By Jacob Drucker, co-founder and CEO of Supply Clinic.
"There was only one catch and that was Catch-22. Orr would be crazy to fly more missions and sane if he didn't, but if he was sane he had to fly them. If he flew them he was crazy and didn't have to; but if he didn't want to he was sane and had to."
So many company founders wind up circling back to Joseph Heller's brainchild, Catch-22. That's all starting a company is, really. Our protagonist Yossarian's fight, and his buddy Orr's, was one of survival during WWII. Most companies have loftier goals, certainly, than merely staying alive (if that's a goal at all in the long term). But the journey is riddled with Catch-22s, which tend to require more than disregarding safety to move past.
One of the biggest and most beautiful Catch-22s deals with funding. Most companies can't grow without raising funds. Most investors won't put their money into a company that doesn't have enough growth.
And there are nested catches within this Catch-22. Most companies can't attract a talented team without paying them and can't build a quality product in the first place without a proper team. Without a product, customer traction becomes theoretical, and funding follows traction -- which takes us back to attracting the right team. How can a bootstrapped company even find the right people in the first place? We wound up attracting our first paid team member by squatting at an empty table at a Techweek exhibit hall.
In theory, venture capitalists help thread this fundraising needle -- they buy into the company vision and invest. The reality is a bit more complicated. VCs, like everyone else, look for sure bets. Their job is to wait as long as possible before investing to get the best possible return on the least possible risk. They have to make money, too, or at least justify their investments to their limited partners. This is why so many entrepreneurs wind up trying to foster regret of potential missed opportunity among potential investors. If investors feel time pressure to invest, they might just pull the trigger, regardless of how guaranteed a return on investment may be.
Raising capital is hardly the only Catch-22 that startups encounter. Two-sided marketplaces face the classic chicken-and-egg version iteration of this virtuous cycle. They often can't acquire sellers without a pile of buyers and they can't draw buyers without having accumulated sellers. The Catch-22 is almost tautological at this point. Some potential partners, particularly in the health care world, will only work with companies that are at least five years old (less risk, supposedly.) Of course, a health care company needs partners to have a chance of reaching year five.
A couple of years ago, I spoke to a potential customer who decided not to buy through our website. "None of my friends have bought from your site," he told me. There are creative ways to overcome this issue: a mix of testimonials, a solid referral system, and hyper-targeted advertising helped us get off the ground in our earliest days. But none of them are necessarily easy to set up.
Luckily for all of us, startups are hardly built of the same material as Yossarian and his crew. Yossarian's singular mission was to leave the war; entrepreneurs start them. Startups thrive on insurmountable obstacles because they seek them out. They set out with the express intent of doing what others in the industry seem incapable of or unwilling to do.
Building a product and finding customers on a shoestring budget is expected, at least for a while. Finding buyers with the promise of acquiring sellers, and sellers with the promise of finding buyers, is exactly the type of task that entrepreneurs sign up for. Yes, companies often need to pretend to be bigger, or older, in order to grow faster and land clients and partners. Luckily, many entrepreneurs are accustomed to doing just that. In one of the most well-known stories, Airbnb piggybacked off of Craigslist ads in its earliest days to attract users to its site.
Most Catch-22s have an escape hatch that can be reached with enough persistence and creativity. And entrepreneurs make a living (or try their best to) by diving into those unwinnable situations and reaching that hatch. It's part of why most folks think we are crazy most of the time, although maybe not quite as crazy as Orr and Yossarian.
"That's some catch, that Catch-22," Yossarian once noted. "It's the best there is."
Jacob Drucker is Co-founder and CEO of Supply Clinic, the online marketplace for dental and medical supplies.