I’m a very big proponent of the “lean startup movement” as espoused by Steve Blank & Eric Ries. The part of the movement that resonates the most with me (in my words) is that entrepreneurs should keep their capital expenditures really low while they’re experimenting with their product and determining whether there is a large market for what they do.
In the initial phases of any new market you’re developing a product (hopefully with a minimal set of features), getting feedback from customers, refining your product based on user feedback and then re-launching your product. Rinse & repeat. Nobody really knows whether or not the idea is yet going to be big, so I believe in not over capitalizing too early. This benefits you, the entrepreneur. It’s the whole basis of my investment philosophy, which I call “The Entrepreneur Thesis.”
I believe that over capitalizing companies too early often favors the VC. It takes options off of the table. It produces only one kind of outcome. It drives perverse incentives. If you’re creating truly innovative products, you often have no idea whether the proverbial dog will eat the dog food. You have a hunch. Testing is what helps determine whether you’re really on to something.
The more I work on start-ups and teach undergrads, the more I am in support of the minimum viable product idea (that is what they are calling it at Harvard Business School).