At Tau we get 2,000+ decks per person per year. Many talk very well about the vision but often don’t talk enough about how they will get there. In fact, the number one gap we see in many pitches is an emphasis on market, rather than the go-to-market – which is key at the early stage. This post doesn’t purport to be exhaustive but explores three common hacks that can be broadly useful.
1) Give It For Free
Twenty years, during their early startup days, PayPal gave away sign-up ~$20 bonuses for anyone joining their platform. It was essentially transferring VC dollars into user pockets, while offering a completely free product. Of course free can’t be forever. PayPal eventually stopped the bonuses and migrated its most active users into Business or Premier categories. Not surprisingly both processes were painful for the company. It’s a lesson that almost every consumer Internet company has learned – users feel a sense of ownership on the product and converting free to paid often unleashes their wrath.
If you are giving away beware, at some point you will have to flip a switch and having a plan (grandfathering old users, managing new user expectations etc) is key. The most typical variation on this is freemium – give for free with limitations (features, time etc) and then charge. Freemium is at the heart of many SaaS models because it creates a recurring revenue stream, with hopefully low cost of acquiring a customer (CAC), and increasing high likelihood – something VCs love. Incidentally if you want to learn more about the early days of PayPal, “Founders” by Jimmy Soni is a fantastic book just published couple weeks ago.
2) Focus On A Smaller Market
Sometimes the smaller market is your own country. In my previous life I helped invest in http://healthy.io HQed in Israel. At the time they were focused on urine analysis and had partnered with the top systems around them. With enough results plus having a stable growth in a 9M-person market, it becomes much easier to jump into a 320M-person market that is the US.
Other times the smaller is outside your country. Tau portfolio company http://biotia.io uses next generation sequencing (NGS) to detect infectious diseases. When starting they decided to focus on Thailand, specifically on one of the foremost hospitals in the country that also receives foreign patients. A year later, with revenues and data in tow, the company focused fully on their home region.
The key in both case studies is that operating in a smaller location is often easier, whether it means knowing the right people to get the contract, or scaling within the customer or to other local customers.
3) Create Network Effects
Scaling to other local customers brings us to a third tried and tested strategy, which is the power of relationships. Metcalfe’s Law states that a network’s impact progresses as the square of the number of nodes in it. In other words, a network of 2 is 4, but a network of 10 is worth 100. It makes sense that other people / organizations seeing your product helps create more awareness, more FOMO, and a higher likelihood of them trying and buying. Influence has power in any industry from influencers on Instagram to key opinion leaders (KOLs) endorsing an innovation within a hospital.
The big caveat is that network effects only work as well if you are ready for them. Orkut was Google’s earliest social network, launched officially two weeks before Facebook in early 2004, but now is defunct. Many issues caused its demise but principal among them was simply that its user base grew faster than the backend could scale, causing crashes and frustration. Users were forging up to a certain limit and then eventually migrated elsewhere. The brand and reach of a corporation like Google probably also didn’t help much because it limited their ability to experiment novel ideas. Eventually Google’s costs in running the network far outweighed its benefits and they shut down the service altogether in 2014, Startups should keep these lessons in mind, namely getting a lot of attention can be very helpful but only if at the right time.
Originally published on “Data Driven Investor,” am happy to syndicate on other platforms. I am the Managing Partner and Cofounder of Tau Ventures with 20 years in Silicon Valley across corporates, own startup, and VC funds. These are purposely short articles focused on practical insights (I call it gl;dr — good length; did read). Many of my writings are at https://www.linkedin.com/in/amgarg/detail/recent-activity/posts and I would be stoked if they get people interested enough in a topic to explore in further depth. If this article had useful insights for you comment away and/or give a like on the article and on the Tau Ventures’ LinkedIn page, with due thanks for supporting our work. All opinions expressed here are my own.