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How quickly should a startup grow? How soon should you shift your focus from sheer growth to making a buck?
The downsides to high valuations are currently on prominent display.
Yahoo! is a company that has undergone a well-documented struggle for relevance over the years, and its assets cannot easily be absorbed by companies with more forward momentum because it is too expensive.
Twitter is an example of a company that went public amidst outsized expectations around its future and has struggled to live up to the hype. Bad leadership since the ouster of Dick Costolo hasn’t helped, and political meddling and general disdain for the wants and needs of its userbase have made things worse. But primarily, it is being held back by the expectations set with its $32 billion IPO.
It has little room to truly maneuver into a pace of operation that will serve it best, which, it is increasingly suggested, is probably at the size of its current userbase.
Grow quickly and worry about revenue later has been the mantra of the Silicon Valley startup scene for years, but if you’ve been paying any attention lately, you’ll know that sentiment is starting to change.
This despite the fact that when David Heinemeier Hansson suggested another way just months ago, many in the venture capital industry and startup commentariat mocked the approach.
Increasingly, US investors want to see startups in their portfolios taking an approach that has been common in Australia for years: spend as little as possible, focus on getting to profitability, and grow at a sensible pace that suits the aforementioned goals.
Australia is well-known for its bootstrapped technology companies, including Atlassian, Envato and even SitePoint. And this sustainable approach to early-stage operations persists even among startups that take capital from the much more risk-averse Australian VCs.
We may not be well-known for our winner-takes-all unicorns, but the cottage industry approach tends to spread the success around to far more beneficiaries.
And it’s certainly possible to make money when there are big competitors out there. Mailchimp might be the most well-known name in the mailing list business today, but Sydney’s Campaign Monitor does quite well for itself. It’s how I’m reaching you right now.
Spend less. Monetize your product as early as you possibly can. Scale and grow as you can best handle it.
Bring the approach of sustainable business-building to your startup, and you may not need to panic so much with the inevitable, cyclical changing of the market forecasting, nor find yourself caught out when hypergrowth-induced overvaluation knocks your house of cards down.