Different ways to build a $100M business (2014) | Hacker News Reader

Different ways to build a $100M business (2014)

christophjanz.blogspot.com

307 pointsjasim61 comments

Re: the animal analogy... If you want to extend the sales-lingo, the term is "rats and mice" not mice and flies.

Jests aside, I like this kind of abstract strategic thinking process. It reminds me of the "1000 true fans" writeup from the last decade. But, it's important to remember this is scaffolding for thinking strategically, not a blueprint. Often, the winning tactic is to break such "rules." But, thinking within a framework like this can focus the mind. It's useful to realize you're breaking a rule when trying to break it.

For example:

"1,000 enterprise customers paying you $100k+ per year each"

There are lots of examples of sub-enterprise sized companies (even small businesses where everyone can still fit in a jumbo taxi) paying this much... for something.

A big example is advertising. Plenty of businesses spend 10% or more of their budget on advertising. How many software startups pay google/fb most of the money they raise from VCs? This applies to lots of businesses from SAAS apps to dental clinics. There are ad-management apps that charge 5% of ad spending. Services that charge 15%-20%.

Another example is "franchises." Mcdonalds corporate's business model is to make $100k+ from small-medium businesses. It's not a very startup-ey example but an example nonetheless. The uber-of-x business model is kind of a reverse example of franchising. Uber charges the customer, and cuts the driver their share. If the customer were to pay drivers and the and the drivers paid uber... you have the mcdonalds model. It's debateable whether this counts as "selling to consumers" or "selling to businesses," but there're specific examples in both camps.

So, it's possible to sell 100k software to a $1m-$10m businesses... But it is very useful to realize that this is rulebreaking. An enterpirse pays $100k+ for lots of things. A small business will only pay that much if it's absolutely core to their business model. Usually this means it's absolutely indispensible to gettng customers.

> So, it's possible* to sell 100k software to a $1m-$10m businesses... But it is very useful to realize that this is rulebreaking. An enterpirse pays $100k+ for lots of things. A small business will only pay that much if it's absolutely core to their business model. Usually this means it's absolutely indispensible to gettng customers.

This is a very good point, especially when you force yourself to define "absolutely core to their business model" (if you're selling franchises it literally is their business model, but you only sell franchises if you've worked out how they can make much more revenue from selling to people further down the chain...). And remember that services like Google Ads only ended up absolutely core to some businesses because they didn't start off with the ambition of getting 100k contracts but let people start as small as they liked to prove its worth....

Thinking you might get 100k licenses from the $10m per annum businesses theoretically encompasses a lot more companies than "large enterprises", but in practice the sort of software and marketing channels companies are willing to decide to spend 1%-10% of their annual revenue on up front tend to be either (i) super specialised solutions you've developed to make/save demonstrable amounts of money or completely run operations in their niche, which might well be a niche smaller than the "large enterprise" space anyway or (ii) services where they get the perception they're paying for a lot of your time to make it work for them, in which case your margins aren't so impressive. They're probably not expanding their IT budget or dedicating most of their marketing budget for a generic CRM system or user monitoring service, even if you have a very good pitch about why yours is better than the ones with attractively low rates for medium sized enterprises.

True.

In the simple/pure examples of "selling software" directly via liscencing... The scale in the article makes sense. A simple "hack" is to combine software and services. They mightn't pay 100k for accounting software, but they might pay if it comes with an accountant.

But... I do think that imagining exceptions to these is a great exercise. It helps to draw the box you're trying to think outside.

There are even "pure SAAS" examples that make elephants out of rabbits. The ad-management software imentioned above is one. They charge 5% of budget. A small agency might be managing anywhere from $1m to $100m budget.

My company has multiple $50k/year clients that gross only 5-10million a year.

Sure, I've sold five figure licenses to companies turning over well under $1m when they've needed the service enough. But there's a difference between sometimes doing that and big sales to small companies being the main route to reaching 100m ARR. (And your business looks like its pitch is much closer to the "use us instead of hiring a marketing person" than "better SaaS" in my example anyway, and I guess your pricing strategy is more results-based than up front licensing cost-based)

You would need 2,000 of those customers to reach $100 million ARR.

