We recently attended Grow Conference in Vancouver where the topic of discussion was how to grow a 100 million dollar company. So, we felt it was only appropriate to share some of the wisdom from the event with you in hopes that it could help you grow your own 100 million dollar company.
When we say 100 million dollar company, we aren’t talking in hyperbole. We are actually talking about 100 million dollar companies and up. The venture backed technology giants of the world that want to be part of the next Facebook, Apple or Google.
Now, before we go on the bang or bust train, it is true that there are thousands, if not tens of thousands of technology companies that are never going to be 100 Million dollar companies. These companies will employee large amounts of people, do great things for the economy and solve a lot of real problems.
There is nothing wrong with these companies; they just aren’t what we are talking about here.
Why Should You Build a 100 Million Dollar Company?
Wanting to build a 100 million dollar companies is not a matter of ego, greed or pride. It’s in fact, the very opposite. Creating a 100 million dollar company will allow you to:
- Take venture capital funding,
- Reward a selection of your employees for their hard work,
- And have an exit that will give you the financial means to fund future startups.
Remember, time is a startup’s most precious resource. Instead of waiting for the next startup when you know more, have more connections or somehow feel better prepared, start creating your dream company today. You may not get another chance.
Side Note: When we say, “Why should you build a 100 Million dollar company”, we are talking about the royal you. This is to mean you, your team and the team of any future acquirer of your company.
It all stats with the product
Not all products can be the basis for 100 million dollar companies. If you start with the wrong product in the wrong market you will never be able to achieve the scale you want. Borris Wortz from Version One Ventures pointed out that there are really only two types of 100 Million Dollar Companies and if you aren’t creating one of these, you are out of luck.
He defined the two types of companies as those with either:
- A high customer lifetime value and high cost per acquisition,
- Or a low customer lifetime value and a near zero cost per acquisition.
SaaS companies are a good example of companies with high customer lifetime value and high cost per acquisition. At scale, a healthy SaaS could:
- Spend $300 to acquire a user,
- Charge $50 per month,
- Keep that user for 24 – 30 months,
- And get a 4 – 5 times return on investment.
This math creates a profitable venture limited simply by the size of the market.
Advertisement supported companies like consumer social networks are good examples of companies with a low customer lifetime value and a near zero cost per acquisition. A healthy social network could:
- Spend $0 to acquire users,
- Earn $5 per user per year,
- And keep that user for 24 – 30 months.
These types of ventures typically require a built in viral growth channel to acquire users for such a lower price. However, if a large number of users can be acquired for next to nothing, a highly profitable company can be created.
Time for the tweaking
Twitter is a perfect example of a company with low customer lifetime value and near zero custom acquisition costs. However, that doesn’t mean they didn’t have to find ways to optimize their customer lifetime value.
Josh Elman from Greylock shared some helpful experiences from how Twitter improved their customer lifetime, and in turn, increased their revenues.
Twitter started by analyzing their customer data in search of relevant variables that could be used to identify their best users. They also broke their user base into segments based on the amount they used the system. From this it was possible to map how users moved between the segments.
From their analysis, Twitter discovered that users who didn’t immediately join the most active user group were significantly less likely to ever become active. Those users who did become active had commonalities based on:
- How many people they followed,
- The ratio of people who followed them back to those who didn’t,
- And the number of times they logged in per month.
In order to increase average customer lifetime value, Twitter had set about building ways that could quickly get every user to look more like an active user with respect to these important variables. The end result was a long average customer lifetime and increase revenues for Twitter.
It is unlikely that these exact metrics will be the key to your success. However, it is likely that even if you are building one of the two types of 100 million companies you will be spending a lot of time optimizing for customer lifetime value and customer acquisition cost.
Now give it all you’ve got!
If you’ve got what it takes to make a 100 million dollar company don’t hold back. Even with the perfect product, market, and team you are going to:
- Take on new problems,
- Run faster than you think you can,
- And be the best in your market for your customers.
We wish you the best of luck!
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