Growth · Business Strategy

Customer acquisition or revenue during early stage?

Neha P

July 13th, 2015

What would you say is most important during an early stage pre-revenue startup -  customer acquisition or revenue even if it is a very small amount? If you need to pick one over the other what would it be?

Carlos Diaz CEO & co-founder at Kwarter

July 13th, 2015

Before focusing on Customer Acquisition I would rather focus on Customer Retention. You need to make sure before you bring more user that your service is not leaky and that you retain at least 20% of the users after 30 days. Once you reach this milestone I would focus on acquisition. Revenue comes later.

Kris Bliesner Founder and Chief Technology Officer at 2nd Watch

July 13th, 2015

Startup decisions are rarely binary.  I would look at it as an "and" not an "or".  I am a big fan of driving revenue as it proves that someone is willing to pay for your product or service.  You can dial in the right amount but a paying customer beats a non-paying one all day long.

Stephen PMP Project Management Professional

July 13th, 2015

If the revenue is $.01 is that ideal?  Probably not.  I agree with the retention comment over the paying customer comment.  Much easier to monetize a community than it is to increase prices for an existing paying customer.

Kate Hiscox

July 13th, 2015

It really depends on the scenario. You want to lock your customer base in and that can be achieved through a variety of ways including having them pay. If you don't fear that they'll pick up and run away to the next, shiny solution then I would go for customer acquisition as you'll have time to figure out how to monetise them.

Charlie Graham Entrepreneur & Executive With 15+ Yrs Exp. Building Successful Consumer & SaaS Businesses

July 13th, 2015

I vote for neither.  IMHO your key metric should be engagement - how much are people using your product on a daily/weekly basis?  How much do they LOVE it?  If they start using it, how sad would they be if you took it away from them?

Build a product that people love and can't live without and you'll have a much easier way of getting both revenue (since they would pay for it with their attention or their pocketbook) and customer acquisition (since they will tell their friends).  You'll also have great reference customers who can give testimonials to prospective investors.

At the early stages, the only reasons I think you would want charge up-front is a) to validate people recognize they have a big enough need that they are willing to pay a  promise to solve it and b) that it encourages some level of commitment to at least try the service. And the primary reason to focus on customer acquisition is to build a big enough audience to test versions of your product and see if you can build a product they can't live with out.  (In the process of getting those users you'll end up learning a lot about how to correctly target your audience and grow it).

Hope that helps! 

Tommy Katzenellenbogen

July 13th, 2015

I would say the most important thing is proving assumptions. It really depends on the business model and space you are in. But if you would make choose, I always like to see growth in traction over growth in revenue.

Brendan Benzing Cofounder at MyNeighbor

July 13th, 2015

Customer Acquistion, unless your are B2B, but even then it is valuable if they are using you. Sent from my phone

Neha P

July 13th, 2015

Thanks for the inputs everyone! 

This is the situation - I'm in talks with another startup for a potential partnership regarding our product. We are working out the details.... So the final price that we will pay depends on if the first goal we have- customer acquisition or revenue right off the bat (I know this sounds a bit vague). So effectively we need to figure out which metric is more important for us right now. Another thing is, eventually our customers will be paying for the service; it's not free so I'm leaning towards customer acquisition which would translate to revenue. 

Michael Lissack

July 13th, 2015

revenue at this stage can be flighty (e.g. does a pilot project which fails to get renewed count) and to focus on getting a few dollars in the door seems a mistake compared to building and locking in clients. And if you do set the target as revenues what is to assure that the revenues will actually be derived from long term client relationships? One off revenues have little strategic value (though they may be tactically necessary if survival is at stake)

Ravi Challu CEO at PARC Technology Research Labs Pvt. Ltd.

July 13th, 2015

Hi Neha,

Here is how I understand your question...

You are an early stage pre-revenue startup in talks with another startup for a potential partnership regarding your product and the final price that you will pay depends on whether your first goal is customer acquisition or revenue.

Irrespective of whether you are exploring partnership or not, valuation in initial stages will be "sticky customer" driven. That is because they are an indicator of product stability and acceptance. Moreover "sticky" customers who have faith in you reduce the probability of pivots and initial cost of development and proving. 

In the hockey stick product life cycle model you are really at the bottom of the stick. Therefore stable product with the right value proposition should be your top most goal.

Revenue models will keep changing as you do pivots and market matures so initial revenue is hardly an indicator of your long term sustainability. You can always find a few customers who will pay. But do you have a value proposition that can help you move from the bottom of the hockey stick to the body of the stick where your revenue starts growing on a sustainable basis?  

Getting the right value proposition in place and maturing it will be achieved by working with multiple customers, preferably with some degree of differentiated needs.
 
I would say go for customer acquisition.