“When you raise seed money, you're probably actually taking some of it from family and friends,” he says. “So, when I started raising from VCs, I made an effort to carry that mentality over.”
This was helpful when it came to conservative spending, but it had some other benefits too. Roumeliotis says that his investors could see how much he valued the funding they gave him, and it elevated their opinion of him and the company. “I really believe the board can feel it, this trust that you're going to make exceptional use of their capital. Even if the company ends up failing, you're still the kind of entrepreneur that investors are willing to back again because you weren't wasteful.”
When you treat the money as your own, you're also more careful about every single deal you make, and you'll wait for the right one before moving into growth.
“We make sure we love a deal before we sign anything,” he says. “When this is the case, you will take the time to build something you know your customers will love. We would build custom prototypes to get AT&T and T-Mobile excited about our products because we wanted to work with them. We also pivoted a way from business models we didn't like really fast.”
In one case, Location Labs was building functionality very similar to another company called Loopt. Even though several carriers wanted them to keep developing the product, they decided to scrap the project and focus all of their energy on family location services — apps that would help parents know where their kids are, whether they were safe, etc.
“That ended up being a big home run,” Roumeliotis says. “You need to be able to really quickly determine whether a product has a chance at success. Your singular goal should be to run a market test. Is it the right product and can we get it to market in a cheap way? Can we acquire customers cheaply? All of those stars need to be aligned. If one star was off for us, we'd cut bait.”
On average, it would take just three months for Location Labs to test a product between ideation and beta launch. In that short time, they'd decide to invest more in a project or kill it outright. Otherwise they felt they'd be wasting resources on a wrong direction or a dead end.
Taking this hard line helped them get to their inflection point that much faster. In 2005, a successful market test eventually led to a product launch with Sprint that opened the door to hordes of paid subscribers. From there, the company was able to land similar deals with AT&T and others, basically guaranteeing a lucrative business going forward. Only then did they start hiring a lot more people.
The Difference Slow Burn Can Make
“Most companies working in our field didn't make it because they ran out of money before the wireless carriers were ready to launch their services,” says Roumeliotis.
If you're in a B2B market where customers are slow to make decisions, this is something you have to take very seriously. You have to last long enough for them to get all the way through the sales cycle. It's not an easy feat. “You have to know how fast your customers are capable of moving. For us, decisions were made over the course of six months, or even 2 years.”
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