Dear Customers: We don’t need your money

My dear customers, lend me your eyeballs, and installs, but keep your money in your pocket. For that, I already have venture capital and am looking for more at a higher valuation.

At the outset, let me clarify that venture capital has produced some of the most exciting innovations of the last few decades. It has sparked the spirit of innovation and stoked impossible visions and realized some of them. In earlier ages, kings used to free people in their court from everyday responsibilities to focus on creative pursuits. Venture capital allows people to do things differently and take risks while they disrupt the existing way of organising our lives.

In particular ideas with huge network effects (as in software platforms or marketplaces) and those having huge economies of scale (of course the entire tech products universe), have to be freed initially from the pursuit of customer revenue to be able to unveil the entire scope of their idea and business.

In the momentum, a number of me-toos with no innovation also get sucked in. If you buy your way to a customers mind (through discounts and freeware), at least you need to have a  sticky value add to keep him there. If one has to bribe perpetually, one creates a constant value sucking organism. The continuous flow of capital can mask the inherent customer value check that creates an equilibrium for most businesses. Even as users juggle free rides of the latest taxi riding app or the 100 percent cash back of the favorite commerce app, the question is that do people remember the discount or the app? There is only that much space in the phone and mind of the customer

The argument around outspending the competition to reach a pole position which drives both network effects and economies of scale, can also fall flat against the unlimited flow of capital which does not allow any company to just scare competition with money muscle. The crowd of freebie seekers and curious onlookers does not necessarily translate into a customer base. Innovation is highly contextual and occurs in the context of the product-market fit. That’s where new compelling habits are formed. And these habits have to be protected through the next cycle of innovation by fortifying one’s value.

In the end, it shall continue to be about innovation, and capital shall both enhance that innovation long term but also mask lack of innovation short term. The challenge is to make out the tree from the woods or merely to enjoy the ride. The world is changing everyday. And yes! Unfortunately you do not get a free annual subscription to your daily newspaper for reading this article.

(Follow me on twitter @rohpan for musings on startups, entrepreneurship, society  and education)