Founder Biases #1: Your Funding Round Is Not Market Validation

Thinking about how many funded startups end up closing, some of them after major funding rounds, only makes us remember one of the major biases that early-stage startup founders have: considering that if you managed to raise investor money, that also gives you some form of market validation. 

Well, the harsh reality is that it doesn’t! And believing that only diverts your attention from those everyday validation efforts can make your startup survive longer. 

But that’s an easy assumption to make, as typically a round of funding means external validation. Sadly, though, it’s not the type of validation that eliminates a basic risk for any high-growth startup: that they are building the right solution to an important need many people have. 

When we look at the famous startup failure reasons, a non-existing or not important market need is clearly the first ‘chasm’ many promising startup products cannot jump over. ‘Building something people want’ is actually harder than it seems. 

But the worrying thing is that even when a startup seems to have Product-Market Fit (PMF), the path to actually surviving the second chasm (from Geoffrey Moore’s thesis) and getting to becoming a sustainable business that scales is still long and arduous. 

Shikhar Ghosh from HBS concluded after a study that only 1 in 4 funded startups ever returns the capital invested in it. In other words, 75 funded startups from 100 lose money for everyone. 

So, what’s the solution then? Well, as a startup founder looking to beat the survival odds, you’d need to move into this journey with a validate-first approach, focusing on de-risking your product investment every step of the way. 

At Tapptitude, we believe there are three pillars for de-risking your product investment and increasing your chances to survive with your startup: 

• work on the right thing
• have suitable resources 
• build it smarter

We’ll explain in some follow-up texts what each of these means for a first-time startup founder who wants to build a product that will have a positive impact at scale. 

Having difficult conversations about your startup risks is not fun, to say the least. But it’s the type of conversation that we believe needs to happen as soon as possible in the early days of your product-building journey, with honesty, self-clarity and a pragmatic approach. And, being about biases, this conversation can rarely happen right without some external help, as it will just be a vicious circle of restating your biases. 

This bit is a start of a new series of materials we'll create on the startup founders’ biases, the various forms of ‘mental astigmatism and myopia‘ (as D. Kahneman and A. Tversky called them). We’ve seen these things repeated on and on during the many years building startup products in Tapptitude. And only those founders who managed to acknowledge them and find ways to counteract them took better product and business decisions that made them survive longer. Because, in the startup kingdom, Survival First is the daily mantra.