Should I Do A Revenue or Growth Startup?

Dear Lucas…

A time-honored strategy among “super unicorns” (e.g. Google, Facebook, Twitter) is to get users first, then figure out how to monetize way later.

It is not uncommon for investors to consider “revenue later” strategies. I’m not saying we want to put all our eggs in this basket however, but what do you think about “users first” for my startup. Right now I’ve got 1000 users and adding a new user ever day.

—Mr. Growth

Dear Mr. Growth,

Users-first is a fine strategy if your growth numbers back it up. The trouble with the users-first strategy is that you can lie to yourself very easily. You can always say to yourself that you are just about to crack the growth code. The problem is that you may believe it, even when it is not true. You have to be brutally honest when evaluating your growth.

Look at Twitter, within their first year they grew from a few thousand users to 150,000 users. That mean that they doubled their entire user base every 2 months for over a year. That is astounding growth. That was in 2006. Now they are at 500M users. That means they have doubled 12 more times. That kind of growth is ultra rare and unpredictable—you can’t plan on having that growth. You can definitely build a company this way, you just can’t force a company to grow this way, so you can’t plan on it.

The reason you can’t plan to build a company this way is that you can’t be certain you will ever figure out how to unlock the magic behind that kind of growth. That kind of growth has more to do with luck than anything else. Sergey and Brin, Zuckerberg, and Williams all got very very lucky. To think that you can reproduce this kind of success is a common logical flaw called survivorship bias. From Wikipedia:

“Survivorship bias is the logical error of concentrating on the people or things that “survived” some process and inadvertently overlooking those that did not because of their lack of visibility. This can lead to false conclusions in several different ways. The survivors may literally be people, as in a medical study, or could be companies or research subjects or applicants for a job, or anything that must make it past some selection process to be considered further.”

How many Twitter clones have their been? Facebook clones? How many had astounding growth by any account, but just not as astounding as Twitter and Facebook. Those companies failed.

How do you get to 10M users/month? What is your plan to get to 10M users from the 1000 you are at right now? If you tell me any answer except a ton of luck, I won’t believe you.

So if you can’t predict success in a users-first strategy, how can you predict success in a startup? The only tried and true, many times proven method is by generating revenue. The reason is simple. If you haven’t hit your growth stride in a users-first startup, you can’t pay your bills indefinitely and eventually you are forced to give up. If you haven’t hit your growth stride in a revenue-first startup, the revenue you do have should be able to give you runway to keep experimenting until you get it right.

—Lucas