I read an instructive Twitter thread about how one startup that focused on organic growth and profitability was out-executed by another that decided to raise a lot of money at the beginning.
Usually these stories are about one startup using its money to unfairly subvert the other. In this case, the startup that raised capital, Asana, was simply able to market better, hire better, build better, and eventually even design better.
Today the startup that wanted to grow organically, the ‘right way’ operates as a slimmed-down cash-conscious team out of India; the other is Asana, the well-known, now-public company.
I have seen this play out up close a few times. When a new market opens up, speed is everything. And capital buys you, above everything else, speed.
When you tell a target segment you’re thinking about their problem, when they realise that you’re the one that’s doing something about it, you build up mindshare and – importantly – trust.
That means you can get away with a pretty basic product that chips away just enough at their problem. Now that you have actual customers to understand the problem in detail, your product can get better quicker, and that leads to more customers, which sets your flywheel in motion.
Capital is the biggest determinant of whether that flywheel’s going to spin for your product or for your competitor’s.
End note: In the same thread, the writer describes situations in which an organic-growth approach has a shot at working:
Also read the Jan 2020 post on the possible sunset of the Capital as Moat model. This makes the opposite point to this post, but it’s for a very different stage of a company: