When you’re an early-stage startup, you’re asking for customers. It’s imperative that you start monetizing as soon as possible because it’s a metric that investors look at: how quickly you grow your revenue between your first round and your cycle.
If you’re not generating a ton of revenue, you’re probably going to have a tough time when it comes to raising your next round. Alex Kayyal, partner at Lightspeed Venture Partners, speaking at TechCrunch Early Stage in Boston last week, says finding the right early partners is crucial.
An issue that sometimes arises for early-stage companies is the single major customer. The company is big and influential, but you don’t build a product for a company’s needs. You need to address a wide range of use cases to really get the revenue engine going.
“I think as a startup one of the hardest things to do is say no to revenue and a customer who’s willing to say, ‘Hey, a $200,000 check for your product,'” Kayyal said. especially when that check might be a lot bigger than your next closest client.But at the same time, you also don’t want to be an outsourced development shop for a company, and that’s a real risk with the big client phenomenon. .
The problem with a big customer is that he has the power to throw his weight around. “You know you see that all the time in retail with Walmart where they can dictate terms. They can increase pricing power and as a small company you are at their whim,” he said.
As tempting as it is to take the money and run, a startup can’t afford to take on one customer at the expense of other customers. So sometimes saying no and really knowing when is the right time to work with such a company is a key skill for new companies.
“It can lead to a slippery slope where you’re customizing code and building features just for them, and unfortunately that’s not representative of the rest of the market,” Kayyal said. “Your real goal is product-market fit, and product-market fit that’s repeatable across the industry, not just with one customer.”
