We are in an economic mileu where everything is changing quickly. Start-ups have the advantage of being nimble and being able to change business plans dramatically on a dime. Especially in the Internet era, a company s competitiveness seems to depend on its velocity of thought and action. Companies can grow more rapidly than ever before, but so too may they suddenly die from obsolescence. The critical differentiator is whether the company has built in switching barriers for its customers and barriers to entry for its competitors.
Rapid growth is of no value without customer retention.
Whenever we consider an investment in an Internet start-up company, we strategize about customer switching barriers, and the impact of the inevitable arrival of competitive imitators. What is important is that the entrepreneurs be realistic about what their current team brings to the table and recognize potential management holes. Even the most brilliant business concepts don t execute themselves. VCs will always have their own opinions on this question, but need to set expectations. Remember, the value at the end of the tunnel is the only one that counts-and getting the right partners on board is the surest way of speeding your business concept towards it.