I’ve seen a few B2B revenue-producing tech companies recently that still refer to themselves as “startups”, yet they have been in existence for more than 5 years and are barely break even. The co-founders are tired and when asked, ‘why they still, consider themselves startups’, they all say ‘it’s because we’ve not found friction-free growth’.
According to Paul Graham, “a startup is a company designed to grow fast.” In this context, these companies are not ‘startups’—they are struggling companies that probably won’t make it once the co-founders are too tired to do the jobs of 5 others.
These companies all tell the same story “we are considering raising (more) money”–Yet their current investors (if there are any) won’t write the check, and new investors just see a struggling team with a struggling product in a difficult market.
All the companies I am referencing fall into quadrant ‘D’ in the following graphic–They require a complex sales cycle yet have a market price-point that is below a scalable/sustainable threshold. They were shooting for ‘friction-free’ sales when they started the company but took the revenue as it came in to pay the bills and then the weight of the customer base made them tactical—and now they are stuck with little ability to ‘pivot‘ into a momentum stream.
So, what is the solution?
The company either needs to find a way to ‘pivot’ into another quadrant (very difficult at this stage when there is not much money to invest) or build a professional services team around the domain. Most tech company co-founders didn’t set out to build a professional services organization simply because the valuation of a product/SaaS company is so much higher. However, to realize the gain of many years spent becoming an expert, the company likely has the unfair advantage of both ‘a keen understanding of the customers’ unmet needs that only a professional can supply’ and ‘knowing the people in the market to hire that are qualified to fulfill those needs’.
This will likely become an even bigger issue over the years for 2 reasons:
- The big platform providers (Microsoft, Google, Facebook, Apple, Amazon) dominate so much of the technology value chain. Today’s startups are being pushed higher and higher into the top of the chain (into the vertical) and professional services are a necessity to enable ROI at this level.
- The future driving forces of technology/productivity are no longer mobile, social, apps and SaaS… They are open-source, decentralization/crypto, IoT, AI/ML, 5G, identity, quantum, no-code, serverless, microfluidics, AR/VR, robotics, voice, genomics, 3D printing, eSports, battery/power and drones—ALL of which require major investments to get to a quality Minimum Viable Product (MVP) versus the small investments of the past.
Recommendation to new founders—read Rework prior to registering the company. It will save you many wasted years & headaches….