While it would be presumptuous of me to say that all startups have exactly the same milestones, there are certain key moments in the life of every high growth tech startup.
- made first sale to someone you didn’t know beforehand
- make sales repeatedly
- enter high growth phase, where sales grow exponentially
The first sale
The first key moment in the life of a startup is the first sale, because you’ve solved all of the above problems. If you’ve successfully done that, you’ve essentially proven you have an attractive offer. You’ve proven you’re serving a niche willing to pay for your product or service. You’ve proven that your product description and positioning are effective enough to start building a business. For startups focussed on high adoption and user growth initially in order to become more valuable, this means you delay this first sale significantly (for example to advertisers). While it does work, it’s a much riskier strategy because you can’t answer the above questions. You need to think through how you can mitigate that risk initially as much as you can. For example, you can speak with potential advertisers to learn how big of a user base they want before being willing to purchase ads. Alternatively, you can try introducing a different payment scheme, such as a transaction-based cost, where you make a few pennines on each transaction so that users barely notice they’re paying you. These details are very much dependent on the type of business you want to run. If you are starting a multi-sided market, such as an exchange, you need to address the needs and concerns of each group, i.e. both buyers and sellers, which will typically be very different, in order to get that first sale.
Repeated sales
After you celebrate the first sale, your next major milestone would be to make sales repeatedly. At this stage you will need some kind of product or solution which you offer, at least a minimum viable product which focuses on the biggest pain point your users have. While it may be of prototype quality, you have enough to continue talking with customers about their problem in much greater depth, as they gain experience with your product. The time frame depends significantly on the size of transaction. The larger the transaction size, the more objections you need to overcome. So for example, for a low priced product like an iPhone app, a startup should be aiming to sell multiple times per day. This is pretty much an impulse buy. For a much higher priced product, such as a B2B software solution, you’d want to see a few sales per quarter. Convincing a number of people across a business, each with their own agendas and needs, to buy a $70,000 software package requires you to overcome a lot of objections. Total revenue should be financially significant, where you are able to cover your operating costs for example or quit your day job if you’re a solo founder.
Hockey stick
Phase 3 means that you’ve hit message-market fit within a particular niche. At that point you need to scale. Your biggest bottleneck stops being marketing, and starts to be fulfillment. You make promises in your marketing which were easy to fulfill at the first stages, but become difficult to fulfill at this stage. Often this will mean major changes are required. For example, you may need to perform a complete rewrite of your technology to be able handle the growth. While a prototype-quality product was ok to prove the business concept, you need to ensure that you keep a high standard of performance as new customers are pouring in. For example Facebook needed to rewrite a significant part of their original PHP code into highly optimized C++ code for the key components of their architecture, such as the social graph construction so that their newsfeed could keep up.