Is Your Revenue Real? — The Power of Social+: Connecting Growth and Community

Is Your Revenue Real? — The Power of Social+: Connecting Growth and Community

When it comes to investment decisions, the best investors, especially in the early stages, prioritize growth and growth potential. They look for signs of product-market fit and founders who understand their customers' needs. However, many first-time founders and investors mistakenly believe that reaching a certain revenue milestone automatically guarantees the next round of funding. They treat fundraising like a test with right and wrong answers, but in reality, revenue alone is not the key factor. It's the number of customers and businesses that are willing to pay for your product that truly matters.

Investors want to see evidence of product-market fit, and they also want to understand how fast your revenue is growing. Revenue is objective evidence that you're solving a problem that matters to someone. But revenue growth rate is the true indicator that you're solving a problem that matters to many people. Sustainable growth practices are crucial, and one way to measure that is through churn rate.

Churn rate, or the percentage of customers who realize your product doesn't solve their problem and leave, is a proxy for product quality. A decreasing churn rate shows that you understand why customers are leaving and you're actively addressing those issues. Additionally, net revenue retention measures how leaky your revenue bucket is. It's important to think about three distinct customer cohorts: new customers who don't onboard successfully, customers who stay for a while and then churn, and customers who haven't churned yet.

Another important aspect to consider is the average revenue per user/customer. How much are customers willing to pay each month to solve their problem? This metric helps gauge the market size and whether there's enough potential to continue filling the revenue bucket. Alongside this, improving the product and achieving product-market fit is crucial to making the bucket better. Finally, the long-term profitability of the business model determines if the bucket can be repeatedly filled in a sustainable way. A good LTV/CAC ratio of 3 is an indicator of success.

While revenue and growth are important, there's another factor that can greatly impact the success of a product: social+. The best consumer products are inherently social, and no category is truly won until a social product is built. It's not just about having a social graph; it's about having a unique and inseparable graph that enhances the overall product experience.

To be a social+ product, the social element must be critical to the user experience. It's not enough to have an annoying "invite a friend" pop-up; the social aspect needs to be integrated seamlessly and authentically. When users engage with each other and form meaningful connections, the advantages of being social+ start to emerge. A social+ product typically has both an interaction layer that appeals to emotions and cognition, and a transaction layer that serves functional and rational purposes.

We've seen the potential of social commerce with companies like Pinduoduo, which achieved a market cap of over $100 billion in just a few years. Social audio is also emerging as a new category. However, social+ food has proven to be elusive despite the innovation in the food industry. Humans are inherently social beings, and we crave connection and community beyond social media. Layering social elements into various activities and experiences through the concept of social+ can provide the connection we desire.

In conclusion, when seeking investment, focusing on revenue alone is not enough. Investors want to see evidence of product-market fit and sustainable growth. Churn rate, net revenue retention, and average revenue per customer are important metrics to consider. Additionally, incorporating social+ elements into a product can enhance the user experience and lead to greater success. So, keep these insights in mind and consider these three actionable pieces of advice:

1. Continuously assess and improve your product-market fit. Understand why customers churn and actively address those issues.
2. Measure and analyze your revenue growth rate. It's not just about the revenue number itself, but how many people truly need your product.
3. Explore the potential of social+. Look for ways to integrate social elements into your product to enhance user engagement and create a unique and inseparable experience.

By combining these strategies, you can build a strong foundation for growth and create a product that resonates with both investors and users. Remember, revenue is important, but it's the customers and the social connections that truly matter in the long run.