The only two ways to build a $100m business
versiononeventures.com
versiononeventures.com
I usually think the opposite. Most of the time when I come up with an idea for a start-up I think "How the hell am I going to get users on this thing?"
I work for Atlassian. It's a $100M business. It wouldn't fall into either category. We've gotten there by selling a lot of software over the internet. We spend hardly anything on customer acquisition. There is no viral effect to our products.
Another successful business I can think of off the top of my head is ZenDesk. They have to be approaching $100M. Their main sales channel is the internet (low customer acquisition). They have zero viral effect. You either have X support staff or you don't therefore you will need an X-user ZenDesk license.
You certainly know your market better than I do, but it seems to me that you are taking advantage of a viral effect. As people use Jira (for instance) and they move around from one company to another, they're likely to recommend using Jira at their new places when they get sick of Rational, Remedy, Bugzilla, etc.
People using Jira and realizing that there is a bug tracker that doesn't stink are very likely to bring that message to their next company. The word about a great product spreads... like a virus, albeit a slower moving one than pet rocks.
"How do you become a millionaire? Make a billion dollars and then buy an airline"
Does anyone know if OED does cliches?
The other question is this, "Valuation or revenue?" If I can build a business with $30M/yr in revenue and 16% net income I shouldn't bother talking to a VC? I don't know, seems like you leave too much money on the table with this world view of $100M or nothing.
Actually, there's another way to hit >= $100M.
Be a strategic acquisition target. (Route two: The viral effect can overlap with this.)
I forget who blogged this (Dixon?), but the idea is that that to hit a >= $100M valuation, you should not be thinking of the standalone value of your business, but instead the value it provides to potential acquirers.
Sitting on crucial patents is one approach, but extraordinarily tricky.
More importantly, if your existence presents a strategic challenge to a larger player (e.g. Instagram), then your business is worth a lot of money.
-- They have the potenital to destroy N-times more value than they can create.
For the high LTV option, can one put a specific number on this (i.e. $1,000)? Or is it simply having the ratio of LTV to Acquisition Cost is greater than X?
Essentially all the article states is that a profitable business needs to have profits per user that scale according the cost per user acquisition. Viral is cheap acquisition, so profits can be less. Non-viral costs more per user and typically has a smaller market, so profits per user need to scale accordingly.
To put the article another way, there are two ways to make big money:
* Make lots of money per user
* Have lots of users and have low expenses.
No-man's land is having a £1 app that you will never realistically get more than 5,000 users on.
Good rule of thumb-- anyone who advertises heavily to consumers has a high ARPU.
The only trick is conquering that chicken-and-egg issue.
And I think there could be considerable cost savings in reduced overhead from having to support fewer customers at a higher price point.
- 37 Signals
(because you're going to object that they're the only ones, here are some more)
- Fog Creek
- Atlassian
- Rackspace
- SoftLayer
- Amazon EC2
- Balsamiq
- Heroku
- ZenDesk
- Visual Website Optimizer
To my knowledge, none of them have travelling salespeople. Acquisition cost is likely higher than with consumers, but likely nothing like the costs associated with an outside sales force (or their prices would have to be higher).
Everyone says 37 Signals is an exception, but I think that's just lazy thinking. There are lots of enterprise businesses that don't do expensive outside sales.
There are different risks selling to businesses, but B2B businesses don't need massive scale to be able to pay their rent. So if you're bootstrapping, B2B is likely to have a higher probability of non-failure.
I find that other parts of the enterprise market are surprisingly harder to reach. In enterprise companies information sharing is often discouraged, many folks working in the enterprise are hesitant to mention what products they use let alone promoting (or criticizing) them. Successful SaaS companies addressing the enterprise seem to either gain traction elsewhere and then try to penetrate enterprise or spend tons of money for marketing and sales.
In the end why leave massive wads of money on the table, do both.
They do have enterprise level customers but that's more of a "trickle up" thing.
That said, knowing someone definitely helps. A LOT.
I'd also say that anybody setting out to make a 100m company is somebody who has already made a sucessful company already. But software is the new music thesedays as how whats the most a single application has sold for compared to what the best single song has made and I'm thinking Instagram even compared to tbe beatles on a app compared to one of there great songs will still win.
I will also correct the title for programmers and say: "There are only 10 ways to build a $100m business, FF if you include exceptions"
1. Have customers who come back frequently and spend money. 2. Have a lot of new customers who spend money. They tell there friends to come, and spend money. Rinse. Repeat.
1. see an extremely reliable 4x return on advertising expenditure
Or
2. do not have advertising expenditures at all.
One caveat to the article is that it is not in every business's long term interest to grow quickly.
Also: a high viral coefficient does not necessary = social, even though that's what people assume these days. I think the world has seen way too many businesses in recent years that are "social" for no other reason than that social is supposed to have magical network effects. The reality is that not every product, experience, or piece of content is truly social by nature. Trying to tack social onto a use case that doesn't support it is not going to yield a viral coefficient.
1. don't fail.
2. don't fail to massively succeed.
bootstrapping is all about completing mission number one. not going bankrupt. not falling apart. not having a bubble pop from under you when you need it for your business plan.
but people all too often forget about #2, and think they will just magically be a $100m company. It doesn't work like that. If you want to be a $100m company, do two things: don't fail; don't fail to be a $100m company.
this is genuine advice and I can give more details if anyone is unclear about anything.