How Do You Test and Fund Your Idea? Josh Kaufman Founder of the Personal MBA Has a Plan
Do you have an idea for a product? Maybe you have a Moleskine notebook labeled “My Stupendous Ideas.” Where, according to you, each idea is worth millions. Unfortunately, instead of making the idea a reality you’re making an excuse, “If I had the money and time I would build the world’s best widget.”
If I had to guess, neither the lack of money or time is holding you back. What’s the issue: you are holding you back, it’s the internal conversation that you are not good enough. While there are countless strategies on how to manage the internal conversation, I have found one bulletproof strategy — just do it.
Execution is a robust approach to making your idea happen. Author Gary Vaynerchuck explains that execution is everything:
Amazing ideas happen all the time. I’ve had great ideas. The guy sitting next to you as you read this has great ideas. The girl you see on the bus in the morning has great ideas. But once you have that idea, the next step is to go and do it. Just make it happen.
So I snatched my Moleskine notebook labeled “My Stupendous Ideas” chose an idea and did it. As I was executing my idea I quickly discovered two important items:
- Stealth Mode
- And Funding
Why Stealth Mode Is Plain Stupid
Each time I executed an idea I worked feverishly in the shadows. Why, in stealth mode because there is a popular theme amongst entrepreneurs that your product must be built in secrecy, otherwise an unscrupulous entrepreneur will steal it. Josh Kaufman, the founder of the Personal MBA, disagrees with the popular belief:
“Stealth mode diminishes your early learning opportunities, putting you at a huge early disadvantage. It’s almost always better to focus on getting feedback from real customers quickly as you possibly can.“
I would preface Kaufman’s argument by saying, “because you make your idea public does not mean another entrepreneur will execute like you…. there will be differences in passion, purpose, skill set, and available financing.” Kaufman continues to share:
“Don’t be shy about showing potential customers your work in progress. Ideas are cheap what counts is the ability to translate an idea into reality, which is much more difficult than recognizing a good idea.“
So how do you show potential customers what you are working on, the prototype. The prototype is an early representation of your product. It does not have to be a physical product; the prototype can be a flowchart, a computer rendering or a diagram. The purpose of the prototype is as Kaufman explains:
“As you show your Prototype to potential customers, you’ll get a steady stream of ideas and feedback that will help you make your offer even better.”
People Love Your Prototype, But Now What?
So your prototype is garnering attention, and you are even getting pre-orders. So you now need to build the product but where will you get the capital? There are some financial solutions that you can pursue. The most agreeable would be bootstrapping. Kaufman explains:
“Bootstrapping is the art of building and operating a business without funding. By limiting yourself to the use of personal cash, personal credit, the business’s revenue, and a little ingenuity, you can build extremely successful businesses without seeking funding at all.”
I use bootstrapping as my financial solution. This philosophy allows me to have 100% control over my business. But if you want to grow your business beyond bootstrapping you will need outside capital to improve your purchasing power.
Kaufman illustrates nine funding strategies, all of which I have quoted from The Personal MBA:
- Personal Cash. “Is by far the best form financing. That is where most entrepreneurs begin by financing themselves.”
- Personal Credit. “Is another low-cost method of financing. As long as your needs don’t exceed a few thousand dollars.”
- Personal Loans. “Are typically made by friends and family.”
- Unsecured Loans. “Are typically made by banks and credit unions.”
- Secured Loans. “Requires collateral. If you don’t make the payments, the lender can legally seize the property promised as collateral.”
- Bonds. “Are debt sold to individual lenders, the business asks individuals or other companies to loan them money directly.”
- Receivables Financing. “Is a special type of secured lending unique to businesses. Receivables Financing can make millions of dollars in credit available.”
- Angel Capital. “An individual private investor, someone who has excess wealth they’d like to invest in a private business.”
- Venture Capital. “This takes over where Angels leave off. Venture capitalists are extremely wealthy investors with very large sums of capital.”
- Public Stock Offering. It involves selling partial ownership of the company to investors on the open market.*
I have found that deciding which financial option to use depends on where you want to take your company. If being a solo-entrepreneur is all the altitude you want then bootstrapping might be all the funding you require. But if you are looking at going IPO then you will need to leverage a vehicle such as venture capital.
So I end my conversation with you as I began it. Do you have an idea for a product or service?
If you do, then I have given you two fundamental building blocks. Unfortunately, there is no guarantee that if you follow my advice, you will build a product that others will buy. My hope is that you are walking away from this article a more informed entrepreneur.