This article was written by XSeed Capital Partner, Jeff Thermond.
One of the great things about being a venture capitalist is the opportunity to meet upwards of a thousand eager entrepreneurs every year. Sometimes these meetings are great because their idea is compelling. Sometimes it is great because they are really impressive people. And every now and then I hear something which really makes me think about a problem differently.
We had the last experience recently when a CEO came to talk to us about her big idea. The idea had broad applicability to many different markets, but one stood out as being her anchor market.
Everything she said made sense initially, and then one of my colleague’s asked her a question about when she would think about entering a second market with the product. Her answer surprised me in a few ways. She told us that there was no way she would enter a second market until she had become the market-leader as well as thought-leader in the first.
She said this without hesitation, so we assumed she had been thinking about this very question for a while. Since we are early-stage investors, we like to learn as much as we can about the thinking of the leaders in which we invest. So, my colleague immediately asked her why she had come to that decision.
Here is where it got interesting:
She replied that she had three very good reasons. The first was that she did not want her team to think that there was any option besides success in the first market. Explaining further, she told us that she anticipated the ride into the first market to be bumpy; sometimes very bumpy. She feared that if her team thought there was an alternate market, they might get frustrated and give up on their first market. She was clearly someone who has faced down adversity in competition before. Therefore, she knew how much harder team members would fight to win in the first market if the team believed that the only other option was shutting the company down.
She summarized her first reason by asking us “Why do you think Cortez burned his own ships when he reached Mexico?”
The second reason was that she thought customer intimacy was going to be really important for her idea. There were some lighthouse accounts in that market that had to be won early in order to be seen as a contender for market leadership.
Because of that, she wanted to hire a team, particularly on the sales and marketing side, which had a deep understanding of the first market. As she explained, “When I go to hire my first CRO, I want that person to have instant credibility in the market. If I am contemplating entering a second and third market quickly, I will not get the domain expertise specific to the first market and I run the risk of hiring a ‘tweener,’ someone who is kind of good in most markets and not specifically keyed to that critical first market.”
By now she was on a roll and we were eager to hear her final reason.
“As I think about critical decisions like pricing and positioning, I want all of our messaging, product features, and go to market decisions to be optimized for the first market. It very well may be that when we enter the second market, I may have to augment the existing sales team to provide that quick authenticity we strove for in the first market. That means I may have to spend a little more on sales and product management than I would like for a while before success in the second market starts to pay me back. It will be much safer to spend that money when we are at a run rate of several tens of millions of dollars as opposed to a paltry few million.”
She impressed our whole team very much with the thoughtfulness and the logic of her answer to this absolutely essential management decision. She stood out for her willingness to defend a single patch of turf and go down fighting (if it came to that) knowing that she and her team had given it their all.
We were also impressed by her willingness to run the risk of being criticized for being inflexible, stubborn, or close-minded. We believe at XSeed that we have learned how to distinguish between determination and inflexibility – between those who want to be right, and those who want to get it right.
Like I said at the beginning, sometimes you have a meeting which makes you realize just how great a job this can be and how fortunate we are to work with young aspiring entrepreneurs. This was certainly one of those days.