–Early revenue growth isn’t always a positive —instead, focus on market fit—
–Growth isn’t always worth it
- Keep your vision simple at the beginning
- Early revenue growth isn’t always a positive — instead, focus on market fit
- “A hard charging sales oriented founder/CEO can often hide the defects in a product … Because the founder is so capable of convincing the market to adopt/purchase the product, the company can get revenue traction with a product that is not really right.”
- “Not finding product market fit,” however, “is fatal.”
Building social networks
- Social networks are most effective when bundled with other services
- Second order network effects create powerful businesses
- Now imagine that instead of selling a piece of software, you build a social network for dentists. You allow patients to build their own profiles with all their dental records and appointment bookings, which makes booking and new patient onboarding 10x easier. You first monetize with native ads, and then by taking a cut of each transaction: dentist and patient; patient and “providers of consumer dental health products;” and dentists and “providers of dental equipment and products.”
- Social networks need to add value for the single user
- Spend the most energy on the middle of the pack in your portfolio
- Companies in second tier might not be the $1B behemoths that make headlines, but they still tend to have exits in the $100M to $500M range. A firm like Wilson’s, which tends to own roughly 20% of each portfolio company at exit, can walk away from that sort of deal with around $50M. “A few of those,” Wilson observes, “and that is the difference between a 3X fund and a 5X fund for us.”
- Invest in bits, not atoms
- atoms make up the physical world (clothing, food, etc), while bits (digital information) make up the non-physical world. Wilson’s investment thesis revolves around massive industry transformation, and the best way to find the wild successes is to invest in digital products, or “bits.”
Since the 90s, he has focused on industries like media and financial services that could be “end to end digital.” When it comes to atoms, this digital transformation takes longer and can have real setbacks.
- Getting a team of engineers to build something that works, Wilson points out, is easy. The real costs come into play once the product becomes popular and users start to demand continuous support.
- Investors need to love their losers
- Exercise discipline about how many companies you take on
- A crisis can help a company grow stronger
- Growth isn’t always worth it
- “I would encourage all entrepreneurs and leaders out there to embrace the idea of getting profitable sooner than you might think you can or should. It’s good for your companies and it is good for you.”
Rapid expansion can be good, Wilson warns startup founders, but it has a price.
“Profits are critical to the health of a business,” he advises, “but that doesn’t mean a healthy business has to currently [be] profitable.”