Commmon Mistakes Venture Orphans Made

Tried to Do Everything / Change the World Mentality

In today’s startup world, founders are tempted by the allure of being the next great celebrity CEO. Media and investors have created a mentality that every startup has to have a world-changing vision and shoot for the moon; anything less is not valuable. Grand visions and the boldness to redefine the way people do things are admirable, but only a handful of founders have truly disrupted or influenced the way we lived.  Most companies are not going to achieve that path.  The thing that no one else will say is – that’s ok.

We routinely see compelling investment pitches where a founder has lived and understands a problem, has a unique insight into how to solve that problem, and has built the right team, organization and business model to tackle the problem. But then the pitch turns into how they are going to build a host of adjacent products and services, expand worldwide and take down a $500bn+ TAM.

For most companies, it’s hard enough to do one thing and do it extremely well. Build a great product that customers love, price it well and do right by your employees, investors, partners and suppliers and you can generate a great outcome for everyone.

Proprietary Technology Always

Startups are consistently told by investors that they need proprietary technology in order to raise money. If this proprietary technology is core to the product offering or gives you a unique operational edge, then great, it is likely worth the investment. The problem we see is companies building “proprietary” non-unique tech tools for the sole purpose of getting a higher multiple.

And we get it. Building new technology is fun, new ideas are exciting to pursue. Oftentimes startups waste precious resources developing tech that’s just worse than what they can buy off-the-shelf.  Even more, building your own proprietary tech for non-core problems creates significant tech debt that will haunt you later.

There are thousands of effective B2B tools that can help you achieve your goals. Our view is that stitching together the right set of 3rd party solutions is much more efficient and effective than attempting to build everything your product/business needs.

ARR Growth at All Cost

ARR seems to have become the one and only metric that startups and some VCs focus on. And yes, early on ARR is the lifeblood of the company. It brings non-investment dollars into the company to fund operations, and strong ARR traction allows startups to raise additional funding rounds to scale.

ARR is one important component of a business’s success and health, but it is not THE component. In today’s venture world, many companies optimize just for ARR growth resulting in bloated customer acquisition spend, sub-optimal investments and neglect in other areas of the business. We’ve seen services businesses selling low to negative gross margin contracts, software companies acquiring non-ICP high churn customers and startups giving out crazy discounts or payment terms to get “ARR” in the door. This results in low quality revenue that when growth slows down, which it inevitably does, businesses realize there isn't much value beneath that number.

Focus on building a good business, with a business model that works.  While investors may tell you they care about ARR, they are not the ones working day and night to keep the lights on.  A business that makes money – and actually makes money on each customer – will always be valuable.  A devotion to subscription revenue will not.