July 16, 2008
I was at a board meeting recently where a few of us were haranguing the management team about their “failure” to have come up with a revenue model and tangible milestones to support a successful next round of financing.
The team pushed back, arguing that their product and market were too early to really have a good sense for the revenue model and the right milestones, and that it made no sense to throw together a bunch of spreadsheets with assumptions that were total guesses.
For a while eveyone went back and forth and seemed to be talking different languages.
But then we landed on something that broke the impasse. From my perspective, the guys were right that the current phase of the company was all about getting an initial product into the marketplace, and learning what works and what doesn’t, and that this learning would be critical before developing the go to market plan. What was out of synch, though, was a hiring plan that would require the company to raise its next round in about 9 months.
The resolution then became pretty clear. For the immediate future, what makes sense is to iterate and experiment. During this phase, product, market and adoption risk remains high. The idea is to learn as much as possible about all three of these, and remove a big chunk of these risks, but to burn as little capital as possible during this phase. In the experimentation phase, we want to learn a ton but spend a little.
Once we think we have learned what product will get adoption in the market, and how we will make money from this product/market match (which nearly always takes a few more iteration cycles than originally thought), we then should kick into execution mode, in order to get real live proof points that the model actually works in practice. This is the time to staff up with the team necessary to go to market.
But until then, no need for the bus dev and sales guys that had been in the plan.