First, a definition.
A Then B Business
“A startup where the founders envision they will launch one product first, often for free, get millions of users for that product, and then launch a second product on top of that user base, which will make them a billion dollar company.”
If you read the above and think, “huh?”, then you’re like me every time a founder pitches me on a similar idea. And it happens. A lot.
There are founders out there (surely you are not one of them) who believe they will launch a startup that has no possibility of ever making any money, and once that startup is astronomically successful in terms of customer acquisition, they’ll launch a second startup that will transform those customers into money.
As we know, 90% of all startups fail, and these particular founders are betting on two successful startups in a row. For the mathematically inclined out there, those founders have an approximately 1% chance of success. Good luck to them.
For those of us with more realistic expectations, I offer you this: either monetize your A business, or just do B immediately.
To be fair, there was an era not that long ago where tons of consumer companies got bought for outrageous amounts of money before they had ever made a dollar. There was a general idea out there that you could just acquire tons of users and then later come up with a story for how to monetize them. And while that may have worked for Facebook, Twitter and Instagram, ask Kik how it worked out for them lately.
But more and more I’ve been hearing it from founders of B2B companies as well. “We’re going to sell this to 100,000 small businesses, and while there’s no great profit in that, once we have them as customers, then we’ll have all this data that we can monetize.”
For the love of God, please, stop telling me you’re going to monetize your data.
You may be thinking “that’s pretty rich coming from you, Eric.”
In 2008, I co-founded a company called Gnip that became super successful and, yeah, we monetized data. But really, what we monetized was customer service that Twitter wouldn’t provide. At the time, Twitter wouldn’t talk to you unless you were a mega-brand. NBA, Nike, Academy Awards? Sure, they’d help you out. But everyone else, they’d just hand you an API and say “read the documentation.” If you had a use case that required greater access to the Twitter feed, you were fucked. Gnip created a pathway for unsexy companies to access data that already existed and everyone wanted.
What if, instead of pursuing the above strategy, we launched Gnip with the idea that FIRST we create OUR OWN social network, get as many users as Twitter, and then start selling people that data? If you feel you are dumber for having just read that business idea, ding ding ding, you’re correct.
To be sure, it’s easier to make a business successful with five million users than with no users. But that’s the Instagram Influencer model of doing business. Sure, you can build it. It may even be doable. But it’s not an investment opportunity. It’s not a venture-backed startup. It’s a kind of magical thinking that you will be able to even get one million users, and you certainly can’t optimize for it.
Show me what your B business is. Show me why people will really want it, and then just do B directly. Why do you need all the users from your A business first? Spoiler alert: If your B business is good enough, you don’t.
Seriously, you wouldn’t believe the number of founders who pitch me on ideas like this. Even loads of Techstars companies temporarily attempt this route, though to be fair, those companies often arrive at a “we’ll sell data!” strategy when they learn that their initial monetization strategy is a bust. Thankfully, Techstars companies have dozens of mentors, dedicated coaches and an MD all working for their success. If you can get into Techstars, I highly recommend it, and if you reach out, I’ll talk to you all about the program.
If you’d like the benefit of that mentorship and coaching without everything else that comes with Techstars experience (giving away 6% of your equity, frequently moving to another city for three months, etc), you’re in luck. That’s what I do professionally. Hit me up at email@example.com or check out my coaching site at Marcoullier.com.