Ever heard of Shopify, Lynda, or Mailchimp? Of course you have. They all started with seven-figure valuations and pre-revenue funding, right? Wrong. Called “Invisible Unicorns,” these companies, and many others like them, got a significant start with $0 VC funding, and not much else. Here’s how you can emulate their success.
If you’re entrepreneurially minded, the idea of creating a tech company is like an itch—at some point, you know you’ll have to scratch it. But starting a tech company is not easy or cheap. A quick Google search will reveal what we all know to be true – developing technology can cost anything from $10,000 to millions, and even then it’s unlikely you’ll be finished or even have paying customers.
To solve this quandary, many tech founders turn to venture capitalists, but this approach certainly doesn’t work for everyone. It’s getting harder and harder to secure VC funding without a clear path to profitability. Not to mention, there are some significant cons to VC funding that you’ll need to consider.
Knowing this, perhaps you’ve decided to self-fund. If so, you go, you good thing! Here’s how to start a tech company with no funding, with advice from one of Australia’s top young entrepreneurs who has done just that.
1. Get Someone to Buy Your Product—Before You Build It
If you have a great tech idea, the first thing you want to do is go out and start building it, straight away. In fact, you’re probably sitting there right now, Googling developers or agencies, but before you do that…
It may seem contradictory, but the first step in starting a tech company is not creating the tech. Far from it. It’s ensuring you have an audience for the product you’re about to build.
If you think your idea is so brilliant that you don’t need to do that, you could find yourself spending a lot of money and then getting a rude awakening. The internet abounds with stories of businesses that created something they thought customers would love but soon got their comeuppance, including Juicero, who spent three years and $118.5 million creating a luxury juicer, only to have no one want to buy it.
This is a trap that Lisa Parnis initially fell into when she started her tech business, Red Hero Group. After seeing the transformative power of sales coaching in the workplace and thinking that this could be digitized, Lisa took a year off work and invested a five-figure sum in developing an app.
Soon after, she was offered a role at Google. While there, she got to interact daily with her potential target customers. But there was a problem:
I was out in the market showing sales teams what I had built, and although they showed interest, I got the feeling they weren’t ready for what I had created. That gave me some serious doubts as to whether I should invest more in development at that stage, as I had already invested a significant amount and I didn’t want to continue down this path unless I was sure.
Lisa’s early feedback helped her to realize that she needed to pivot her tech to be more focused on teaching skills, as opposed to just coaching. But instead of going ahead and creating something new, she tried a novel approach that helped her secure more big-ticket clients, before she’d invested any more in development:
After the Google experience, I thought, I’m not investing another cent before I 110% have a committed client wanting to buy what I create. So I taught myself how to use a couple of different software programs, including Prezi and Moqups (an app prototyping tool). Basically using those, I was able to design the experience I envisioned, and sell that to potential clients.
Although Lisa was initially unsure as to whether she’d be able to sell something she hadn’t yet even started creating, she was pleasantly surprised
Using that exact approach, I was able to negotiate a number of six-figure contracts (some of which turned into seven-figure contracts) with a few of Australia’s most well-known companies. And you know what? They had absolutely no issue with my prototype. After all, people don’t need to press a button to know what a button should do. They just need to believe in the concept.
2. Diversify (or Side-Hustle)
After you’ve secured a client for your tech, should you go gung-ho on development?
Sinking hundreds of thousands, if not millions, into development might be OK for a VC-backed startup, but it’s unlikely to cut it for a self-funded tech company. That’s because, unless you’ve saved up a seven-figure sum yourself, quite honestly, where is the money going to come from?
Although the idea of going “all in” is romanticized in the startup community, it’s often less risky (and more realistic) to keep yourself financially afloat by either keeping your day job, freelancing, consulting, or diversifying your business offering. This will keep funds coming in, which you’ll definitely need if you want to continue building your tech.
This is exactly what Lisa did.
I was “all-in” for my business in the way that I would do anything to make it work. And looking at my financials (in the beginning), it was clear to me that even though I had already negotiated some big-ticket contracts, I would still need to do more to be able to bring my vision to life. So I did more. Using my professional skills, I consulted to clients, delivered training, did some keynote speaking, in fact, basically I tried to do anything I could.
Lisa says that there were two key reasons she diversified her business offering:
I needed the money, sure. But I also wanted to spread the risk. Investing heavily in tech is one of the riskiest investments you can make, and we hear about the good-news stories. I backed myself, but similarly, I didn’t want to be one of those people that had invested everything and it amounted to nothing.
3. Get Your Own Tech Team
Unless you’re a whiz-bang developer (and let’s face it, few of us are), to build your tech, you’ll need a team. But a tech team isn’t exactly easy to come by, especially with the current worldwide shortage of tech talent. So what should you do? Should you engage an agency? Should you bring on a tech co-founder? Or should you hire your own team?
For many entrepreneurs, bringing on a tech cofounder is their first preference. This is because having someone on board 24/7 means that you’ll have the guidance you need to direct any developers, without having to understand it all yourself.
But again, this can be problematic if you’re self-funding your startup. Will you be able to convince a co-founder to work for equity? Do you even want to give away equity? And if you don’t, will you be able to afford to pay them?
