The pre-revenue startup phase has a host of stresses that hopefully disappear as the company begins to earn revenue.
Depending on the amount invested, it is possible that all members of the team are working full time jobs to support themselves and then doing that again to push their startup onto the market. You also might need to be watching your burn rate extra closely as the pre-revenue stage is by no means the pre-expense stage.
This stress and the high risk of failure that comes with it is why founders are trying to accelerate their pathway through the pre-revenue startup phase.
In this article, we are going to go through the stages of a pre-revenue startup, how to seek funding, and the tools available to help you through all of this.
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A pre-revenue startup is just that—a new company that has not yet begun to earn revenue. This might be by choice to build a brand before seeking ad revenue, by necessity while developing a platform, or unexpectedly during the search for your first clients.
The pre-revenue phase is generally considered to have five basic stages.
The pre-revenue startup typically goes through five stages:
Research
From idea to MVP
Getting traction
Back to the start: final improvements
Aiming for maturity
Let’s take a quick look at each of them.
It is easy to think up an idea that is worth millions or even billions. I once had an idea for a company where you can rent out your spare room. Unfortunately, I was a bit late. While brainstorming ideas is important, you also need to be seeing if there are already companies out there offering the same thing.
If there are already companies out there, don’t fret—you don’t need to be the first, best, only, or biggest business pursuing an idea, you just need to come at it from some unique perspective. It might be that you offer better service, or cheaper service, or service in the suburbs when it previously only existed downtown, or you are differentiated in one of a thousand other ways.
Come up with a logical research plan that focuses on the competitors and prospective clients, and work in a way that fills any gaps you find.
You have probably heard of a minimum viable product (MVP). You’ve probably also heard the following quote by Reid Hoffman, the founder of LinkedIn: “If you’re not embarrassed by the first version of your product, you’ve launched too late.” These are sacrosanct to startup culture, and for good reason.
It is better to have your product out there building up views than sitting in the drawing room while new competitors are gaining notoriety. There are two good reasons for this. The first is that first movers in business have an innate advantage in marketing. The second, possibly more important one is that you need your product being tested by fresh eyes, and honest ones.
You need the feedback of honest, possibly paying users who will tell you exactly what is wrong with your product, and if you wait beyond your MVP to something more “complete,” then you’ve wasted months of good feedback and the good development that comes from that feedback.
But how do you get your idea to an MVP?
Start by buckling down and coming up with a reasonable developmental timeline—and then stick to it. If you’ve never been self-employed, then you might not be used to following your own schedule and this is going to be a learning experience.
Figure out what needs to be done and make sure you have the expertise to do it. If you can’t do it now, it is time to update your skillset or find someone who does have those skills.
Get the input of people who might want to use your product along the way. If at any point you are unsure about the direction of your idea, rely on those who will use it to guide you to success.
This is where you really go out there and try to push visitors to your site. This can be especially difficult if your startup is mostly developers as it requires a different set of skills.
Here are some suggestions:
Catchy branding: Find a way to set your brand apart so people recognize it instantly.
Promotions: If you have the funds to do marketing, figure out where your customers are likely to visit, and put ads on those sites. Offering potential clients special early bird discounts can go a long way to improving the effectiveness of cold emails.
Partnerships and referrals: Are there popular websites or influencers in your chosen industry? Consider setting up a referral or partnership to drive more early traffic.
The great thing about an MVP is that it will give you immense, real-time data about how your platform is being used. You can instantly see which features are popular and which aren’t. This will help you refine things.
Start to trim away the unwanted features and expand those that are well-liked. Now is also a good time to start going deep on your UI/UX game to make the platform as pretty and easy to use as possible.
Get deep insights into MRR, churn, LTV and more to grow your business
This might seem like the easiest step—you are known, have traction, the product is well-liked, and you are growing steadily. However, there is also a culture change to becoming a mature company. If you are addicted to triple-digit growth to make up for an inefficient business model, then you will find it especially difficult to enter maturity.
Sometimes the best way to become a mature, well-managed company is to find partnerships. Although you may want to avoid selling a portion of your company to some angel investor or venture capitalist, because of the all-too-real horror stories of seeking capital floating around the Internet or because you don’t want to lose control of your baby, a good VC might bring more value as the experienced grown up in the room than as the wallet.
Every SaaS company needs its financial metrics, and that is true during the pre-revenue phase as well as when slowly building up your subscription revenue stream.
Tracking all of these metrics by hand is impossible, and when you are just starting out paying for a metrics service is an unnecessary expense.
That’s where Baremetrics comes in.
Baremetrics provides an easy-to-read dashboard that gives you all the key metrics for your business, including MRR, ARR, LTV, total customers, and more directly on your Baremetrics dashboard. Just check out this demo account here.
Best of all, until your company reaches a robust $2,500 MRR, Baremetrics does all of this for free!
While there are no shortcuts to raising capital, most investors are looking for some specific things out of you.
The following items prove not just that your business is worthy of an investment but that you are as well.
Plan: They are going to want to see your plan from Day 1 to today as well as today to the future, 3 and 6 months out as well as 1, 2, and 5 years from now. Have you met the milestones you set in the past? Are you on pace to meet your next several? While this includes your hard numbers (ARR, MRR, LTV, etc.), it can also include your hiring practices, the iterating of your platform, and so much more.
Product: It is unlikely that you’ll find an investor without a fully fledged MVP at minimum. Keep an eye on product development as well as how users interact with your product to increase the value of your company.
Traction: Investors want to know your web analytics to see your popularity as well as the harder numbers—your ARR, MRR, LTV, CAC, etc.
Market: A strong market research presentation can convince an investor that you are also serious about making money. It shows not just the potential value of your company, but how you personally are going to navigate your way to profitability.
Team: If your team is comprised solely of amateurs, then that can be a red flag for a lot of VCs. If you aren’t an expert in the market you are entering, then you should be sure that you have those experts on your team and that your finance presentation proves you are taking personal growth seriously.
While most founders dream of running their company forever, others are more interested in being “starters” than “managers”—they want the thrill of creating something useful from scratch, and all the management decisions end up pushing them away from the development roles they love.
That’s where Microacquire can come in handy. Unlike the painstaking back and forth and due diligence of traditional acquisitions, to sell your company on Microacquire, all you need are your up-to-date metrics.
With as little as your MRR, churn, web analytics, number of customers, LTV, CAC, etc., you can find a buyer for your company and start your next big project—this time with a little more protein and a little less ramen.
Baremetrics is a business metrics tool that provides 26 metrics about your business, such as MRR, ARR, LTV, total customers, and more, which is exactly what you need to find a buyer or an investor.
Baremetrics integrates directly with your payment gateways, so information about your customers is automatically piped into the Baremetrics dashboards.
You should sign up for the Baremetrics free trial and start monitoring your subscription revenue accurately and easily.