Months into starting my career in venture, I saw a high-performing company implode. This company was well beyond the typical “implosion” stage (aka pre-seed). Instead, it had raised an early growth round and had tens of millions in revenue. Performance didn’t wreck the company. Instead, a black-swan event did.
We saw examples of this type of implosion when COVID hit, and again when it abated.
Momentum builds quickly but it can evaporate so as well.
Sometimes the market stalls out. The economics don’t improve. A team encounters issues. The economy takes a turn.
The best companies avoid or overcome these challenges. They are the best because they overcome. Even great companies succumb.
To this day, that quick reversal of success instilled in me a skepticism of momentum as a signal. All great startups develop momentum. Not all startups with momentum develop into greatness. Which types of momentum can we trust to persist?
Start with the customer
A company’s customer base is a big driver of its momentum, particularly in the early stages. This should be intuitive. The bigger the thing, the more friction, and the harder it is to move. Startups selling to SMBs will land their first customer faster than those selling to enterprises.
This correlation may not persist as startups scale. What does?
We need to take a different look at another driver of momentum… the product’s buyer and user. We must look at what motivates any buyer’s behavior to understand how quickly they move. Do they get rewarded for taking risks? For finding new platforms and processes? Do they contribute to the growth of the business or do they restrict it?
Revenue-generators (front-office or customer-facing workers) are more likely to experiment. These teams experience nearly unlimited upside with very little downside in their jobs. A salesperson will get recognized (and compensated) for blowing past their quota.
Cost-centers (back-office or support functions) are the opposite. These teams tend to be more risk-averse. Upside doesn’t exist in these roles; the best they can do is their work. Downside is virtually…