Absolutely, and I don't think that's a realistic goal for us. Was just pointing out a single data point to contribute about lower revenue companies investing 1%+ of their revenue into a tool.

The hardest parts are getting those customers and keeping them. When you are high functioning like me you can do almost anything in IT, but lack people and social skills. People and social skills are needed to market and use public relations to get those customers and you have to emotionally connect to them. You have to keep them satisfied or else they leave and go somewhere else. You have to let them know what needs your products and services meet, you have to find ways your product and services save them money and time. This is why 9 out of 10 startups fail, can't connect to people enough to get them as customers.

> but lack people and social skills

I am curently working with a programme director that is one of the best PMs that walk this earth. Nothing escapes him. But when he opens his mouth.. oh that mouth!! Kinda like the Sex Pistols song "Bodies" that sings "f* this and f* that, f* it all and f* a f*ing brat". He will never be customer facing. He will never be business (people) facing, he will never be finance (people) facing. He will always be talking to IT people, because.. well for some reason they tolerate him (for the time being).

He cannot grow any more, he cannot mature any more, he is stuck in the position.

> can't connect to people enough to get them as customers

I had the same problem to with my first iOS app. I just couldn't listen to feedback and criticism. I had a vision for my app, and I just didn't want to change anything. Until I faced reality and I did change it :)

The hard thing to remember as engineers, is that it's pretty much always a human that signs the paycheck at the end of the day.

Much more achievable would be to aim for revenues of $10M-20M, and a $100M exit value (5-10X multiple).

And more achievable than that is 1m-2m in sales for a $10m exit value.

$100m is just a number he picked to focus the thought.

Well, I would actually do be very happy if my bootstrapping business do $200k/year in revenue and a $1m exit value

funny because I'm actually in the selling mice business, and doing the business of selling mice... and it gets funnier because my mouse is called the RBT mouse, or rabbit mouse... coincidence is so wonderful

I really like the fly analogy - eating flies is disgusting, but will make do if nothing else works.

Also, why can't you have a $100mil business selling a service to 10 million users for $10/year?

see updates at the bottom, there are updates to his post where he covers extra ways, including one you mentioned.

Perhaps this reflects what VCs want to see in your pitch (one of these), but an entrepreneur will hopefully not set out to "build a $100m business" but try to solve real problems.

Amazon gets > $500 from normal customers and > $2500 from Prime members per year according to Morgan Stanley, FWIW. Aiming for $10/user from ads is aiming too low (and was already shunned as a business model soon after 2000).

It doesn't have to be a complete dichotomy. Knowing your market size and customer profile is a good thing, and often key to building a successful sales team.

What about hunting hunters?

They covered this scenario where you start with a $200 million dollar business and turn it into a $100 million dollar business.

This is the business I am in and the sector us exploding. The tools that come to market every week in the biz dev space are mindblowing but increasingly hard to connect for optimal results.

Indeed! We are building one right now, Track Email for iOS / Android, so you can track the emails you send and the links that were clicked. Know anything like this right now, that doesn't require a server? Maybe Newton Mail?

Yesware and many (most?) CRMs have tools to track opens, forwards and link clicks.

Talking about iOS

A Google search reveals lots of options.

Have anyone of you built a Enterprise web company alone? Or is it just a fantasy?

Fantasy. Enterprise sales don't happen without a dedicated sales force, politics and influence.

Depends what "enterprise web companies" means.

Many people have sold their products or services to enterprises, working alone, or with small (< 5 or 10) teams.

Fantasy. You can only code so much on your own. If it's a good idea, then because of the relatively small size of your code, people (companies, OSS groups) can easily copy it.

Just selling to enterprises is >1 person job.

This is basically impossible.

Enterprises do not buy from a single person companies and the sales cycle alone usually takes multiple people even if you could build a product that they would use by yourself.

That being said, there are several examples of single-person businesses that have gotten around the 1-2k/month price range.

Could you give some example?

1) Exploit labor.

From 2014 by Nine Point Capital. Their tagline is "We invest all over the world" but when I reached out they said "they don't invest in India".

I am in Canada. smh

One can't 'invest all over the world' without including India?