The tech issue is something that Lisa grappled with from the very beginning, and she ended up learning a number of expensive lessons along the way.
“From the beginning, I was directing the development of the tech myself, and I could see that it would have been great to have someone with a bit more expertise doing that.”
But as she didn’t have a tech co-founder, Lisa ended up partnering with an agency to further develop her tech. In the end though, it didn’t pay off.
I respected the agency I was working with, but ultimately, our values weren’t aligned. And what I mean by that is that it was my vision, and although they did basically what was required, they were never truly as invested in it as I was. And I started to feel like that discretionary effort would have made all of the difference. I realized later that I’d also spent 20 times as much as I would have if I had simply hired my own developers.
After her experience with an agency, Lisa ultimately ended up hiring a CTO, as well as her own developers. She felt this was the best decision:
The agency option wasn’t working for me but likewise, I felt I couldn’t direct the development of tech myself. So I ended up looking for (and finding) a CTO.
But he wasn’t any old CTO. He was very experienced in building and commercializing technical marketing products, so he understood both development and the business side of things. He was also confident and experienced enough to challenge me on what I needed to be challenged on. So I ended up getting much more than a CTO to lead developers…I got a CTO who could lead the business.
I think every business needs that.
4. Stay In, and Ahead of, the Market
When it comes to tech, the old adage “don’t reinvent the wheel” is often true. And while there might be room in the market for a few competitors within certain niches (think Uber and Lyft, for example), if you’re self-funding your tech, you need to be 110% sure that someone isn’t creating what you’re creating, especially if they can do it faster or better.
The internet abounds with stories of founders who haven’t kept abreast of the market, only to realize that their “life-changing” invention has, well, already been invented. One famous example was the Crunchpad, an early competitor to the iPad. The creators of the Crunchpad took their time perfecting their invention, creating it over the course of a few years. The problem? They took so long, it ended up being launched two days before Apple’s iPad, and its features and functionality paled in comparison. In the end only 64 were ever sold.
Keeping abreast of the market is something Lisa has always been conscious of, ever since she first pivoted. Of her approach to development, she says:
I have a specific vision in mind, of course, but ultimately my product is the sum total of what my clients say they want and need. I’m always testing, iterating, testing, iterating, and simultaneously keeping an eye on what else is being developed to ensure I’m unique.
Recently I learned that there’s a few tech companies, big ones, that are developing the type of AI I’ll need for my tech. So it makes sense that I wait for that instead of sinking seven figures into developing it myself.
What would be the point of me doing it? There’s no way I am going to be able to compete with the Googles of the world, in terms of development speed or resources. I should simply wait to leverage what they’ve built and laser-focus on my point of difference.
5. Invest in Your Own Professional Development
If you choose to self-fund your own tech startup, you’ll have lots to do. You’ll need to constantly validate and revalidate your idea, direct your tech team, grow your audience and potentially freelance/consult in addition to all of that.
But no matter how busy you are, one thing you can’t forget about is your own professional development. This is particularly important for self-funding tech entrepreneurs, as they may miss out on the networking, mentoring, and experience typically provided by a VC firm.
There are many ways you can replicate a VC-type experience, though. From taking online courses run by successful tech entrepreneurs, to participating in a startup accelerator, there’s a ton of options for getting access to the vital expertise you’ll need to succeed.
Lisa’s professional development came by way of participation in MIT’s coveted entrepreneurship development program. Lisa had always felt like the US was the mecca in terms of tech development, so she wanted to learn from the world’s best in that location, while networking with other tech founders and meeting potential investors.
Lisa says that her experience at MIT was critical in the development of her business, which, by the time she attended the course, had grown by over 127%. Yet still, she knew it was going to be a long road ahead with her tech so she was, by that point, considering VC funding it:
By the time I went to MIT, I was seriously considering VC investment. I actually met a few investors through the course, and they said they were interested . But they also gave me a warning. They said, “If we invest, if anyone invests, be ready for hypergrowth. We’ll expect that. We’ll push and push until we get it.”
The advice Lisa received made her give pause to the idea of taking investment:
Investors are just that: people who expect a return from your business. They invest, they expect 1 out of 10 to work, they want to ten-times their investment. To get that, they’re going to encourage you to do things you might not be comfortable with.
Based on that, Lisa decided to not pursue investment just yet, a decision she has stuck with to this day. And so far, she has no regrets:
If I had taken money , I’m sure I would have spent it by now. But what I’m not sure of is whether I was really ready. I’d prefer to keep testing and iterating until I’ve tested every assumption and I know people are ready to buy.
Ultimately, for now anyway, I like retaining full ownership of my business and ideas. I like the relative freedom of self-funding and growing at a pace I’m comfortable with.
Is Self-Funding for You?
Self-funding your own tech startup might not be the easiest road. But as Winston Churchill famously said, “A pessimist sees the difficulty in every opportunity; an optimist sees the opportunity in every difficulty.”
Do you think self-funding opens up more opportunities? Or do you think VC funding is a better route? Have you tried for VC funding, only to need to self-fund through lack of options? Tell us your experiences in the comments.