I came across a useful resource on building a venture-scale business, and I had to share it with you. It's a deck by Floodgate that dives deep into the layers of value generation and captures it in a way I haven't seen before.
From what I've learned, every startup is supposed to generate $X in value, & capture Y% of X, where X & Y are independent variables.
This means you could generate a lot of money & not capture much/enough of it, or you could generate less & capture more, & the VC business is about finding companies that maximize both X & Y unusually.
The question is what are a company's value generation levers?
According to the deck:
Category power
Company power
Business model power
Product power
Proprietary power
Team power
Each level weighs 0-10, and [sophisticated] VCs implicitly rate every company on every level to get a general sense of the company's value generation and capturing leverage.
Most startup content oversimplifies value generation and capturing by just saying "Follow the money".
As a founder, I perceive that as very low-quality advice. I'm sure the intention of people who say that is positive though.
Here's why I don't like that advice: Most businesses that make $100k/year never get to $1mil. Most businesses that make $1mil never get to 10m. Most who make 10 never get to 100m & so on.
Is it a coincidence? do we just blindly optimise for 100k ARR at all costs & then figure out how to 10x later? No, it has to be designed (& of course man makes plans & God laughs, but then man needs to keep iterating until the plan freaking works out).
This post technically should end here, but I must probably address a question that it often raises (which can be commonly misunderstood):
Why does scale matter? To fulfil one's ego? No.
Is there anything wrong with going after smaller value generation/impact or just not wanting to solve problems & just chilling instead?
I don't know, I haven't lived enough to know. I do know why I care to build a VC-backed business, though.
Most people who build venture scale businesses are doing it to solve extraordinarily hard problems &/or pursue extraordinarily large opportunities that require a high potential team working full-time on it for an extended period, & you need money to buy time to solve these problems &/or pursue these opportunities.
For me, I've been caring about scaling up the teacher/coach role for my whole life (intersection of personalisation, social, & education/mental health).
I found 0 other place in society in which I can work full-time on these, sustainably, with other interesting people, than a VC-backed startup.
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