Scale first, monetize second

With every (venture backed) consumer web startup there is always the question of when to start thinking about monetization.

If the monthly burn is modest, I usually suggest that startups focus on reaching scale first.

It’s not because I don’t care about revenue or because I embrace “hope as a strategy” (which never works).

Rather it’s because:

1 – when your user base is small it really doesn’t matter if you can get advertising, digital goods, subscription revenue going. The base is so small the conversion will be even smaller.

2 – startups need to focus, especially in the the early stage. With limited resources, the company needs to focus on the product and the users. If you start tinkering revenue too early then you suddenly find yourself having to borrow precious team resources to deal with various revenue projects. They always look small and innocent at first but they can snowball and can distract the team.

3. the ultimate revenue model may surprise you. as the product develops and evolves and your community grows, the revenue model is likely to reveal itself in an entirely new way. I’ve seen this happen several times and it’s a powerful reminder each time.

So when I meet a founder and he/she tells me that they are confident that they can monetize their future service with ads or subscription or whatever, I blow by that slide. I want to know about the product and how they are planning on growing the service to reach scale. That’s a leap of faith we both need to take at some level but that’s what I want to talk about vs a 2015 revenue forecast.

p.s.: Congrats to our portfolio company Tumblr for focusing on growth. Last year I remember David Karp, the founder of Tumblr, came to a board mtg. and said he was going to delay his monetization experiments and focus on growth. He had a game plan and told us about it. I’m so glad he did just that.