Every now and then, I see an article that is worth reading in its entirety. Mark Suster, wrote one just the other day. He called it, “Why You Need to Ring the Freaking Cash Register.” I call it, “Cha-Ching!”
I had a friend from B-school who was one of the first sales leaders at RightNow. They had a simple system. Sales were so important – without it, you have no business – that every time a sale was made, no matter how large or small, everyone’s desk (cannot recall if it was a box or part of the phones or software on their laptop) went, “Cha-Ching!” The receptionist, the VP Sales, CEO, the software engineer, all had the same thing. That’s the story he told me. It doesn’t matter if it’s 100% accurate or a bit off, the message is important, and one Suster is emphasizing.
There is an old 7/2/1 rule (with some variants) in VC: 7 of your portfolio companies will be dogs, 2 will be zombies, 1 will be a star. This rule is probably for the best VCs, which means they expect 10% of their investments to make all their returns and cover losses on the other 90%. Of those 10%, how many do you really think got lots of traction for free before “figuring out” how to monetize it? Not Documentum, not Cisco, not Sun, not Oracle, not Intel, not AppDynamics, etc. You can probably successfully name 10-15 out of the hundreds of successes.
I would call this the 70/20/10/1 rule: 70% are dogs, 20% are zombies, 10% are stars, and 1% of that are “scale then figure out money.”
Because of the 7/2/1 rule, the VC’s interests are fundamentally misaligned with the founders, and Suster deserves great credit for being open about it, as do Jeffrey Bussgang and Fred Wilson. Fred, in particular, invests in companies that are building large networks, so scale and then monetization are a key part of his investment thesis, but he is open about it, so you know going in what you are getting into.
Because of 70/20/10/1, the interests are even more radically misaligned. You must have a monetization plan going in. Unless you are willing to go all out for “massive consumer market or broke,” which very few should, you need to be ringing the cash register. Cha-Ching!