Entrepreneurial Strategy: Presale + Bootstrap

Large companies that sell to other businesses have a market research advantage over consumer companies. They often go to a customer and ask "what do you want?" Then they make it. I've seen this happen first hand in the semiconductor industry quite a bit. It must be nice to have a guaranteed demand of 1 million units of an undeveloped product instead of wasting your efforts to build something that, it turns out, no one wants.

Entrepreneurs can use the same strategy to launch a new business. Find that first large customer that will buy your product or service, then develop it. Why would a company do that? Because they want to stick with what they do. They don't want to get into your business. If you can meet a need that no one else can, they may fund the development of your widget.

Be warned though, this is a very difficult strategy. It isn't easy to find scenarios where a big client has an unmet need that they a)realize is a need and b)haven't found a solution for. If you do find one, then you have the challenge of convincing the company that you have the expertise to develop and deliver a working product. Two things can make this easier for you.

1. Build a prototype. You have free time after your day job, build a stripped down version of your widget just to let people see it. Rumor has it that Jeff Hawkins made the first palm pilot model out of wood just to let people feel it.

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2. Look at your current company as a customer. If you can provide something to your employer, they are more likely to trust you than the people at a company you have never dealt with.

Once you sell the idea/prototype, you have revenue that is guaranteed (well, almost guaranteed). This makes it easy to budget and boostrap your way through the first iteration of your product/service. Then with a real version, you can find new customers more easily.

This is a strategy that I have tried with absolutely no success. Several years ago I tried to sell the Army PR department on a blog tracking tool to measure the buzz about the wars in Afghanistan and Iraq. It got me into an endless loop of phone tag runarounds. I played along for about 4 months, until I began to hear rumors of buzz measuring tools and decided to give it up for something easier. And therein lies the biggest challenge in this strategy. How do you get to a decision maker at a major company that understands and appreciates your pitch and can help you drive it through the company? That's tough, but it is possible if you work at it. Like any entrepreneurial endeavor, there is hard work involved. But if you want a strategy that makes money from the beginning, this is one to look at.

  • David G

    Good post Rob – I’ve seen strategy this work very succesfully.

    A third option for executing on this is to start consulting to companies who need help with random projects related to your expertise. One of them will eventually ask for something that could be turned into a product. You now have a “beta” customer. Keep the rights to your invention & start working on a version of the product that can be easily distributed.

    Note: the hard part is crossing the chasm from consulting to product revenues – from highly customized to cookie-cutter deliveribles – its a scalability problem which some great consultants never master.