Early Days for the Early Stage and Startup

The Hour Glass Theory of Early Stage Company Development

by Robert M. Herzog, Managing Partner, Alchemy Value Services

Okay. You’ve had the idea. You’ve developed it. You’ve PowerPointed it, you’ve Angel Listed it, you’ve presented and presented and presented.

And somebody bit.

You’ve raised your first real funding and are raring to take off. You’ve got your product concept down, you’ve figured out your MVP, your product-market fit, checked off every box. You put it out there.

Well, the world, it appears, wasn’t breathlessly waiting for it. You get a few responses, not a lot of follow-up, and you’re starting to worry. Suddenly burn rate isn’t so abstract.

Then — someone comes along, and says, hey, could you do this? It’s sort of related to your core product, but not that much. But they’re serious, and they can pay. So you say yes, because, well, it’s better than being ignored. And maybe your market assessment wasn’t as spot on as you thought, and here’s an opportunistic chance to get something going.

And so it goes. I liken the early days of a company’s development to an hour glass. At first, you’re at the top of the hour glass. It’s wide, you’ll say yes to almost anything people ask of you — revise the software to include a data base, sure. Add e-commerce, okay. Provide outsource services with your IT team to another company, well, all right. It’s revenue, it builds on a strength, it extends your runway.

Because for all the prep in advance, you can’t dictate to markets, you can’t really know what’s going to hit, get traction, and what will initially fall into the abyss of nobody knows, nobody cares, nobody’s buying. But you and your team are smart, you know something about your space, and when third parties express some interest, you don’t want to turn them down.

So you try a bunch of things. Some work, some don’t. More importantly, some lead to other related opportunities. So you can establish a niche. Maybe it isn’t the billions in your TAM, but it’s well-defined, and you have the chance to become a market leader. And with your initial investors starting to raise their eyebrows, some success, some demonstration of magic words like traction and scalability, is very welcome.

You’re even saying “no” now to inquiries that don’t fit within your defined sphere of success. Now that there are opportunity costs for you and your team not staying focused on that slim but shining core of successful projects, sales, partnering, development — growth!

So you gradually work your way down the inward sloping sides of the hour glass, casting off activities that aren’t generating additional opportunities and revenues, concentrating on those that do. You keep iterating that process, until you’re at the wasp waist of the hour glass. You have defined a product or service where you have significant competitive advantages, a strong market position, a funnel and a pipeline, a book of forward-looking business, a team built around fulfilling the potential of the opportunity. You’re a company!

And now, with a solid revenue base, a reputation, the ability to spend some on marketing, PR, outreach, you start moving along the lower section of the hour glass, expanding your base of products and services, supporting growth through cash flow, not further capital raises, or with a solid base to raise additional capital on more advantageous terms with clear opportunities and goals for using those funds.

You expand outward, and get to the base of the hour glass. Your time is now!

Robert M. Herzog is managing partner at Alchemy Value Services, which provides comprehensive advisory and consulting services to PE, VC, family office and other investors to maximize the value of their company assets, whether ramping up or winding down. He is also a partner at Venture Ops, which advises startup and early stage companies on development, growth, market and finance positioning, operations, and other critical needs. He can be reached at robert@alchemyvalueservices.com.