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Community: The Secret Sauce for your Startup
Stephen Moore
November 14, 2023
Welcome to EH Weekly, the new newsletter from the team behind Medium’s biggest entrepreneur-focused publication.
You can look forward to insightful lessons and practical takeaways delivered to your inbox every week.
In this week’s edition, we discuss:
How to leverage community in your startup journey
The reasons investors will automatically pass on your startup
Community: the secret sauce for your startup 👥
When it comes to online communities, Fed Folio seen a lot. 3413, to be exact. After researching many online groups (and joining many of them), Fed concluded that by tapping into the right communities, a startup can grow alongside the community, serving its members and themselves at the same time.
Here are the 5 stages at which community-focused founders flourish:
Idea generation — People love talking about their problems, especially online. Looking for a product to build? Find an online community full of your target audience, and look for the questions and pain points that can inspire product ideas.
Validating a solution — The next step is to talk to people! Making a post in the community like ”I’d like to chat with you for 20 minutes if you’re ever been bothered by [problem you’re solving]” will get some willing participants if you are working on a problem worth solving.
Find initial customers — Your customers are the same communities that helped you generate your idea and validate it. Announce your product and engage in some social listening.
Growth engine — Content becomes king if you move into the “exponential growth” stage. The community becomes your marketing team and shares your content with other target customers unaware of your solution.
Product moat — By creating a community for your own users, you can keep up with the needs of your customers and the market. It’s a big-time investment, but doing so opens up many opportunities for business ideation, validation, customers, and growth.
Why investors will pass on your startup 🚩
“My angel groups typically invest in roughly 1 out of every 100 applications. That means 99% are passes.”
DC Palter spent last week listening to 100 pitches for early-stage startups. It was obvious within a minute that they were no-goes for at least half the pitches, so instead of listening closely, he started taking notes on why so many were instant drops.
Here are 6 reasons he noted:
No product yet — For 99.997% of startup founders, investors want to see a product, not an idea. Getting to the “in-revenue” stage is, without a doubt, the most important milestone for finding investors.
An opportunity too small — There are a lot of fantastic businesses with revenues under $50M. Even $10M businesses can be a goldmine. Niche products have a much higher chance of success than shoot-for-the-moon venture businesses. But, niche businesses are not viable venture investments.
Corporate structure — LLCs and S-corp structures are perfect if the goal is to build a profitable small business without outside investors. But if you want investors, the company needs to be structured as a C-corp.
Deal structure — The only structures most investors will consider investing in are preferred shares, post-money SAFE with valuation cap and convertible note with valuation cap, discount, interest, and a maturity no longer than 24 months.
No competitive moat — The most common reason startups with a great product in an exciting market fail to resonate with investors is that they cannot protect the business from the inevitable competition once they gain attention.
Valuation is too high — If the valuation doesn’t match the stage of the company, the risk profile, and the market potential, I’ll invest in something more attractive.
👉️ Learn more about the 5 reasons Investors will automatically pass on your startup.