Why Real Progress Can Still Leave Your Startup Stuck—and How to Fix It
In 1982, two Australian researchers began looking closely at a disease medicine had been treating with an assortment of separate tools for decades: stomach ulcers.
Antacids controlled the acid. Bland diets protected the stomach lining. Stress management addressed the “nervous stomach.” Surgery was reserved for the worst cases.
The treatments were different because the causes were assumed to be different.
Barry Marshall and Robin Warren noticed something the prevailing theory could not explain. The same spiral-shaped bacterium, Helicobacter pylori, kept appearing in ulcer biopsies. Their idea was considered almost absurd because bacteria were not supposed to survive in stomach acid.
But what if doctors were not dealing with several unrelated problems at all? What if they had spent decades treating the visible consequences of one underlying cause?
Marshall eventually made the case impossible to ignore by swallowing a culture of H. pylori, becoming sick and then treating himself with antibiotics. In 2005, he and Warren received the Nobel Prize.
One hidden mechanism had explained a collection of problems medicine had been managing separately for generations.
There is a reason this story matters to your startup.
Losing a grant, failing to secure a commercial pilot, having your IP questioned and struggling to raise can look like separate problems. What founders miss is that they are different failure points in the same underlying system - the h.pylori of startups!
This week: The hidden reason triggering multiple points of failure for your startup, and the simple reframe that will fix it.
Enjoy!
If you’re like most founders, you decide what the company should accomplish next, translate that into a (product) roadmap, estimate the people and resources required, and only then turn to the capital question: how much money do we need to raise?
But there is a disconnect between how you view fundraising and what investors are willing to write checks for.
As a founder, you want money so you can make “progress” per your definition of the word, e.g., a better product, more technical resources.
But investors see your startup as a huge bundle of risks:
that your product won’t perform as advertised,
that customers won’t want or need it,
that you can’t access your market,
and so on.
Progress to them means one thing and only one thing: removal of one or more of these specific risks, in the right order, at the right price for that risk, i.e., the round size
They’ll write the check only if the round reduces or eliminates the right, specific risk, at the right price for buying out that risk.
If you don’t incorporate this risk view explicitly into your build roadmap, you risk making substantial “progress” and spending a lot of money without removing any risks that investors would consider as meaningful.
The result is predictable: you run out of cash, while your fundraising stalls, with investors giving many vague reasons: you need more traction, you’re too early, etc., leaving you no wiser than you were before.
The Unlock
Your ability to raise capital from any source depends on how well you’ve built your “ladder of proofs”. Your startup’s “ladder of proof” is the prioritized sequence of verifiable events that must be accomplished to remove or reduce each risk your startup faces, in order of importance.
When your raise seeks to fund activity without linking it to a clear “ladder of proofs”, you’ll only burn cash without becoming any more fundable.
The catch: This “ladder of proofs” is unique to each startup and depends completely on which market you serve, and the end goal you’re trying to reach, whether it’s an exit or market dominance.
Finishing a prototype, starting a pilot or filing a patent become capital-relevant proof only when they resolve a question that matters to the next customer, partner or funder, for example:
The prototype demonstrates the performance a customer needs
The pilot establishes value strong enough to support a purchase
The patent protects something important enough that a competitor cannot easily reach the same customer outcome.
Say you’ve developed a vibration sensor that predicts equipment failure in factories. You want to raise $2 million to finish the product, hire a sales team and launch commercially.
But perhaps investors already believe your sensor works in the lab - what they’re really worried about is whether factories will trust the prediction enough to change its maintenance schedule, and get enough savings make buying your product a no-brainer.
Your raise will stall if your pitch doesn’t call out that risk and clearly specify the narrow proof you plan to provide with this raise. Perhaps all you need to show is that two factories use your sensor for six months, verify that it predicts failures at least thirty days in advance and document the avoided downtime at five times the cost of the system.
When you get to that level of specificity, it does three things for the success of your next raise:
It establishes a “yes/no” verifiable goal that you either achieved or didn’t, making it easy to track progress, and spot problems early enough to fix them.
It makes it much easier for investors to evaluate the “price” they are paying to remove a specific risk
It provides greater discipline to sizing your raise and spending
Say you go through this exercise, and you discover that your capital need has now dropped from $2 million, to perhaps $750,000. This is a win all around. It increases the probability of success for your raise, reduces your dilution, makes it much more likely that you’ll hit the promised milestone with less ambiguity. Bonus: Congratulations, you just became much more fundable for your next round!
From The Capital Playbook
IDENTIFY THE NEXT GATE YOU NEED TO OPEN.
This isn’t “raise a seed round.” It’s the actual decision and the person or institution that must make it. For example, it’s a customer signing a paid pilot, a grant panel approving Phase II funding, or a strategic partner committing to a manufacturing pilot. The more precisely you identify the gate, the easier it becomes to identify what you need to do to open it.
IDENTIFY THE RISK PREVENTING THAT DECISION TODAY.
Ask what the decision-maker must believe that they cannot yet reasonably believe. A customer may doubt that the product will work in their environment. An investor may doubt that customers will pay enough to support attractive margins. A strategic partner may doubt that the technology can be manufactured reliably at scale. Choose the most consequential unresolved risk, not simply the task you most want to complete.
DEFINE THE PROOF THAT WOULD CHANGE THE DECISION.
Make the evidence independently verifiable. “Finish the prototype” is work. “Demonstrate 90% accuracy across three customer environments” is proof. “Run a pilot” is work. “Convert two of three pilots into annual contracts at a 60% gross margin” is proof. The proof should be specific enough that an outside observer could determine whether you achieved it.
PRICE THE PROOF, NOT THE DREAM.
Calculate the people, work, time, equipment and partnerships required to produce the evidence, and separate that amount from general operating runway. Then ask whether outside capital is necessary and which source is best suited to fund that particular risk. A grant may fit early technical uncertainty. A customer may fund deployment evidence. A strategic partner may fund integration or manufacturing proof. An angel may fund the transition from technical evidence to initial commercial evidence. Venture capital may become appropriate only when enough uncertainty has been removed to support the scale and return the fund requires.
The One Thing
Pick one important decision you need to unlock next: a paid pilot, grant, partnership or investment.
Then write down:
1. What concern is most likely holding that person back?
2. What evidence do you already have that addresses it?
3. What is the smallest additional proof you could produce in the next six to twelve months?
Compare that proof with the milestone currently driving your roadmap.
If they are different, you have found the first place your build plan and capital plan need to reconnect.
Build wisely!