I think the gripe is that they were extremely racist: As in they took one look at his name, decided he must be Indian, and simply told him off that they do not invest in India... or Indians (though not so direct).

Hi, Christoph from Point Nine here.

We do NOT do what you’re suggesting here - discriminate against Indians (or any nationality). This would be horrible and stupid. Our own team comes from various countries, and so do the founders of our portfolio companies.

As for countries that we invest in, we’ve invested in lots of different places. In fact, that’s one of the things we’re known for. We haven’t invested in e.g. India or China yet but that may change over time. Point taken that we shouldn’t say ‘everywhere’ as long as we’re not ready to invest everywhere - will make sure to change the website wording ASAP.

I'd hope so man, but the issue here wasn't that you don't invest "everywhere", it's that a man was profiled based on his name and quickly turned away. I'd try to figure out why that happened.

Probably somebody just had a brain fart.

My grip should be with the "invest all over the world" but "not in your country" tag, not that you got my country wrong. However I really was not looking for investment at all! I loved the medium article posted and wanted to network.

But I guess it's absurd to talk to VCs without the expectation of investment.

That's not necessarily racist. Yes, you can't just assume that everyone with an Indian name lives in India, but it's not that far off the mark, and I don't see how race comes into it at all.

Who were you talking to @P9? This sounds so far off from my experience working with their team.

Louis from their team left a very interesting article on Medium and I reached out to them.

Love your product, useloom, btw. That's what we use for customer onboarding.

https://www.useloom.com/share/41391b00def0408cada2056877cf36...

Thanks for getting in touch and this nice video response; really appreciate it. My disappointment and emphasis was solely the contradiction between the tagline vs their feedback.

Understood

With companies like Walmart and Amazon putting big bucks in India, and now Ycombinator conducting interviews here, I guess whoever you talked to hasn't really been keeping a worldview of investments globally.

Indian market is big and still relatively unexplored and ripe for disruption. The next generation ( and even the current one ) of Indians will be a whole lot more educated and will have more money to spend, and their number would be in excess of 100 million..

So you're only losing if you haven't got a long term India Plan Dear VC.

Edit: Grammer

India is also a little bit protective ( rightfully so in my opinion). Eg. A marketplace can't sell their own products -> Amazon

Usually I am very critical of Indian government messing in IT but here the main issue is that Amazon uses the data of marketplace sellers to have unfair advantage.

Wait a second. Reading https://news.ycombinator.com/item?id=19540773 Does that mean they excluded you based just on name before figuring out where you are based? That would be more like "They don't invest in people from India" and I think it'd be good to red-flag them for that.

Christoph here from Point Nine.

No, we didn’t do that. I can confirm that with certainty even without having asked everyone on my team.

I’m trying to find out what was going on and will post more details ASAP.

Hey Christoph, here is a screencap of the email : https://screenshots.firefox.com/DCsDhXwfTXv0hsls/mail.google...

Sorry I don't want to come off as offensive and I didn't expect so much reaction to a simple denial. VCs have passed us on for far absurd reasons.

Hi Ganesh,

I would be interested in hearing the conclusion to this interaction. Do you have a point of contact where I could reach you at the end of this week?

-Tom

Tom, that was the end of the email trail; I didn't hear back anything.

It's no big deal really. A miscommunication between their tag line and my expectation. My email is ganesh @ aihello.com

Tom, please feel free to DM me as well.

christoph (at) pointninecap.com

(You might get an autoresponder but I’ll look for your email)

Hi Ganesh,

Thank you!

We’ll work on our website and email wording to try to avoid misunderstandings like this going forward.

Best

Christoph

A well conceived article about building your business and giving novice entrepreneurs a chance to think about earning millions of dollars in revenue. The reference given to animals here in accordance to customers makes it a bit weird but otherwise the whole post is quite informative and interactive to read.

(2014)

Interesting point but it's unnecessary and irrelevant to compare startup scaling to hunting animals. Why hunt? As though we hunt customers. And why animals? Who in their right mind would hunt any of these animals. Could use a better analogy to communicate the point. Startup scaling is an act of persuasion rather than condescension.

It's sales lingo, especially stock brokerage.

Whales, fish, mice, elephants. SV VCs added unicorns.... I wonder what they call their LPs.

Sir

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