Revenue vs. Scale
One of the biggest challenges many young startups with global disruption ambitions face is an addiction to revenue.
In the early years, a startup’s job is to grow - fast - not to make revenue or profit.
This might sound counter-intuitive. So let me explain.
An undue focus on customer revenue forces you to pay too much attention to what your first paying customers ask you to do for them for fear of losing them (and your only source of cash). These are often feature requests that might be good for their business, but not necessarily good for yours.
Why? Because existing customers will typically ask for advanced features designed to solve more and more of their particular needs. These needs are often either very specific to the quirks of their operation or are very hard to polish and scale. Making things worse, the requests also tend to come thick-and-fast meaning that you end up developing a broad product surface area without taking the time to really polish everything that’s getting built.
Even with amazing product discipline (where you are translating each specific ask into carefully designed, future-proof and generic product capabilities), it’s very, very difficult to avoid falling into this trap when you are capital constrained and dependent on revenue. 9 times out of 10 it will ultimately be massively distracting, undermine your focus, create overstuffed products and stunt your business growth. It can, and often does, kill your company.
Instead, high-growth startups typically need to raise enough capital to invest in growth without being beholden to the needs of any particular customer or customer segment.
This typically means focusing on a number of key things. They include…
A focused product that initially does only 1 or 2 things really well
A clear marketing message delivered on a beautiful website
A polished self-serve onboarding funnel with standardized pricing
UI and UX that is simple and clear to understand for new users
Well oiled operations (sales, support, biz dev etc)
Referral and viral mechanics
With these features (and many others) you will hopefully be able to win and onboard many, many customers quickly.
Why is quantity better than quality? Because making software is relatively easy. The world is littered with small-scale software projects that were essentially custom-built for a few customers. That’s not building a high-growth startup. That’s building a small software business. The hardest thing in the world is getting broad (even monopolistic) adoption of a product by a whole category of users. It’s hard, therefore it’s valuable. Once you have that market position, you have a captive audience to which you can up-sell and cross-sell a range of new features (with attached fees & charges) over time.
Helping Incumbents vs. Disruption
Another important (and often overlooked) aspect of reducing your focus on revenue is that it allows you to consider disrupting rather than partnering with incumbents. It’s very easy to make the decision to run to big customers and partners to try to get big money and/or lots of distribution. However, oftentimes, a tech startup should be killing - not helping - some of the legacy players in an ecosystem. Or, at the very least, forcing them to play by new rules. This is the very definition of disruption.
To be even more concrete: Often times your first instinct will be to build some great b2b software for the existing players in a market where, perhaps, instead, you should be building a direct to consumer alternative to what’s gone before. A clear example of this is Uber. They didn’t build dispatch software for Taxi companies. They built a new kind of mobility business that dealt directly with riders and drivers - making Taxi companies obsolete. Had they tried the other thing, the story would have gone very, very differently.