Every now and then when I ask a founder for a demo, he can’t give me one. That’s because the product doesn’t exist.

Let’s take the example of a restaurant reservation platform.

Rather than building out the tech, some founders just start advertising to restaurants and diners and taking reservations. When a reservation comes in, they make a call and book it manually.

This gets a marketplace going. The problem is, it doesn’t scale.

Only Software Scales

If you have a few reservations coming in, it’s not hard to make a call and book on your own. In fact, it’s a lot easier than building an app to do it!

But what if a dozen turns to 100 turns to thousands? You can no longer do it manually unless you hire an army.

And if you do that, you have a low margin call center, not a high margin tech business.

Time to Grow Up

I don’t see any problem with going the Mechanical Turk route at the very beginning. It can be an easy way to see if there’s demand for your service.

But as soon as you see a little traction, start coding. A successful company can grow so fast it surprises you.

If you’re still doing everything manually, don’t pitch investors. You’re wasting your time, and you’re wasting ours.

Technology investors invest in technology, not call centers. Bring us some tech!

Finding Vaporware

The best way to find vaporware is to ask for a demo, every single time. Never, ever invest unless you get one.

If for whatever reason a founder can’t even use his own product, he’s not qualified to be a founder. There are 0 valid excuses here.

Some types of businesses are particularly prone to vaporware. Marketplaces are the biggest offenders, in my experience.

Doing some hocus pocus behind the scenes instead of actually writing code is tempting. The customers won’t care, right?

That’s all well and good until you realize your business cannot grow.

Wrap-Up

As investors, it’s our job to funnel money to the great companies and cut off the bad ones. Any company that cannot build a product doesn’t deserve investment dollars, period.

It’s our job to assess that product. A demo is the best way to do so.

Keep your eyes on the product and customers and you’ll find some awesome investments!

Have you encountered vaporware? Leave a comment and let us know!

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More on tech:

Venture Capital Is a Terrible Asset Class

Never Let a Founder Pay, and Other Do’s and Don’ts

Why I Only Invest in Pure Software

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