Creating new markets isn’t so easy
A couple of days ago, I had a phone call with a partner of an early stage VC firm whose portfolio is filled with successful startups you’ve heard of. Halfway through our conversation, they told me: “We only invest in companies that believe they can be worth $1 billion dollars. If you think you’d be happy with $50-100 million, you’re not the right company for us. The companies we invest in generate $100,000 per month in revenue within 6-12 months of launch, and $1 million per month in revenue by 1 year after that. How do you plan to do that?”
What?
I was shocked. I can’t think of a single non-ecommerce startup that can boast $100k in monthly revenues within 6-12 months of launch AND were creating a new market. Not Google. Not Facebook. Not Twitter. Not Yahoo. Maybe Apple? Microsoft?
As Steve Blank so eloquently says, when you are creating a new market, you have no idea how long the flat part of the hockey stick really is. That’s because you are creating a new product that people don’t even know they want, because they’ve never seen anything like it before. And you are creating something based on a mountain of assumptions, because you don’t know what people will want once they know they want something.
This is all to say, choose your investors wisely.
(NB — This partner, by the way, has never started their own company or worked at a startup.)
Another excellent read by Dave. Always interesting when you’re dealing with people in your industry who have never really been “in the trenches”.
