I was recently speaking with an entrepreneur considering fundraising who was pre-revenue and pre-product. One idea we discussed was the option of “raising” by starting with a services offering. Here are a few reasons that option could make sense, especially in a difficult fundraising environment.
Prove authentic demand
Almost every entrepreneur believes they have a great idea (read The Mom Test). But when you are pre-revenue and pre-product, how do you really know? One way to test is can you understand the problem enough to pitch a solution to customers that they will buy today. If you can’t articulate the solution/value well enough and they won’t pay for it, I would question do you really have authentic demand? If not, keep asking more customer discovery questions to learn why not. If yes, see below.
Build product together
I am a huge fan of building with developing partners (i.e. potential customers). By selling a services offering, you don’t need a fully functioning customer facing product. You just need to deliver a solution that solves the problem. Guess what, that can be done manually behind the scenes. Imagine you are using a Google sheet and some analytics to deliver a “solution” at this stage. While doing it manually doesn’t scale, it does help you more rapidly iterate and learn what it takes to solve the problem.
Efficiency of time and money
Lastly, you get paid to do this, and doing a “services” product costs more your time (vs. the cash cost of building out a customer version). After doing the services multiple times, you not only get some “fundraising” in the door, you learn what the product does/does not need to look like. That time you would have spent trying to fundraise pre-revenue/pre-product is now spent actually delivering revenue and product.
Not every business can go this route, but if you can start with services that can be a viable option to get the business going. Then when you go build the product/software you are far more efficient with what you build, you already have paying customers that will convert to the product, and fundraising also becomes easier with paying customers and a working solution.