Prevents Financial Investors from Buying In
Start-ups need to use what they have to prove to investors that they’re a safe bet. And, the most cost-effective way to do this is to build a demo or some kind of rough beta for potential customers to try out.
It’s kind of like getting a production company to pick up your story and finance it. To make the entire feature would cost too much, so what a lot of filmmakers do is create a ten-minute proof-of-concept that gives people a strong taste of what this could be if it were a feature. If that short film gets a ton of traction and excitement online, then the excitement itself becomes proof that this can be sold for a profit.
It’s the same thing for SaaS start-ups. To convince investors, they need proof beyond the pitch. They need to see how it works, and they need to see that you’re capable of building and running it. Sure, someone like Elon Musk can go to an investor with nothing more than an idea, but people just starting who don’t have that track record, they need to create a demo or a beta of some kind.
That’s what you use as leverage to build value for yourself in the absence of value, which is pretty much where most people are when they first start. You build your first component, the most essential component that isn’t going to kill your wallet, and then you blast it out to see how users respond to it. With a demo, you can track data that can support your pitch, help you figure out who your customers are, which can help you figure out how to better market and price your service, and it can help you iterate and make your service better.
Without a demo, even if it’s bare-bones, you’re stuck in your bubble theorizing what your service could be, and being a new entrepreneur in that position when pitching to anyone is probably going to make you look less favorable than someone who has a working demo and who has built a lot of traction and who has real data to substantiate their claims.