Canada’s top angel investor and award winning entrepreneur, Boris Wertz, claims that a business has only options to become a 100 million dollar enterprise. He made the statement at GROW where he told attendees that “your business either has a high life time value per user, or your business has a high viral co-efficient,” in order to stand a chance of becoming a member of the elite club of mega successful startups. Boris believes that although it is difficult to define LTV (life time value) of customer, it is a safe option to keep the LTV significantly higher than the Customer Acquisition Cost (CAC).
“As a VC, the biggest challenge in evaluating LTV models is that metrics can dramatically change at scale,” Wertz says. “For example, Customer Acquisition Costs often increase once the more efficient marketing channels are maxed out and the company needs to find new users through less efficient means. In addition, churn tends to rise as a company grows.”
The second way to increase the size of the business is by creating a viral effect which means that the business achieves millions of customers. In this way, although the monetization or revenue per user is low, the cost of acquisition is also very low and almost zero.
Wertz believes that some sites for example Zynga made use of the viral effect during the time Facebook first became popular and in this way increased in size. “Even more interesting are businesses that create network effects like marketplaces or social networks, the investor says: “not only do they acquire lots of users for free due to viral effects but also create important barriers to entry and lock-in effects as the network grows over time.”
However Wertz has noted that many new startups cannot really follow these strategies because they have cannot get viral and also they get low revenue per user and so this hinders their growth considerably and they cannot get to 100 million dollar mark. Wertz focuses on the fact that new startup owners have to keep in mind these strategies and work hard in order to attract customers and should remember that they should not overestimate their startup’s ability. Boris emphasizes that in order to build a strong business, it is important to keep it feasible and sustainable from the very beginning. Although the 100 million may seem very difficult to achieve at first, if the owner keeps focused it can be attained.
Source: TechVibes
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