This mar­ket test­ing, as oppo­sed to mar­ket stu­dy­ing, is often cha­rac­te­ri­zed as a busi­ness ›test­ing its foot­print›. Typi­cal ques­ti­ons that need ans­wers in this foot­print-test­ing are: how large of an imprint can we make on a mar­ket imme­dia­tely, how do we posi­tion our­sel­ves in order to leave our mark, how fast and how far can we move wit­hout run­ning into bar­riers, what are the bar­riers that are/will be impe­ding our path, are the bar­riers exter­nal or inter­nal (or a com­bi­na­tion of both), are there other paths that will also lead us to suc­cess, how much will these paths cost, etc.

Ven­tu­ring into the world and test­ing your foot­print requi­res finan­cial resour­ces, and this is where inves­tors play an important role. First-time foun­ders are often sur­pri­sed to learn that their inves­tors fre­quently want them to spend more money rather than less, and inves­tors are gene­rally wil­ling to give hig­her valua­tions to com­pa­nies with more exten­sive invest­ment plans. The main ratio­nale behind this thin­king is that inves­tors, espe­ci­ally VC inves­tors, want com­pa­nies in which they are inves­ted to dis­co­ver what works and what does not work (test their foot­prints) soo­ner rather than later. Bet­ter to drive too fast and have more pit stops along the way than to move too slowly and miss the race enti­rely.

Undoub­tedly, it is cri­ti­cal to match spen­ding to the phase of deve­lo­p­ment and to the size and speed of the mar­ket oppor­tu­nity. Gene­rally, VC inves­tors want their inves­tee-part­ners to con­stantly be see­king oppor­tu­ni­ties for pushing the boun­da­ries of the busi­ness and to be moving for­ward fas­ter. This men­ta­lity is espe­ci­ally appli­ca­ble for mar­ke­t/­busi­ness-model-based busi­nesses (as oppo­sed to IP-pro­tec­ted tech-based busi­nesses), and has become more wide-spread in recent years due to the incre­asing speed at which mar­kets move.

Foun­ders can some­ti­mes be reti­cent to invest rapidly in foot­print-test­ing, often due to worries about shrin­king fun­ding run­way. This is where strong com­mu­ni­ca­tion bet­ween foun­ders and inves­tors is essen­tial to ensure both par­ties are in synch about why the money is being inves­ted and that both par­ties under­stand the pos­si­ble need for fur­ther invest­ment ear­lier than pre­viously thought.

Importantly, for inves­tors, it is much easier to make a fol­low-on invest­ment in a com­pany that expen­ded cash more quickly than initi­ally expec­ted in order to find a good entry into a mar­ket than to invest again in a com­pany that has yet to ascer­tain a mar­ket for its inno­va­tion. Fur­ther­more, because valua­tions increase signi­fi­cantly with proof-of-mar­ket and sca­la­bi­lity, fre­quently more aggres­sive invest­ments in foot­print-test­ing ulti­m­ately lead to signi­fi­cantly less dilu­tion for the founders.

Test­ing your foot­print as a busi­ness is about signi­fi­cantly more than what inves­tors pre­fer; it makes sense from a purely inter­nal and ope­ra­tio­nal per­spec­tive, as com­pa­nies gain valuable infor­ma­tion, insights, and cont­acts in the pro­cess. Addi­tio­nally, test­ing your foot­print crea­tes busi­ness optio­na­lity, mea­ning when a busi­ness is aggres­si­vely test­ing for new oppor­tu­ni­ties, it often encoun­ters unex­pec­ted and for­tui­tous paths. As Goe­the said:

»What you can do, or dream you can, begin it; bold­ness has genius, power, and magic in it.«

Your bm|t Team