I often meet with entrepreneurs who are faced with a choice when building their company: do you prove you can sell the product first and then go build it, or do you build the product first and then go sell it? Of course every business and product are different and there are pros and cons to each. But as a general rule, I am a fan of selling first and then building. Here are three reasons why.
Validate a Must-Have Problem
I remember building a new product where potential customers told me that if you “build X” we will buy it. Of course, I immediately went and built X and came back, only to have the customers come up with another reason to not buy yet. We have all experienced this pain. In many cases, the customer is just coming up with an excuse to try and nicely put you off. You have not truly validated you are solving a must-have problem. However, when customers are willing to fund development or buy the product based on a vision or mock-up, you will have much more confidence you are solving a must-have problem and have paying customers to move forward.
Sales is Harder and More Out of Your Control
With sales in hand for a specific prototype, it is much easier to focus and just build that product. With a product and no sales, you are at the whims of a sales cycle that often has many things outside of your control: the buyer at the company changes, they go through a purchasing freeze, they need more time, contracting nightmares, etc. If you sell first, you can ensure you have made it through several of these hurdles and give yourself greater confidence and a focused timeline to execute the product. Not to mention, you have several beta/paying customers to serve as development partners to really support efficiently building the product.
Less Risk and Better Use of Capital
Finally, building a product costs time and money. When you sell first, cash comes in before it goes out to build. When you build first, cash goes out before it comes in … that’s a tradeoff any CFO would take! Also, when you build first you will inevitably make mistakes and build out certain features that are not needed. This waste of time and money can be minimized if you have already sold customers and have them as part of the development process. Plus, the “build it and they will come” approach makes getting investment much harder.
Obviously there are middle grounds and different product/market situations, but as a general rule most startups are better off proving they can sell the product first, then building it.