Chapter 04The chicken and the egg

Customers need investors and investors need customers, and the way out of that loop is to stop asking either of them for anything. I know how that sounds to a founder with eight months of runway. Stay with me. It's one of the most practical ideas in this book.

I hear the loop so often I can recite it. On a debrief with a founder this fall, I summed it up in two sentences:

Everyone's like, hey, Sunny, customers need investors, investors need customers, and they're stuck in this like chicken and egg problem. So our solution is stop and stop asking people for shit.

That's the chapter. The rest is why it works and what to do about it on Monday.

The loop, in their words

Founders don't describe the problem as a strategy question. They describe it as a wall they keep walking into. Here's how it sounds when it comes at me across a call:

Sunny, to get more customers, I need to raise money. Sunny, nobody invest in me until I get more customers.

Or the version where cause and effect chase each other around the table:

I don't have enough customers, so I don't have enough investors. I don't have enough investors because I don't have enough traction.

The investors aren't being unreasonable, either. The bar has moved, and I'm the first to say so. I put it bluntly to a founder in August:

Because a lot of people are trying to raise money and if you don't have traction nowadays, get out of here. Like if you're still doing a deck or MVP, none of that counts.

So the founder can't argue their way past the investor, and can't buy their way past the customer. Both doors are locked from the inside.

Nearly every founder I meet is stuck there. "And this is what we see, like 99 out of 100 times in startups." I've said the words "chicken and egg" on more than sixty calls this year, and every time the founder on the other side nods before I finish the sentence.

My favourite picture of it is the Spider-Man meme, the one where two identical heroes in red stand in a room pointing at each other:

everybody's in that Spider-Man meme looking at each other like, okay, who's gonna pull the first trigger?

The investor points at the customer while the customer points back. The founder stands in the middle holding a deck, waiting for somebody to blink.

Why the loop holds

Traction is the excuse. The cause sits one level down.

Look at what the founder is doing on both sides. To the customer, the message is buy from me. To the investor, the message is invest in me. Same ask, two inboxes. And the people reading those inboxes react the same way, for the same reason:

They're asking them for stuff like, give me your time, give me your money. But these people don't know you, so why would they care?

I put it to a founder this month as a bank problem. Everybody walks into the market with their widget and their company and their pitch, and:

they're trying to pull from [an] account that they haven't made a deposit into yet.

A withdrawal from an empty account bounces. Your widget can be brilliant and your team world class. It bounces anyway. And once you've opened with the ask, you're not at zero anymore. You're below it:

if you just ask, then you start at a deficit. And so nobody cares.

So the founder asks harder. More decks, more nudges, more "just bumping this to the top of your inbox." Each one is another withdrawal against nothing. The loop gets tighter, and the founder decides the problem must be traction, because traction is the thing both sides keep naming.

The chicken and the egg are the same bird. Customers and investors are two doors into one room, and the room is this: you haven't given either of them a reason to care about you yet.

Take the ask out

Engineers like a problem with one variable. This is one. The variable is the ask. Take it out of the first conversation with both groups and put an invitation in its seat.

Here's how I described the investor version to my own team:

What if you extended a warm invite and just said, hey, why don't you come on my show and talk about this topic that you guys are clearly interested in because you invested in these three companies

To a customer, the shape is identical. You noticed what they built. You want them on your show to talk about it. That's the whole message. Chapter 5 is about why a spotlight is the gift that works, and chapter 6 is about how that email gets written. What I care about here is what the invitation does to the loop.

It flips who is holding the power in the room:

You're not going to investors begging them for money. You're going to them being like, dude, you want to be on my show. And then they're asking if they can be on your show, if they're good. And then you're asking them all the questions, not the other way around, which is a power move in our, in our view.

Read the last line again. You're asking the questions. In a pitch, the investor runs the interview: how big is the market, who else is in, what's the burn. On your show, you run it. What's your thesis. What did you get wrong in the last cycle. What do you look for in a founder before you've seen a single number. You learn what you'd need to know to take their money, and you learn it before they've decided anything about you.

