Three Keys to the Kingdom

The sometimes-competing and sometimes-aligned goals that early-stage founders must manage

Three sets of objectives. I’ve written a lot about the value and imperative of survival and achieving “default alive” status. In this piece, I want to focus on the flip side of that coin. From a venture perspective, it’s never really enough to merely survive. (For some founders, achieving profitability and either selling that business or running it for dividends is a compelling outcome, but that’s almost never interesting to venture investors.) For those founders seeking to grow and thrive, there are three objectives that matter. Sometimes these objectives conflict with each other — but they often do not.

• Objective one: Pathway to survival. Reducing burn through increased sales and careful expense management (“doing more with less”) results in longer runways and — eventually, hopefully, sometimes — default alive status. In other words, this can ensure survival.
• Objective two: Pathway to independence and control. Running a company just to get to the next fundraising milestone can be a painful and uncomfortable existence for founders. Sure, some VCs are great and some fundraising processes are easy. But many are not. Even when a CEO can raise the capital she needs, she may still be stuck with an uncooperative board, unpleasant relationships, and tension with her investors around strategic objectives. This can add a ton of stress to a CEO’s life. Achieving high performance (managing the core business well and telling a convincing story) can significantly improve the quality of life for a CEO by ensuring a sufficient degree of independence from investors (both existing and new). I don’t know any CEOs who don’t sigh with bliss at the mere thought of not being dependent on their investors.
• Objective three: Pathway to significance. The final but most intriguing objective is finding a pathway to significance: ensuring that the company is on track to grow to a meaningful scale. This is also the most long-term impactful of the objectives because it sets the stage for the next decade of impact on an industry, and — needless to say — paves the way for very meaningful personal professional, emotional, intellectual, and financial rewards for the founding team. In today’s rather bleak fundraising environment when survival is (correctly) the immediate concern for many of us, it’s critical to not lose sight of this third objective. For many founders, the opportunity to build a significant business ties back to the original reason they started the company in the first place. It connects them back to their roots, to their zone of genius, and to their creative and inspirational spark. Without a deep personal reason for building the company, what are we even doing here?

Operational plans must enable discovery of the pathway to significance. At the early stages, every startup is a bundle of questions — most of which have completely unknown answers. The most important questions in the bundle often relate to the pathway to significance. These often touch on customer ROI and/or pricing. Does the product really transform the way the customer operates? Does the product really generate a significant lift in efficiency that customers recognize? Can the product really become an essential irreplaceable part of the work flow? Will it really be viral? Will those network effects really begin to appear? In a healthy startup, learning is prioritized to start to get answers to these questions. Product, engineering, marketing messaging, ICP definition, customer qualification, and pricing should all reflect an effort to zero in on the answers to those questions.

In the rush for survival, this discipline around learning often gets thrown out. For example, price reductions to levels that are unsustainably low and don’t come close to reflecting true customer ROI can end up masking the answers to questions about the value of the product. Extensive handholding during onboarding can mask answers to questions about how well value is being communicated to customers. The list goes on. We all know that no plans survive contact with the enemy, and we all need to cut corners to make the quarter. Without sounding naive, I want to suggest that these compromises be made with great intentionality and within limits. It’s not unusual for me to see a startup that has so prioritized survival over significance that even if they achieve profitability they will be no closer to convincing investors (or even themselves) that they are on a pathway to building anything of consequence. Both survival and independence are a means to an end.

It’s complicated. Sometimes these three objectives align with each other: Customer value discovery can lead to higher prices and faster sales cycles which should accelerate the pathway to profitability. It would be naive, however, to blindly assume that this is always the case. Sometimes very difficult choices need to be made between these objectives: The unprofitable customer relationship that truly proves value but doesn’t generate cash. The perfect customer that absolutely loves the product but refuses to be a reference for others due to confidentiality. Or the highly profitable consulting project with a customer who wants something that is totally unrelated to your core business. These are not easy choices — but that’s the reality of running a real startup in 2024. We are privileged to work alongside our portfolio founders to help them navigate these difficult choices — and we know there are rarely easy answers. The best answers are deep in the trenches.