Don't Let Investors Become Your Customer

What happens when our main customer becomes our investor?

This is fundamentally the rabbit hole that nearly every startup goes down when fundraising. At some point, we start to realize that we're no longer building a startup for the needs of our customers; we're building it for the perceived needs of our next investors.

At any given time, our startup needs vastly more cash than we have, so we're always looking for the shortest path toward filling that gap. The very nature of investor capital is that it comes dramatically before customer capital (revenue), so in most cases, our early "customer," as it relates to cash, is an investor.

So what happens? Our investors become who we're building the company for.

We Optimize for Their Needs First

This will happen right from the jump. The first time we modify our elevator pitch to be "what investors want to hear" versus "what we want the product to actually do," we'll start to feel the sting of this. We know it's not exactly what we wanted to build or say, but we think the money will come easier if we build or say it.

We've seen this for decades. Every time there is a new trend, from Crypto to AI, all of a sudden, every startup solves a problem with that new trend. Why? Because we hear that's what investors want to hear. We modify to suit their needs, not ours.

But that's just how it starts. We begin down this road of placating investors for that almighty dollar in the way a mouse has a Pavlovian response to slamming a lever for more cheese. It's a lot easier to modify our pitch than it is to find another paying customer.

We Build Products for Investors

In short order, our pitch to raise capital will translate into a product roadmap and go-to-market strategy based on what those investors want to hear. We'll start making product decisions not based on what our customers have asked for but what we're told investors would like to invest in.

While we're doing this, we will be rewarded for our efforts with even more capital! We'll get follow-on investments from existing investors and exciting meetings with new investors. "Oh, you're building an AI-powered version of the same product that would have been just as useful without AI? Amazing! Here's more money!"

Meanwhile, no one stops to think "Hey, should we really be building this? Is this what our customers are demanding, or is this what investors think customers are demanding?" Because unless you're building a product to power the Venture Capital industry, I can tell you, you're asking the wrong customer about your roadmap.

We Make Key Decisions so We Might Raise More Money

As we raise more money, our entire business model shifts to "build something investors want." We hire an overpaid exec because "We think it will signal to investors that we have high caliber talent." We staff up quickly because "We think investors will want to invest in a fast-growth startup." We run wildly expensive PR campaigns because "We think it will attract some buzz from investors."

We continue this cycle of making all of our decisions because the more money we raise, the more we need to appease investors more than anyone else to stay alive. There really is a point where no amount of actual innovation will ever pay us, as well as fresh investors.

Invariably, none of this really works because while investors are lemmings in their own right, at some point, someone starts actually looking under the hood to find out what real value is being created. Sometimes that happens way too late (Theranos, WeWork, FTX), and we all wonder how those companies ever got to that point.

Let me tell you, they built beautiful products for their most ravenous customer — their investors — instead of everyone else.

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