At YC, one of the first pieces of advice is to sell your product to batch-mates if you're in the B2B. Selling to startups is logical as they're usually quick decision-makers with limited resources, meaning they won't buy a service they won't use, known as “Shelfware”.
However, there's a common pitfall in this strategy that has tripped up many companies. Let's do some math to see it.
Imagine you're in a program like YC with 100 other founders. You build a fantastic service that all your batchmates buy. If you charge them $100 per month, that's a cool $10,000 MRR.
A year on, 20 companies fold, another 20 hit product-market-fit and raised Series A, while the rest plateau. Assuming the successful ones have grown tenfold and your pricing is usage-based, they should be paying around $1k each per month. So, MRR is now $26k, with $20k coming from those series A companies.
A year later, two of those 20 businesses hit it big. Each now pays you $10k a month. So, your monthly revenue jumps to $34k.
You get the picture, right? Your revenue heavily depends on larger companies. But here's the catch - it only works if your product remains valuable to these growing startups. This is where some companies stumble.
The key advice for startups is to chat with your customers and discover their main pain-points. For early-stage peers, it's typically finding product-market fit (PMF). But here's the thing:
If your customer finds PMF, will they still need your product?
Here's an example to consider. Tools that assist founders in sourcing customer conversations, or or close founder led-sales a game-changer in the early stages. But as the company expands, these responsibilities usually transition to a product manager and sales reps. Will these tools hold their value then? A seasoned sales leader may have distinct preferences for tools, and their workflow can differ significantly from a founder's. Will they still need that excellent tool one build for the founders?