When the downturn began, many VCs urged founders to slash their marketing spending. On its face, that’s an effective way to extend runway while cutting costs.
Several months later, we’ve since learned that cutting marketing budgets doesn’t make early-stage startups healthier, but it is a great way for VCs to reduce burn rates across their entire portfolio.
As Rebecca Szkutak reported this week, SaaS startups that ignored this advice outperformed the ones that followed it.
free business advice, it’s probably for their own benefit.
In business, if someone’s offering you advice, it’s probably for their own benefit. Which is why I take investors at their word when they say most founders cannot properly assess their total addressable market (TAM).
Most founders submit a slide with three concentric circles: TAM on the outside, SAM (serviceable addressable market) in the middle and SOM (serviceable obtainable market) in the center.
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“When this slide appears, most investors chuckle (or weep),” writes Bill Reichert, partner and chief evangelist at Pegasus Tech Ventures.
Few investors will wire funds based on how many billions you think you’ll make in year eight. Instead, founders must demonstrate that they have a directional plan and a keen understanding of prospective users.
“How many customers will you acquire this year? Next year? The year after?” asks Reichert. And just as importantly, “How many can you convert? How will you reach them?”
Don’t spend too much time calculating future revenue or reading Gartner studies for factoids that sound authoritative. Instead, build a bottom-up model that focuses on the size of the opportunity, not the market.
“Show investors how you are going to build an ever-expanding cadre of delighted customers,” Reichert advises. “Don’t suggest that your focus is on acquiring market share in a large established market.”
Have a great weekend,
Walter Thompson
Editorial Manager, TechCrunch+
@yourprotagonist