Cart Before the Horse
There’s nothing that resonates in our collective psyche quite like a rags-to-riches story. We laud over lottery winners, praise the prosperous, and idolize the inventor who toils away in obscurity, even when it’s not warranted. The American Dream might be in its death throes, but we’re still hardwired to seek wealth accumulation far beyond what is necessary. Which explains why the founders of budding startups obsess so much over securing venture capital — if you come up with the next big thing, both you and your investors are going to be fabulously, Ferrari-for-every-day-of-the-week rich.
Even if we accept Friedman’s premise that the only purpose of a business is to maximize return for its owners — as shortsighted as it may be — the startup scene in major tech hubs has over-zealously over-indexed on the pursuit of venture capital. Aspiring hubs prefix ‘Silicon’ to an idiosyncratic feature of their city in hopes of getting in on some of that sweet, sweet cash flow. Attend a local entrepreneur meetup, and the conversation will inevitably turn to pitch decks, angel investors, and who’s in which funding round and speculation on the value of the next one. There’s a virality about the phenomenon — VCs are looking to uncover a unicorn, and startups are clamoring for cash — and the stakes are continually raised.
Growth-at-all-costs isn’t a good thing; it’s cancer. Price can only deviate so far from intrinsic value before the bubble pops, which is why it’s refreshing — and newsworthy — when someone bucks the trend. Obviously, most new ventures cannot ignore the need for capital, but a myopic focus on valuation ignores causality. Performance dictates price, not the other way around.
Instead of working on investor pitches, why not rededicate those efforts to working on customer pitches? Even in the most narrowly defined market segments, the clientele is an order-of-magnitude larger source of funds than a smooth talker out of a San Jose suburb. And, if you play your cards right, customers are a better wealth creation vehicle as well.
Profit First, Then Profit Again
Very few (if any) things are truly infinite — including potential customers. Even Facebook, with its 2.3 billion active users, will eclipse the total number of internet users — assuming a 10% growth rate — in just seven years. Bet that keeps Zuckerberg up at night, if he requires sleep at all.
Which brings us to sustainability. No, not the “let’s move out to a commune” kind (though kudos to you), but the cold, mathematical reality that you will eventually run out of customers. Throw some competition, market forces, and unforeseen events into the mix, and the total addressable market may actually be quite limited. The lack of abundance is the driving force behind the push for customer experience, even if firms are only engaging in CX because it was the raison d’être of this month’s business circulars.
Mature companies are being forced to compete on experience, but startups have a choice: build an offering with CX at the core now or have a painful and expensive “digital transformation” later.
VoC > VC
Luckily for the newbies, it’s never been easier to understand the voice of the customer and create delightful experiences. Today’s startups have fingertip access to functionally infinite information, can gather real-time feedback and analytics, and update and deploy offerings near instantly. These capabilities change the customer relationship — it’s moved beyond the transactional nature of a feature-heavy offer to a more collaborative and personalized solution. People don’t want a thing, they want what a thing does, so deliver the latter in a clever new way. If you understand a customer well enough, you can sell them things that they didn’t even know they wanted. Kind of like Amazon’s recommendation engine, but, you know, better.
Put simply: if you understand and delight your customers, they’ll return. Keep customers happy and they’ll ignore the competition, even when the competition is better on paper. And in a world where customers are finite, repeated monetization is almost like bending the rules — the limit of a total addressable market is only how many times you can address it.
That’s the kind of thing that VCs love to hear, and they’ll probably be tripping over each other to get some face time with you. But by the time you’ve reached this point, the tougher decision is which color Ferrari looks best on a Thursday.
In infinite time, in infinite matter, in infinite space, is formed a bubble-organism, and that bubble lasts a while and bursts, and that bubble is Me.
— Leo Tolstoy, Anna Karenina