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Doing the Startup Smoke and Mirrors Dance

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Oftentimes, a magician uses “smoke and mirrors” to make something disappear, right before your eyes.  With early-stage entrepreneurs, “smoke and mirrors” often means making it appear that a product or startup success exists, before it actually does, in an effort to close a client sale or get a cash deposit with which to fund your development.

This could include things like: (i) demo-ing static screenshots of a product, as if it were completed, that actually hasn’t been fully coded to work yet; (ii) saying you have several brand-name customers up and running on the platform, to instill confidence, when you actually don’t; (iii) saying you are venture capital backed, also to instill confidence, when your cash account is actually running on fumes; and (iv) saying you have a 10 person team, when in reality you may only be a one man show, as just a few examples.

My immediate advice is: don’t do it, as the risks often outweigh the benefits.  It can often backfire on you if the client finds out, after you over promise and under deliver, and then your reputation is immediately tarnished.  And, you certainly don’t want those rumors starting to flood the market just as you are trying to get your business off the ground, when trust matters more than anything.

However, most entrepreneurs have done “the dance” at one point or another during their development.  If you are going to do it, my recommendations would be: (i) only pretend to have a working product during the sales process, if the actual working product is not that far away, and can easily be completed before the client is expecting to receive a working product (e.g., in a long lead-time sales cycle); (ii) it is much safer to try this for low ticket sales, than rolling the dice on big ticket sales (where the client due diligence will be less); and (iii) if you are going to “bend the truth” (notice I did not say tell a lie), make sure you say it in a way that it can’t backfire on you.  As an example, instead of saying you are “venture capital backed in a million dollar round”, say “you just closed a financing”, which could be a $1,000 check from your grandmother.  Say it in just the right way that it is technically not a lie, but can be interpreted in whatever more-favorable way you are trying to suggest.

Let’s face it, most companies don’t want to partner with a brand new startup.  They don’t want the risk of putting in all the effort, if the startup is going to run out of money or the product doesn’t work as advertised during roll-out.  So, I appreciate the tenuous “chicken and egg” problem you all are dealing with in trying to close those precious first couple sales.  But, if you decide to go down the “smoke and mirrors” road, proceed with caution.  As the next thing that could disappear, maybe your business.

This article was originally published on the Red Rocket VC blog, a consulting and financial advisory firm with expertise in serving the startup, digital and venture community.

Image credit: CC by L. Lew

About the author: George Deeb

George Deeb is a managing partner at Red Rocket Ventures, a Chicago-based startup consulting and fundraising firm with expertise in advising Internet-related businesses. More of George’s startup lessons can be read at “101 Startup Lessons — An Entrepreneur’s Handbook.”

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