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