I remember being asked this — with the implication that we should strive to be a “must-have” — when we were doing our initial fundraising round for Blue Dot (now Faves.com). At first, I thought the distinction between a “must-have” and a “nice-to-have” is somewhat arbitrary. But, scoping the question to “Are you a “must-have” for a paying customer or would be acquirer?” has helped me get my head around it.
If you are building a straight B2B product, your customers’ ultimate goal is to increase profits. So, a “must-have” is something that helps your customers either cut costs or increase revenues. The more convincingly you meet this definition of “must-have”, the easier the sales pitch. Match this approach with someone in your organization who deeply understands and has relationships with your target customer segment, and you have a reasonable shot at success.
What if you’re a B2C company? Unfortunately, it is harder to identify what it means to be a “must-have” for a consumer. As I learned in the most recent StartPad talk, many VCs will not fund a consumer Web company unless it is attracting 3 million visitors a month. Yikes! These VCs realize it is difficult, if not impossible, to predict what will and will not stick with a mass market audience.
What can you do? One approach is to stay laser focused on the B2C opportunity, employing trial-and-error, innovative product development, and/or creative marketing (e.g. Facebook, MySpace) to cross the 3 million visitor mark. The thinking is that a) 3M is enough penetration to make money even on low performing ads and b) you have crossed the chasm and empirically demonstrated you are a “must-have”.
An additional approach is to employ a B2B, and hence “increase profits for the customer”, angle in your B2C business. Consider the consumer Web site example again. This is in fact a two-sided market, in which the B2B side is the relationship between your company and the advertiser. Design your site to offer a high ROI for advertisers, and you become a “must-have” for them. They will pay you a higher-than-average amount for your pageviews, ultimately reducing the number of pageviews you need to reach positive cash flow. A good example of such a site is a travel search engine, since a) the site visitor is making a purchase now and b) the dollar amount of the transaction is high.
Taking this one step further: by successfully creating such a revenue engine, you become interesting to other businesses. You can then strike distribution deals with high traffic sites in exchange for access to your “must-have” revenue engine, and so on…