Perry Evans, CEO of Closely, encourages company founders to celebrate for a hot minute, then dig in because you are not done. “You don’t have a business until you’ve owned, lived, and tested your market model,” the former head of MapQuest, Jabber, and Local Matters said in a talk on “Minimum Viable Channel” during the 2014 Street Fight Summit.
He continued: “How you go to market is the biggest missing piece of startup advice. Don’t rush from MVP to pitching and bringing in capital.”
Evans cited the example of his own company, Closely, as evidence. They established an MVP, took venture funding, and tried to build a business. First the direct sales model failed. It cost too much per acquisition, had too many churn concerns, and they found too much competition for keywords from new startups like Groupon.
Next, the company tried Agency Channel Partners, noting that there were 80,000 agents who that had 10-200 customers a piece. But not a single goal was met by the agency after a 3-4 week test. The agents didn’t naturally know how to push product and their customer base was a random act, which caused a loss in momentum.
The final attempt was large-scale SMB Solution Providers. Evans’ team convinced a major company to let them sell to their agents, lowering the cost of acquisition to almost zero, and another big company licensed the platform. But adding a new product was difficult and it failed.
The lesson: “Just because you have product/market fit, don’t raise money until you have validated your channel,” Evans said. “We might have been able to be a successful business but we shouldn’t have been a business that took venture capital. We couldn’t produce the return the VCs needed.”
It’s only going to get more difficult as there are 2,400 startups on Angel.co aiming at SMBs. If you think it’s hard now, just wait.
But the silver lining was the Evans and his team realized their mistakes early on and managed to pivot. “If you’re going to pivot, pivot to something big,” he said. They launched Perch as an MVP in 2013 and it was the top mobile business app at SxSWi 2013. Two new venture funds recently signed on.
“The clouds broke and the angels sang,” said Evans.
Noah Davis is a senior editor at Street Fight.