I worked behind the scenes on the first five seasons of Dragons' Den (Canada's Shark Tank), getting entrepreneurs ready to pitch their businesses to investors with a ravenous appetite for deals. During my tenure, the show featured the Croatian Sensation himself, later known as the "nice guy" on Shark Tank: Robert Herjavec. Herjavec made his fortune in the digital security industry and is now an investor, rumored to be worth more than $200 million.
Here is the biggest lesson I took away from my hundreds of hours with Herjavec:
Customers before investors.
During tapings of Dragons' Den, the judges would see up to 18 pitches a day. One can imagine they'd quickly get frustrated hearing founders make the same mistakes over and over. The mistake that seemed to tick off Herjavec the most was when entrepreneurs sought investment before seeking out customers. I heard him call people out on this dozens of times. To paraphrase his words: "You don't need $25,000. You need 25 cents."
For anyone under 30, this may come as a shock, but before smartphones, there were landline pay phones all over the world, and they cost 25 cents to use. So what Herjavec is suggesting is that before asking for investment money, founders should always invest time in customer discovery: simply talking to customers on the phone.
"Customer discovery" is a term made famous by Steve Blank, the grandfather of the Lean Startup method. Blank tells entrepreneurs to "get out of the building," which means using customer interaction to test assumptions under your startup's business model.
Here are some my favorite customer discovery questions:
- Tell me about your biggest unmet need, problem, or pain point.
- Walk me through how you currently solve your biggest problem.
- What do you love and hate about the status quo solution?
- What is the result of not solving this issue? What is the total cost? Time loss? Money spent? Revenue loss?
- What would be exponentially (10x) better (cheaper, faster, easier,) than the current solution you use?
- What would it be worth for you to be able to solve this exponentially?
If you haven't asked any of the above to your customers, it is time you do. Grab a customer list and a telephone and get started today.
Until you have proven you have a customer, how do you know your business is worthy of investment? In my five seasons of Dragons' Den I met more than 500 entrepreneurs, and almost all them believed they were the next big thing. Most weren't. And they would have known that if they had spent less time chasing investors and more time listening to early adopters.
It is by spending hundreds of hours with customers that entrepreneurs can test their business model assumptions and fine-tune their levers of success. Only once those are established should you seek outside investment.