Venture Capitalist at Theory

About / Categories / Subscribe / Twitter

3 minute read / Mar 26, 2019 /

Five Reasons to Sell End-to-End Products in Early Markets

In early and developing markets, selling complete products is often a superior go to market strategy, rather than selling an innovation in a layer in the stack. This is true for five reasons.

First, for early customers to generate value from a novel technology, that technology must solve a business problem completely. End-to-end products do that. Layers in the stack don’t. They optimize existing systems. In early markets, customers want to buy a car, not a better camshaft.

Second, in early markets, most of the buyers don’t understand the nuances of the technology, whether it’s IoT platforms, or machine learning infrastructures, or data lakes. Everything is brand-new. So differentiating on one layer of the stack or a different feature within a layer doesn’t matter to the buyer.

Why is a Kafka stream better than a Rabbit message queue? Unless you have operated large-scale internal data pipelines, you may not have the experience to discern the pros and cons of each. Similarly, until the broader market has enough experience running large-scale big data systems, the market demand for a superior data movement layer will be small.

Third, by building an end-to-end products you’ll capture much more of the upside - at least 5x more. Imagine you have just written machine learning model that prices stocks better than anything else in the market. Which will generate more value: selling that machine learning model to existing public market investors, or starting a hedge fund?

The answer is starting hedge fund. By starting a hedge fund, you’ll be able to capture more of the value. You’ll earn 100% of the gains, plus build equity value in the business. If you sell the software, you might get 20% of the gains; the remainder goes to your customers.

Fourth, you reinforce competitive advantage. Keeping the technology to yourself prevents anyone else from using it, learning about it and developing a better system.

Fifth, you control the sales process. If you sell a layer in the stack, you will rely on partners, those adjacent to you in the stack, to go to market. Alliances and channel partners will be critical to your success. You sell through or with someone else. If you build an end to end product, you can go directly to the customer, get feedback and iterate faster.

Not every market will work this way. But on the whole, selling end to end products in early market enables startups to influence the market, capture more of the value, and ensure greater success with their initial customers as they create the category.

Photo by Ciprian Boiciuc on Unsplash

Read More:

Benchmarking Zoom's S-1:How 7 Key Metrics Stack Up