This article is focused specifically on venture-backed startup CEOs and leaders (rather than small- and medium-sized businesses not focused on raising venture capital.)
Here are what I believe are the 10 most important attributes of building an extraordinary venture-scale business.
1. See the world differently
This means being a contrarian in an established market or picking an unsexy market less disrupted by tech.
These types of strategies provide a much better risk-adjusted chance of succeeding—you’ll face less competition, serve customers desperate for solutions, and have more room for error.
The trick here, however, is not picking a strategy that has failed and is destined to continue to fail (see the next two items: Domain Expertise and Why Now?).
2. Domain expertise
This allows you to understand previous failures in an industry on a nuanced level: was it the quality of the product, or an issue with sales, marketing, technology, or the business model?
Such expertise can save the team an inordinate amount of time, and ultimately help avoid mistakes made by failed attempts in the past.
3. A compelling “Why now?”
If multiple startups have failed, and the world isn’t fundamentally different in terms of platforms and customer preferences, your venture is likely to fail as well.
However, if there has been a massive shift in the way the world works, then novel business models can finally achieve scale. For example, high-speed mobile internet and mass smartphone adoptions were required precursors to enable P2P ride-sharing.
4. Enterprise or enterprise-like economics
All things equal, your risk-adjusted chance of success of building a massively profitable company is highest if you’re an enterprise company, or have “enterprise-like” economics.
If you’re not selling enterprise contracts with meaningful ACV, you’re best off having customers with big-ticket recurring revenue at high margins (80%+ gross), massive LTV, and low churn.
Anything less requires building a massive customer base at low CAC, and is akin to winning the lottery—sure, there are winners, but the odds are stacked almost impossibly against you.
5. Increasing returns to scale
A great venture strategy means every new dollar invested goes further than the previous one.
Imagine you raised $5M to get $100K of revenue, perhaps for a big upfront software build and hours acquiring and onboarding every initial customer.
With increasing returns to scale, you’ll likely have low churn, rising revenue per customer, and a growth flywheel (see below) to acquire new customers faster and at low cost. In this scenario, perhaps raising another $50M would enable you to reach $100M ARR.
Without increasing returns to scale, you’ll need $5Bin funding to hit $100M ARR—and then have to raise more funding to maintain revenue.
6. An organic growth flywheel for unfair LTV/CAC
A great venture strategy aims to not just attain industry-leading LTV/CAC ratio, but usually has an organic growth flywheel built into the business model.
You acquire one customer, and in turn they naturally invite many more just by using your product. An e-signature or web-conference platform, for example, has this built into the core business model.
However, if you can’t build it into the core business model, a well-executed referral program or organic marketing can make up for this, but only if it’s built on truly unique insights and remains low cost at scale (a rarity).
7. Deep customer love
Understand your customers, where they spend time, what job you’re solving, and build a repeatable system to continue listening and adapting.
Those that do, win, and win big. Those that don’t, sit around conference rooms, whiteboard ideas, and wonder why it costs so much to grow or why no one is downloading their app.
8. A reasonable path to $100M+ in annual revenue growing at 30% to 40%+ annually
A great venture strategy always has a clear and reasonable path to hit $100M in annual revenue, with a market size big enough to grow 30% to 40% a year after going public.
9. A large market with lots of room for error
All things equal, choose a target market with tens or hundreds of billions of dollars of annual revenue potential. This leaves room for inevitable execution challenges, new competitors, unforeseen costs and challenges.
10. Improving lives at scale
Any talented early stage startup leader has a myriad of job options, all with lower stress than building a company. A startup makes sense only if you’re on a mission you truly believe in and you derive meaning just making progress in the right direction.
The same holds for me as a Series A focused investor. I’d like to pour my heart into the mission alongside you, through all the inevitable ups and downs. To do this well, I can actively support only a small number of new companies a year.
Whether or not we ultimately succeed in creating billions in market value, we are working toward a compelling mission that improves quality of life and brings purpose to our work together.
I love supporting founders building massive businesses with massive impact. If this sounds like you and your startup is starting to get initial traction (your first few $100K of ARR), I’d love to hear from you. I’m reachable at email@example.com.