The other word I use for this is peers:

you meet them as peers instead of as like you know someone asking for money

A founder asking for money walks in one step down the stairs. A host walks in level. Nothing about the person or the company changed. Only the first sentence did.

An hour with an investor

Let me tell you about one of these.

One of the bigger venture investors in Canada came on my show this summer because of an invitation, with no deck in sight. We spent an hour on his story, his bets, where he thinks robotics is going. I was the one steering:

I interviewed him for an hour and think about it. When I'm interviewing him, it's like I'm, I'm the driver's seat

By the end we'd found more common ground than either of us expected. So I asked. With permission, after the hour, never before it:

We had, like, the best conversation at the end of it. I was like, dude, like, we're like brothers from other mothers. Like, do you mind if I pitch you?

Notice the order: an hour of his story, then one question about mine. If the hour had gone the other way, I'd have thanked him and shipped the episode. He'd still have walked away with something. That's the part founders miss when they hear this the first time. The invitation is not a disguised pitch. Sometimes the pitch never comes:

And I probably did two investor interviews yesterday, and we don't pitch everyone.

And when it does come, you're the one choosing:

the ball's in your court. And because you're the one asking all the questions, you're the one in advantage.

There's a second gift hidden in the format. When people come on a show, they sell themselves to you. Investors, founders, buyers, they all show up ready to tell you how good they are. On a team call I said I was fine with that:

I'd much rather have them sell themselves than me have to, you know, waste all my energy.

Both doors at once

Most founders think they have to pick an egg, customers first or the raise first. The invitation means you don't pick. You run the same move at both groups in the same week:

So with one build motion, they can go invite these people and look at them eye to eye, peers.

Put customers on the calendar on Monday and investors on Tuesday. What a buyer tells you on Monday about their budget and their pain becomes proof you can bring to an investor on Tuesday, and what the investor tells you about the market sharpens your next customer conversation. Each side warms the other, and you never asked anyone for money along the way.

Then there's volume. One invitation won't break the loop. A lot of them will. I said it plainly to a founder who had already raised:

Like a guy who's pitching, let's say, 3 times a month versus if I'm pitching, let's say, 30 times a day, I'll bet on the guy pitching 30 times a day.

Volume does something to you as well as to your pipeline. When you have three conversations a month, every one of them is life or death, and the person across the table can feel it. When you have forty a day, you stop needing any single one:

But if I'm talking to 40 people today and I've already closed 3 of them by 8 AM, My cortisol is not spiking.

Calm sells. Need repels. And the calm comes from the volume, and the volume comes from giving, because people say yes to an invitation far more often than they say yes to an ask. The same call ended on the line I'd put on the cover of this chapter if I could:

And that's how we solve this chicken and egg problem is we stop asking and we start giving. And it's working.

One honest limit before you go. This move is for companies that sell to other companies:

And by the way, this doesn't work for B2C. This only works for B2B.

If you sell a consumer app to millions of strangers, the loop is still real, but this particular door isn't yours. If your customers and your investors are people with names and calendars, it is.

Try this week

Take a sheet of paper and draw a line down the middle.

On the left, name the first group you're stuck on. Be specific. "Investors" is not a group. "Seed funds that have backed two or more companies in my category in the last three years" is a group. On the right, name the other side of your loop with the same precision: the buyers, partners or customers you keep telling investors you'll get.

Under each heading, write five things that group would want from you that aren't money and aren't a meeting about you. Most lists start with a story told well and grow from there: a thesis tested in public, an introduction to a peer they respect, a question nobody else has asked them this year. If you're stuck, start with the story. It's almost always the story.

Pick one item from each list. Find ten people in each group. Write each of them a short invitation built on that item, with nothing in it about you, your product or your round. Send all twenty this week.

On Friday, count two things. How many said yes. And how many of the twenty, by the end of the conversation, asked you what you do.

Then look back at the last ten asks you sent before this week. Which side of the loop have you been asking first, and what would you have given them if you weren't allowed to ask?