As a VC who invests in seed and first rounds, I love revenue just as much as the next guy. However, the focus on revenue should play second fiddle to a user/customer first experience. Over the years, how many times have we seen companies grow from next to nothing in user base and somehow forget why they got there in the first place? Yes, the answer is because they made an insanely great product or service that catered to their users. Over time they then figured out how to generate revenue without destroying the delicate balance of putting the user first but generating revenue for the business. In an article in the NY Times yesterday, there is a great quote from the MySpace founder, Chris DeWolfe:
“The paradox in business, especially at a public company, is, ‘When do you focus on growth, and when do you focus on money?’ ” said Mr. DeWolfe. “We focused on money and Facebook focused on growing the user base and user experience.”
This a question that we constantly struggled with at Answers.com years ago and now have found to have struck the right balance. I remember some of the management and board meetings where we would all intensely debate whether to add an extra advertisement or not on a certain page and how that would impact the user experience vs the revenue line. While this sounds like minutiae and too much detail, I would argue that if you don’t have this debate internally that you may be tilted too far in one direction. In the end user experience won, the page views continued to grow, and consequently revenue improved significantly. Over my 15 years of investing, it is pretty clear to me that the users are in control, keep them happy, and they will come back for more!
Definitely something I’m thinking about right now. What you build has to first be fundamentally and obviously useful and easy to adopt.
Monetizing shifts your thinking away from serving the principle of utility to the customer; it’s only when monetization also serves the customer that it becomes relatively easy to serve both, but that’s always a simple case, or sole source of revenue; leadgen might be one that serves the customer well, or the sale of a highly relevant product.
But even targeted advertising can disrupt the user experience and push people out the door.
totally agree on the targeted advertising piece-balance is key
How very true! This is such a painful thing for startups. Take Twitter, for example. They’re still looking for their revenue model, but they’ve got swarms of fanatical users. It wasn’t until last year that they started introducing sponsored Tweets and other revenue possibilities.
It seems many startups (especially those in the social media sphere) live and die by the model “Grow your user base until you get the attention of one of the major players, and try to get bought out. Let them worry about how to monetize it.” As a VC, do you run into this mindset as well?