Building a growing and profitable B2B technology business is hard. It is also immensely satisfying.
Five important things I have learned in GroupSolver’s first five years.
GroupSolver turned 5 this year. This is also the first year in which we will record solid profits and more than 50% year-over-year revenue growth. So, let me take a step back and reflect on a few things I have learned so far. Hopefully, it will resonate with anyone who has found themselves in the position of building a tech start-up that doesn’t quite fit the traditional Silicon Valley mold.
1. Building a profitable start-up means living in the weeds. We decided in the beginning of our journey that we would build GroupSolver as a profitable company. This was partly because of our beliefs about what it means to build a business (more on it later) and partly because we knew that in our industry, which tends to accept major innovations slowly, we are likely to take a long time to reach maturity. A long road to maturity spells a greater need for capital and operational efficiency, which in turn means greater attention to detail. This focus on detail ranges from understanding our pricing on a customer level to the cost of individual cloud services…all the way down to our phone expenses. This attention to detail has helped us build a company culture of fiscal responsibility and discipline early on, from which we now benefit.
2. It takes a village to raise a start-up, but ultimately all that matters are the customers. We have an amazing group of angel investors, who have put their faith in GroupSolver. Our team has the horsepower and creativity to build new tech that disrupts traditional online surveys and focus groups. But ultimately, none of this would matter if we could not convince our customers that they should give their business to us and not to a more traditional survey tool or a consulting company. Customers are everything to us and we are not shy to tell them. They know we depend on them just as we know that they depend on us to give them the insights they need to make good business decisions. Doing business is much easier when we do it as partners.
3. Industry structure dictates the revenue model. Not the other way around. If you build your company by declaring “customer first,” it should mean building your tech by asking the customer what they actually need and want. However, building features and technology that excite is only 50% of the “customer-first” equation. The other 50% is asking the customers how they want to pay for your product. If you are a part of the start-up world, you know all about the SaaS revenue model being the holy grail. But have you asked your customers what revenue model works for THEM? We have. In our market only a minority of customers want to pay for a subscription a year in advance. Sure, there is a price for everything and we could discount our product to the point that a pre-paid annual subscription is acceptable to most customers. But our objective function is to make profits, and everything else is just a means to that end. If a subscription is not the right solution for a particular customer, we don’t push it. We find another way to make a trade in which everyone wins.
4. The amount your customer pays is the best indicator of the value you provide. Before our product ever hit the market, we decided that we will never offer our product for free. There are two main reasons for that. First, especially early on, we wanted to work with engaged customers to get good product feedback. It is hard to have an engaged customer if they don’t have meaningful skin in the game. Paying a non-trivial amount for our product ensures that we get the feedback we need. In return, we are held accountable for the value we promise to deliver. It is a two-way commitment. Second — and perhaps a more important reason is the value of price discovery. We came into the customer insights industry to challenge the paradigm that the only options available in customer research were very cheap DIY online surveys or very expensive consulting engagements. Knowing that our price point should fall somewhere between 0 and million dollars was not very helpful. We had to discover what value our tech really provided to our customers and our pricing was the metric to measure that.
5. The cognitive dissonance between what is a “business” and what is a “start-up” is real. Founders and investors often use the terms “start-up” and “business” interchangeably when they talk about their ventures. But, they are not one and the same. In general, VCs invest in start-ups that are more or less later-stage R&D projects often leaving profit-making largely out of the investment equation. I will oversimplify things by saying that most VC-funded businesses push reaching profitability or reaching positive unit economics to sometime in the future as a 2nd order problem to be solved post-exit. I may be biased by my formal training in economics and a 5-year stint at a management consulting firm but, to me, businesses exist to make profit. I would argue that if a business is unable to turn profitable after a few years of getting started, it is probably a hobby or an R&D experiment. Amazon, Google, Facebook, Qualtrics were all largely profitable throughout their early growth and that is where we find our inspiration.
Building GroupSolver has been a challenge but a very satisfying one. There is something to be said about beating the odds out of the gate and making it this far while turning being profitable. The route that will take GroupSolver to the next level may continue to look different than the one taken by most high-tech start-ups, but that is OK. What keeps me confident about our path forward is something I have learned above all else in GroupSolver’s first 5 years: to an open mind navigating unchartered territory, a good path forward ultimately always emerges.