When you are an early-stage startup, you demand customers. Be sure to start generating revenue as soon as possible, because this is the metric that investors look at: how quickly revenue grows between seed and A round.
If you are not generating a ton of revenue, you will likely have a hard time raising your next round. Alex Kayyal, partner at Lightspeed Venture Partners, speaking at TechCrunch Early Stage in Boston last week, says finding the right early stage partners is crucial.
An issue that sometimes arises for early-stage firms is a single, large customer. The company is large and influential, but a product is not built for the needs of one company. To truly speed up the revenue machine, a big selection of use cases have to be addressed.
“I think one of the hardest things for a startup is to turn down revenue and have a customer come along who is willing to say, ‘Hey, here’s a check for $200,000 for your product,’” Kayyal said. This is very true when the check could also be significantly larger than the amount of your next closest customer. But at the same time, you do not need to be an external development department for one company, and this is a real danger in the case of the one large client phenomenon.
The problem with one large client is that they will shift the burden. “You know you see it all the time in Walmart stores where they can call the shots. They can influence pricing, and as a small company you are left to their whims,” he said.
While it’s tempting to take the money and run, a startup cannot afford to acquire a customer at the expense of other customers. That’s why sometimes saying “no” and knowing when it’s the right time to work with such a company is a key skill for young firms.
“This can lead to a situation where you have to customize code and create features specifically for them, which unfortunately is not the case for the rest of the market,” Kayyal said. “Your real goal is product-market fit and product-market fit that is repeatable across the industry, not just for one customer.”