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The 5-50-500 Rule

November 30, 2010

vcmike

I spent the morning today visiting with the team at Quantcast, which is up to some pretty exciting stuff, and ended up discussing with co-founder Paul Sutter what Paul calls the “5-50-500” rule. I found it pretty instructive not just as a lens for evaluating Quantcast’s progress, but more generally as a useful way to think about the phases of a startup.

The idea is that startups go through distinct phases that are marked by the number of customers it serves.  [Note, this is oriented towards B2B businesses].  The “5” phase is marked by very high touch relations with the first 5 customers, typically beta customers who are helping inform you of product requirements and product-market fit generally.  The “50” phase is where you more or less have product market fit and you shift focus toward go to market strategy and tactics.  And the “500” phase is where you focus on building a scalable model for selling and delivering your product/service.

While, of course, there are other metrics by which to chunk out the phases of a business (no. of employees, revenue and profit levels, amount of risk reduced/remaining, to name a few), it is a very worthwhile exercise to ask yourself what will be required to sell and service 5, 5o and 500 customers.  You may be surprised by the answers…

5 Comments

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  1. Matt #
    November 30, 2010

    I don’t like the snowflakes at all.

  2. December 9, 2010

    The 5-50-500 Rule is very well put. It is amazing how many business plans blend the three phases together.

    As per usual VCMike your greatest insights come are when you are quoting other people!

    Keep it up!

  3. January 13, 2011

    Thanks for such an interesting insight! We’ll investigate it and come back with observations, may be:)

  4. January 18, 2011

    Informative Article, The 5-50-500 Rule is very well put interesting insight thanks alot.

  5. mma #
    September 4, 2014

    It’s nearly impossible to find knowledgeable people in this particular topic,
    but you sound like you know what you’re talking about!
    Thanks

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