When you’re an early-stage startup, you’re clamoring for customers. It’s imperative that you start generating revenue as soon as possible, because that’s a metric that investors look at: how quickly you grow revenue from your startup to your A round.
If you’re not generating a lot of revenue, you’ll likely struggle to raise your next funding round. Alex Kayyal, partner at Lightspeed Venture Partners, speaking at TechCrunch Early Stage in Boston last week, says finding the right partners early on is crucial.
A problem that sometimes arises for start-ups is that of the single large customer. The company is large and influential, but you don’t create a product for the needs of just one company. You need to address a wide range of use cases to truly jump-start the revenue machine.
“I think as a startup, one of the hardest things to do is say no to revenue and a customer who is ready to say, ‘Hey, here’s a check for $200,000 for your product.’ “, said Kayyal. This is especially true when that check could be much larger than that of your next closest customer. But at the same time, you also don’t want to be an outsourced development shop for a single company, and that’s a real danger with the single-client phenomenon.
The problem with a big client is that they have leverage. “You know, you see this all the time in retail with Walmart where they can dictate the terms. They can exercise their pricing power, and as a small business, you have their way,” 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 knowing when is the right time to work with such a company is a key skill for young companies.
“This can lead to a slippery slope where you customize code and build features just for them, and unfortunately that doesn’t represent the rest of the market,” Kayyal said. “Your real goal is product-market fit and product-market fit that is replicable across the industry, not just with a single customer. »
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