The Startup Revenue Experiment - Go sell it

Consider this theoretical exercise...

I met a company the other day with a live social networking product that could be easily whitelabeled for brands and publishers.  They were also looking to raise between 500k and 1m. 

My suggestion to them was to go out and charge some brands to whitelabel their product at 50k a pop--generate revenue instead of raising capital. 

Here's the thinking:

If you're telling me that gathering your audience or doing whatever it is that you do solves someone's problem, than selling it is really the only proof.  What happens when a big company has a problem that costs them 200k a year?  They budget out 50k of either internal or contract resources to fix it if there's no good solution on the market.  In other words, they pay money to a team of people who haven't built product yet to fix their problem. 

On top of that, interactive advertising shops get paid tens of thousands of dollars all the time to build microsites and apps for brands and publishers.

Therefore, the idea that you can't get *somebody* to pay for a future solution to be delivered in a few months seems like a flimsy argument, given the right terms.  Sure, they won't pay a fifty dollar a month subscription for a product that doesn't exist, but they routinely pay 50k for custom built solutions.

Here's the problem with that, and what you need to convince companies out of.  Custom solutions are always a nightmare to maintain.  Domain expertise on what companies build internally is nearly non-existent, so you'll always be overpaying to retain employees to maintain it.  There's no direct incentive and certainly no budget to continually improve and iterate on the product, so it's bound to get stale and become obsolete.  The problem is so bad that you have to imagine that companies might be better off seeding lots of little ISVs to build efficient, flexible software that other companies could use rather than attempt to homegrow anything.

And that's your pitch:  Pay us to do this--we'll be focused on it, iterate on it, incorporate the good feedback from other customers, and in the long run, we'll be cheaper to maintain.  Perhaps with that comes some warrants, options, or even some equity. 

If you scour the market and one out of the top 100 companies isn't willing to pay you for your solution or to attach their brand to you, then I have to wonder one of the following things:

Is this just not enough of a pain point for these customers or their audience? 

Does this other company not see your tool as a compelling enough way to monetize their audience--which is also your audience--one that they know, conceivably just as well if not better than you?  If it was, you'd have to believe that some kind of revenue share or equity agreement would make sense to them.  If you're doing something amazing for the auto market, and Car & Driver doesn't want to be a part of it, you have to wonder how amazing what you're doing is.

In this or any economy, you need champions--and your best champions are your paying customers.  Angels and VCs don't mind being second in line behind someone actually paying to use the product that will ultimately drive your success.

Are there exceptions to this?  Sure.  There are certainly pain in the ass situations where you're doing so much custom development all day for other people that you're no longer actually selling you're product--you're a development shop.  Still, the exercise of talking to customers and seeing what they would pay for is sure to be an informative one.