Last week, I had a strategy session with one of our portfolio companies where we delved into the shift from their initial narrow niche focus during the pre-seed phase. Now as they advance towards early growth and expansion, they are crafting a comprehensive go-to-market strategy. These distinct phases demand contrasting approaches to monetization, customer engagement, unit economics, and more.
Just after I finished that meeting, I received a call from a CEO of a Series A company outside our portfolio, dealing with the aftermath of a terrible board meeting centered around churn.
At the end of the day, we're running real companies, not theoretical ones. We're serving real customers, not theoretical imaginary ones. It's not about what could happen, it's about what actually happens. So, as you're building your company and navigating the learning curve, embrace the acquisition of customers you anticipate will be not only profitable for you but also value-add, because you can uniquely address their concerns. Sometimes you will be wrong, but don’t let the fear of losing customers veer you into choosing the wrong ones.
Back when I was running companies, I approached churn from an unemotional perspective: if you encounter a bad customer, it's wiser to address churn now than to foster churn within your organization, your employees. Focus on building for customers that align with the broadest, most promising market opportunity. Don’t fight to hang on to the customers who don’t align.
In the early stages, your role as CEO is that of an experimenter. Embrace it. It's your goal to have a microscope on absolutely everything: every term the customer asks for, every feature they want. Ask yourself: “Does it match the broader market opportunity?” If the answer is no, then you need to churn those customers.
What's also important is having a very objective, stoic, product marketing driven approach. Ask yourself: “What collection of features allows me to go after the largest Serviceable Addressable Market (SAM) and Serviceable Obtainable Market (SOM)?” That's critical. As you're scaling your company, think about: “How can I transition to a more expansive Total Addressable Market (TAM) and SAM with the least expense?”
Churn is a pivotal moment of growth and learning. Sometimes, embracing it allows you to distill valuable product insights, go-to-market strategies, engineering enhancements, and relational dynamics, ultimately guiding your approach towards the broader market.
In the early stages, it's crucial to maintain a stoic stance. Don't get too excited about certain things and don't get too discouraged by others. Look at churn as an instructive gauge.
The more churn you have in the beginning means you're doing a lot of experimentation, and the less churn you have coupled with higher net retention growth over time means you are targeting customers where you can create value and stickiness. Always ask yourself: “Am I doing this in service of the biggest market opportunity?”