help run a Market Entry Program that develops the early entrepreneurs and products of the people of countries throughout the world, in cohorts (groups), into real value.
The number of Founders, economic development offices, government officials, companies, and universities, who persist in saying, “we have a product, how do we get funding for it?” is astronomical. It’s misplaced, misled, and thanks to 150 years of mistaken legal precedent, unfortunate.
You don’t get a startup sold on a product and validation alone. What you have is some engineers who made a thing because it seems like a good idea. Without the market, competitive advantage, and a roadmap for ongoing growth and innovation established by marketing, you haven’t created much value.