The Startup Velocity Question: Linear vs. Exponential Growth

Since this series was published, I have had many conversations with friends in the industry who have added to the issues on the table.

In particular, one that caught my attention is the issue of solid companies that have achieved $10M, $20M, $50M in revenue, close to breakeven, but not necessarily growing at an exponential pace. In some instances, market shifts have caused revenues to flatten or even decline.

What is the right strategy for such companies?

Whenever there is venture capital involved, an exit strategy is compulsory.

Exit can either be strategic or financial. The latter implies that the acquirer is going to be a Private Equity (PE) fund.

The key issues in both cases are Positioning and Market Sizing. PE exits also require profitability.

Often a product can be positioned for multiple different segments. But what segment has real criticality? What segment pays? Why? What pain-extraction question can get leads to start engaging meaningfully? What messaging in your content marketing can bring inbound leads to flow in? What creates sticky customers that don’t churn constantly?

For either a strategic or a financial acquirer to be interested in the company, the opportunity needs to be positioned. It also needs to be validated. Especially in cases where a market shift is happening (example: today, AI is opening up many possibilities), new opportunities could be opening up.

What I often see in such situations is a 30,000 ft level investor pitch that doesn’t cut it with customers. 

This won’t do.

To validate, you have to be able to SELL. Positioning has to be focused on sales. Validation has to be with customers, not analysts.

An acquirer will look for validation of product, technology, business model, pricing model, and a clear signal on what customers are willing to pay and WHY.

A Bottom-up TAM analysis is essential in both cases, strategic and financial. 

Top-down TAM doesn’t mean anything. It’s inconsequential.

Adequate TAM is a requirement for an acquirer to be interested.

The good news is that if there is runway, such companies often have good customer relationships to extract insights for positioning and market sizing.

Those are the two key ingredients of a successful exit strategy.

Key Takeaways:

• Companies with solid revenue but linear growth need to consider exit strategies.
• Exit can be strategic or financial (Private Equity).
• Positioning and Market Sizing are crucial for both types of exits.
• Product positioning should focus on segments with real criticality and willingness to pay.
• Validation through actual sales is more important than high-level investor pitches.
• Bottom-up TAM analysis is essential for attracting acquirers.
• Companies with good customer relationships can leverage these for insights on positioning and market sizing.

My Question to You:

Is your company experiencing linear growth? 

If you think you need help, consider 1-on-1 Private Consulting with me. I will diagnose and create a path forward in an hour.

Photo by Jakob Gausvik-Tvedt on Unsplash

This segment is a part in the series : The Startup Velocity Question