Growth = Power

throughthebackdooronly 11.16

I think founders and potential founders underestimate how powerful growth is. Growth is power in the startup world. Now getting that growth is another subject entirely. It depends on your market, on your product, and etc. BUT, in ANY market and for ANY product growth is still king. Why is growth so important? If you have great growth you set your own path. VCs are forced to accept your terms and acquiesce to your desires. Your business keeps gaining traction, you increase your influence in your industry, and you can organically grow your business. 

There are two types of growth that you can push in your company: 1. user growth 2. revenue growth. A wise VC (Matt Witheiler) said that you can't do both well, so choose one. With user growth you put all of your energy into gaining as many users as possible for your product. Particularly, you hope to have found your product-market fit as well as found your channel for organic user growth. These two attributes go hand-in-hand and can lead to rapid growth. As your product grows, hopefully several network effects help reinforce the competitive advantages of your business and you show that you can at least control a good portion of that market. Think SnapChat. When Facebook started Poke to supplant SnapChat, the company already had so much momentum and network effects in the space that Facebook couldn't catch them.  Then as SnapChat grew larger, they gained more and more power over their growth and VC term sheets.

Option two is revenue growth. Businesses are expensive to run and expensive to expand. Many scaling companies have a negative operating margin and some even have a negative gross margin (watch out for these companies). In the beginning, most tech companies aren't making enough sales to cover all of the bills. So if you are able to garner and increase sales rapidly from day one, you can start getting out of the red from the very beginning. These sales and eventual profits can then be used to grow your business organically. This financial leverage helps you have an immense amount of power, when it comes to taking on additional funds to grow your business even faster. Every VC loves a company with sound business fundamentals. A sound business model provides a set of data points that can help ensure an investor that they will receive that return on investment. Think of Microsoft. Bill Gates didn't become the richest man in the world by giving away all of his ownership to VCs. He had sound business economics. 

Many founders and founders to be, myself included, get caught in the feature trap. We build as many features as possible. Then we build more features. Then we build more features. Then, guess what? We build even more features. We spend so much time perfecting the product that we stop working on the number one metric, KPI, and driver of everything in a good business....growth. Alex (MD at Techstarts) has a great post about getting a meaningful Minimally VIable Product (MVP) developed. This is essential and I don't want to undermine this fact. Check it out in his blog, You definitely need a product that is "good enough" for the masses, but then start growing your business rapidly. As I stated in a previous post, start trying to get pre-sales or letters of intent (LOI) as soon as possible. Do anything to get growth. Then you can start making revenue from day one, not the end of year one and control your destiny!