How to start: purpose over scale
Not every successful business is a venture-scale business
“Damn, look at this! We’re in the wrong business”, said my colleague.
We were peering over one of our customer accounts. He ran an e-commerce business as a one-man show and made over $6M a year in revenue with at least a 50% margin. He was selling slippers. Cheap, mass-produced rubber slippers. Shipping them across the US, he made one heck of a living.
At the time, I worked at a B2B SaaS company that built inventory management software for e-commerce SMEs. Most of our clients were growing successful cashflow-positive lifestyle businesses, and being a product manager, I spoke with hundreds of them. Those entrepreneurs usually started small but eventually grew their basic e-commerce shops into multi-million revenue machines. Their success was astounding. And yet, I couldn’t find inspiration in their journeys.
I was captivated by tech startups and wanted to build my own. E-commerce, consulting, teaching — none of them felt like interesting businesses to me, no matter the degree of independence and happiness their founders found in life. I wanted to either go big and build a multi-billion dollar business or go home. And home I went, again and again.
It took me years to realize that you don’t have to go big. The world is full of small yet exciting problems, and solving them could earn me a living. Those problems flew under my radar because no matter how well I could solve them, those solutions would never reach venture scale.
If you don’t know what venture scale means, here’s a rule of thumb: your startup must have the potential to reach annual recurring revenue of ~$100M to ~$150M within 7-10 years of operation. Then and only then your company becomes an attractive investment for a typical technology VC firm. (The exact math behind these numbers is irrelevant to this post, so I’m omitting it in favor of a simplified rule.)
Working backward, it’s clear that several things must hold for a company to reach such a level of revenue:
They must find a big problem that many businesses or consumers have, thus opening an addressable market in the billions and an obtainable market in the hundreds of millions
They must be extremely good at solving that problem — which means having the top-notch expensive talent
They must be exceptional in acquiring customers for their solution — at scale
And this is where things start to break. Economically, most businesses can’t get there:
Most problems are not worth hundreds of millions
“Good enough” solutions are often sufficient
Excellent acquisition only matters at scale, and there’s often no scale to speak of
A vivid example of this is Morning Brew. Despite having significant traction, Brew’s founder Alex Lieberman didn’t raise money from traditional tech VCs. In his fundraising journey, he learned that media companies are inherently not venture-scale:
“Venture capitalists have an expectation that a single investment will pay back their entire fund. And to pay back your entire fund the investment has to go 10 - 20 - 50x.
But when we’re looking at the trajectory of a healthy media company, a media company doesn’t grow in such an aggressive exponential manner.”
If most businesses aren’t venture scale, and 90% of venture-backed startups die within the first few years, you’re better off running a conventional business.
In essence, you have to turn the standard notion on its head: instead of thinking big and going bold, you must think small and bootstrap. But how?
Look within to find your best idea
After years of dreaming about building a scaled tech startup that would eventually have a bazillion-dollar exit, I gave up. While it sounded nice in theory, the odds of success were low. This wasn’t worth my time any longer.
That realization helped me to explore less glamorous ideas. Eventually, I focused on a problem I care about deeply: helping people move abroad and build better lives.
In retrospect, I arrived at this problem organically: I’ve been coaching friends who wanted to leave their countries and explore living overseas for years. After all, as a lifelong expat and a military kid, I’ve been doing that for most of my 36 years on Earth: moving around. The secret to finding that idea was to look inside, reflect on all the things that interested me, and match them with actions I took to help others.
I’m on the journey to build the first potential solution to that problem: a cohort-based course that teaches mid-career tech professionals to Launch a global career in technology. As a product manager, I’m learning a ton from this. Excited to share more later! 🚀
💡 To find your idea, try this exercise: Look at the past ten years of your life and write down problems that you have consistently solved for others — even if you weren’t paid to do that.
Tip: Don’t worry about things like competitive advantage or defensibility. Just pick a problem you enjoyed solving before.
After that, make a list of possible solutions and pick one. Your process will follow the double-diamond framework:
Once you find the problem you want to solve and the solution to test, the hardest part is done. Next is to create the first iteration of that solution. But that is another story :)
Thanks for reading The Product Thinker! Subscribe for free to receive new posts and support my work.
You see me from far away!